• Swindon & Wiltshire Economy
• Wednesday March 6 2024
• Author Name: Peter Davison

Business leaders give cautious welcome to Budget 2024

The chancellor of the exchequer Jeremy Hunt returned to National Insurance today in a bid to cut taxes in his Spring Budget – likely the last ‘fiscal event’ before the next general election.

With backbench Conservatives baying for tax cuts, the chancellor – who had already cut NI contributions to 10 per cent for those earning less than £50,270 back in November – cut them again.

NI contributions for the self-employed were also cut for the second time in a row. But the tax-free personal allowance was once again frozen – rather than rising in line with inflation – meaning more workers start paying tax and NI as their wages increase, and more people will pay the higher rate which kicks in at £50,270.

Elsewhere the VAT threshold was increased, and the chancellor announced the introduction of a British ISA to encourage savers to invest in UK assets.

Reme Holland, financial planning partner at Bristol-based accountancy firm Albert Goodman welcomed the British ISA.

“Any further increases to the ISA are welcome,” Reme said. “I can see the logic of encouraging investment in Britain, however, clients should keep in mind the benefits of diversification when considering their approach to investments, the world is a big place.”

On VAT registration limits, his colleague Tracey Watts said: “The VAT registration threshold has been increased for the first time in seven year, increasing from £85,000 to £90,000 from 1 April 2024.

“It is a shame that Mr Hunt did not take the opportunity to address the cliff edge for businesses once the threshold is reached, but any increase is welcomed.”

Rob Stokes, a director at Swindon-based accountancy firm Optimum, was less enthusiastic, criticising the ‘lack of surprises’ which offered “nothing for small businesses.”

“There had been calls to increase the VAT threshold to £100,000, but the chancellor stuck at increasing it by only £5,000 to £90,000,” said Rob.

“This won’t be enough to encourage those businesses, like trades, who don’t want to register for VAT and have to charge 20 per cent more to their customers.

“Meanwhile, the cut to National Insurance will only give PAYE earners on the average salary another £450 a year, so it’s very little to write home about.”

Rob said the chancellor’s plans to encourage investment, with planned changes to leased assets could be interesting, but it was essential to see the detail and timescales.

Emma Skinner, associate partner at Haines Watts in Swindon, welcomed the VAT registration threshold increase.

“The increase to £90,000 following a seven-year freeze will help lots of small businesses approaching the registration threshold,” she said.

“However, it is difficult to argue it fully compensates for the threshold being static for seven years.

“There was also no mention of changes to the de-registration threshold (currently £83,000) – which could lead to some businesses being caught in the middle.”

On NI she said: “This will increase the ‘take home’ position – who doesn’t love a tax cut? However, the four per cent current inflation rate does need to be considered alongside this.”

The VAT registration increase also got a thumbs up from Anton Lane, founder of Bristol-based company Edge Tax.

“Raising the threshold for VAT registration will likely be received positively by small businesses,” he said.

“This is because, beyond the financial implications of the tax, the administrative workload disproportionately affects smaller businesses, which often have fewer resources to manage it.”

“The reduction of two per cent in the National Insurance Contributions for both employed and self-employed individuals met expectations.

“This action, aimed at those who are working, presents a more cost-effective option for the chancellor compared to reducing income tax.

“It also emphasises the Budget’s emphasis on employment. They increased the NIC to account for the health and social care levy and since then they have been reducing it so where does this leave the health and social care levy?”

But Dominic Bourquin, head of tax consultancy & corporate finance at Monahans, thought the chancellor could have gone further on raising the VAT registration threshold.

“I would have liked to have seen a doubling of the VAT registration threshold from £85,000 to £170,000, rather than a measly increase of £5,000 which does not give small businesses much incentive to grow before having to hike their prices by 20 per cent VAT,” he said.

He was more welcoming on the cut to NI. “Whilst this doesn’t represent a major cut, and does not fully compensate for fiscal drag, ultimately, we would all agree that we would rather have the cut than not,” he said.

