Industry reactions to chancellor’s Budget plans

Industry reactions to chancellor's Budget plans

Following Philip Hammond's speech, insights have been provided by a variety of respected voices in the financial sector

Chancellor Philip Hammond made his Budget announcement at 3:30pm today, in front of a very crowded House of Commons.

‘Fiscal Phil’ (as he jokingly referred to himself) covered an array of topics, many of which will be fully instated between April 2019 and April 2020.

Several firms around the country have picked out some particular topics of interest that will have a direct impact on both financial businesses and their clientele. Below are some industry insights provided by law firm Charles Russell Speechlys, financial planning company Tilney, Crowe UK, ICAEW, MHA MacIntyre Hudson, Moore Stephens, and Xero UK.

 

Charles Russell Speechlys

The law firm has provided particular insight into the extension of IR35 rules into the public sector in two years’ time – a delay that has been widely argued as necessary.

Michael Powner, partner at the law firm, said “HMRC tax rules and the test for employment rights remain separated and confusing for employers and contractors alike. These new changes do nothing to improve this confusion; they seek to ensure that contractors are taxed like employees, but do not provide them with any employment rights.

“The government urgently needs to harmonise the employment status tests with HMRC rules so that there is an equality standard which ensures that all those paying employment taxes have the corresponding rights.

“In today’s more flexible and agile working environment, the current model is becoming increasingly outdated. As seen in the public sector, these changes are likely to have the effect of deterring contractors from working on contracts where employers are forced to apply these rules.”

Tilney

As promised by Theresa May, the chancellor has had to make good on her assurances that the NHS will receive a significant increase in funding. Tilney seems to have formed a particularly positive outlook following the chancellor’s speech.

Jason Hollands, managing director of investment and financial planning, has stated: “The Budget saw a slew of new spending commitments and a welcome acceleration of plans to raise both the personal allowance and the higher rate tax threshold by April 2019. Overall, this was a Budget that has outperformed expectations.”

He continued: “Pleasingly, a mooted raid on pension tax reliefs did not happen. They have looked like they were living on borrowed time since George Osborne came close to overhauling them in 2016.”

Hollands went on to claim that the current scheme for pension tax reliefs is “as resilient as a cat with nine lives.”

Crowe UK 

The idea of a digital services tax (DST) has been debated for the past few months.

“Global companies need to be seen to be paying their ‘fair share’,” Laurence Field, corporate tax partner at Crowe UK said.

“Playing tough with DST is politically attractive even if this causes conflicts with other tax jurisdictions. It is unlikely such measures will find much opposition in parliament, given the ground has been well-prepared.

“How our trading partners (and particularly the US) react will be the real challenge. Retaliatory measures will not help the British economy. Therefore, by outlining a timetable to introduce measures in 2020 he has provided cover for trying to get international agreement. Talking tough, but deferring action makes other parts of the Budget more palatable.”

Meanwhile, head of private clients, Tom Elliott, has highlighted the chancellor’s reaffirmation that the government is committed to Entrepreneur’s Relief.

Philip Hammond has made the decision that the “qualifying period [should be] doubled to two years”.

Elliott continued: “However, it might have been more effective if the minimum shareholding requirement was abolished altogether – this would incentivise all employee shareholders and not just the C-Suite.”

Furthermore, the chancellor revealed that personal allowance and higher rate tax brackets will be raised a year early. However, private clients partner – Rebecca Durrant – mused that “it will be interesting to see whether the chancellor treats this as a ceiling.”

Durrant concluded: “Rates could now be frozen for the following years, which would turn the tax cut into a hike very quickly. In the mid to long-term, this may not protect the inflationary impact that a no deal Brexit may have.”

ICAEW

The accounting body has concluded that the Budget has permitted a “spending sprinkle, not[a] spending spree”.

Michael Izza, chief executive as ICAEW, said: “With Brexit less than six months away – and the possibility of a no deal – the chancellor’s principal task was to help increase confidence and stability. It is unsurprising, therefore, that the Budget was sensible and safe.

“The chancellor introduced some good measures, but we should remember that the issue of the deficit is being pushed further down the agenda. Currently, the national debt is £1.75 trillion, and heading rapidly towards £2 trillion. The modest growth figures provided will not set the world alight and should be seen in the context of other strong economies.”

“Philip Hammond faces a lot of challenges, including funding of the NHS, national debt, Brexit, and a fractious government, and this is reflected in the lack of major announcements in today’s speech.”

MHA MacIntyre Hudson

The accountancy firm has shared some insights into a sector that will have a huge impact on the public – that one diesel and low-emission vehicles.

The changes made in the last Budget (effective from 6 April 2018), regarding the rise in Company Car Tax diesel supplements – from 3% 50 4% – have not been addressed today, and therefore will not be changing.

MHA MacIntyre Hudson has sighted this as a “missed opportunity”, particularly due to “the confusion and impact resulting from the move from new European driving cycle (NEDC) testing, to the worldwide harmonised light vehicle testing procedure (WLTP) testing regime.”

Nigel Morris – employment tax director at the firm – has said on the subject: “It is a shame the government has not taken the opportunity to recognise what their own ministers understand – that newer diesel cars are much less polluting than older ones were. This move goes nowhere to provide relief to drivers who remain in diesel cars until viable alternatively fuelled vehicles (AFVs) come to market.”

Another area Hammond failed to address was the changes to the new grant system that were introduced earlier this month following “an unprecedented spike in demand,” the firm reported. This meant that the amount of money now available for purely electric cars has been reduced to “a maximum of £3,500, while hybrid models [were] no longer eligible for the grant scheme.”

Morris said: “Under the original scheme, cars were divided into three categories, based on their CO2 emissions and zero-emission range. Motorists who bought Category 1 cars, which were purely electric, could claim up to £4,500 towards the cost of purchase. Grants of up to £2,500 were offered for hybrid cars, which formed Categories 2 and 3.

“This made sense, and the changes did nothing to continue to encourage the take up of AFVs. The chancellor’s lack of action today will not help keep the evolution to AFVs in the UK on track, or to meet our environmental ambitions, so it is a squandered opportunity.”

Considering the fact that the chancellor made a clear effort to emphasise the taxes he would be introducing for those manufacturers and suppliers of plastic goods that contain less than 30% recycled plastic, it is certainly confusing that this environmental initiative would not be further considered in the Budget.

Moore Stephens

In the Budget earlier today, the chancellor announced that there are no plans to scrap the Class 2 National Insurance contributions, thus saving the Treasury over £1.6bn over five years, according to Moore Stephens.

Mike Cooper, a partner at Moore Stephens, has claimed that Hammond “seems to be finding at least some of the giveaway on income tax by taking away from the self-employed, to the tune of £1.6bn Class 2 NICs up to 2023-24.

“With the Treasury having to find the corresponding £9.6bn to fund the rise in the income tax personal allowances and thresholds, it seems that the self-employed have been an easy target to hit again.”

He concluded: “When this is added to the expansion of the rules on off-payroll working to the private sector, this is another Budget that will hit contractors very hard indeed.” 

Xero UK

Gary Turner, co-founder and managing director at Xero UK said: “Yesterday’s Budget announcement was positive in part for small businesses; we welcome the fact that the business rates for all retailers in England with a rateable value of £51,000 or less will be cut by a third creating a £900m boost, and it’s pleasing that for smaller firms taking on apprentices, the Apprenticeship Levy will be cut in half.

“However, the Chancellor could have done more to fire up business. While Hammond’s continued freeze of the VAT threshold is good news, it doesn’t go far enough. He should simplify VAT, or raise the speed limit, to stop the threshold from being the barrier to growth that it is and help small businesses to scale up more easily.

“His plans for a new sliding scale system of VAT only adds confusion. The system is elaborate enough already without adding greater complexity that small businesses can ill-afford.”

So, a satisfactory result for the Budget?

Although the argument can be made that the chancellor has included changes that could be very beneficial for the UK’s economy in the long-term, it is important to note the chancellor’s brief comment that the Spring Statement – pending Brexit negotiations – could potentially be transformed into a Spring Budget.

Many changes the chancellor has introduced will not be in effect until April 2019 or April 2020. Therefore, the question must be asked: did this Budget really carry any weight at all? It is entirely possible that some of the longer-term policies could be amended come Spring 2019. Only time will tell.

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