“There is a lot of money being funnelled into the Treasury by fiscal drag. We know we would be better off if we didn’t have the fiscal drag hanging over us but we will be slightly better off with minor cuts to NICs than we would be without them, so we have to recognise the small wins.”

Financial adviser Dave Southby of Dave Southby Financial Planning, welcomed the reduction of NI rates. “I did expect them to review the Personal Allowance threshold, but the government opted to reduce National Insurance rates instead,” he noted.

He also welcomed the VAT threshold reduction. “I know this increase doesn’t seem significant, but it will help many small businesses,” he said.

He also welcomed the British ISA, calling it “a fantastic incentive to boost British focus investments and gives people the opportunity to invest more in ISAs each year.”

In other announcements, the chancellor stole Labour’s thunder by addressing non-dom tax status. The opposition was eyeing up the potential income stream to raise money for investment. Instead, the Conservatives will use the extra cash to help fund their tax cuts.

Jackie Reeves, senior tax manager at Albert Goodman, said: “Significant changes are being made to the taxation of foreign income and gains for so-called ‘non-doms’, who currently can enjoy significant breaks from UK tax for up to 15 years.

“The new regime will bring these foreign sources into the UK tax net after only four years, and the complex ‘remittance basis’ of taxation will disappear.

“There will be a greater administrative burden as foreign taxpayers are required to report their worldwide income and gains on their annual tax returns, and relief from double tax charges in both the UK and overseas will need to be sought via the UK’s system of double tax agreements.”

Anton Lane added: “The non-dom announcement is politically remarkable. Downing Street previously either defended the non-domiciled tax status or attempted to avoid discussing it.”

“Now, it’s set to be eliminated, albeit with a replacement system that retains certain advantages. The primary goal here is to counteract Labour’s strategy – this was among the few fiscal policies explicitly proposed by Sir Keir Starmer and Rachel Reeves.

“And let’s not forget, an election is on the horizon. What will this mean for ‘non-doms’ who have already been in the UK for five years? This will come into force though in April 2025.”

And a change to the child benefit rules – where thresholds saw two parents on £49,000 a year eligible for the benefit while a family with one parent on £50,000 were not eligible – will get a shakeup.

Anne Gardner-Thorpe, tax partner at Albert Goodman, said: “The “traditional” family home where two parents work and two children are at school will be delighted by the changes to the changes to the High Income Child Benefit Charge.

“Previously the rules began to restrict the amount of child benefit that could be retained where one parent in a household earns £50,000. Where such an earner receives more than £60,000 per annum child benefit is fully removed.

“For a couple where one parent earns £60,000 this means that child benefit of £24 per week for the first child and £15.90 per week for the second child is lost. This equates to £2,074 per annum.

“A family in this situation will be better off with effect from April this year as the child benefit can be retained.”

Other moves included a much-anticipated freeze on fuel duty – which will save the average petrol or diesel £50 a year – and a new £7.4 million up-skilling fund pilot to “help SMEs develop artificial intelligence skills of the future.”

There were also announcements to help the creative sector – a big deal in Bristol, where the arts and film and TV are big contributors to the local economy.

They included a new UK Independent Film Tax Credit at a rate of 53 per cent for films with budgets under £15 million, a 40 per cent relief on gross business rates bills for eligible film studios in England, until 2034, and the extension of higher rates of tax reliefs for theatres, orchestras, museums and galleries.

Phil Smith, managing director at Business West, said: “The creative and hospitality industries should welcome the chancellor’s specific tax measures to support them.”

On the budget overall, he was less enthusiastic. “What the region is still lacking, however, is a long-term strategy that helps support a strong economy, and our businesses and communities to thrive,” he said.

“We need initiatives that address fundamental structural issues, such as low productivity and sluggish growth. We know our region’s businesses want significant action on key issues like transport, housing and infrastructure, something that was lacking in this spring budget.”

There the chancellor announced funding for new IT systems to help the NHS and police forces.

Rashik Parmar MBE, chief executive of Swindon-based BCS, The Chartered Institute for IT said: “This level of investment in technology across the NHS and the police is vital to improve the quality and speed of the medical service and criminal investigation.

“But funding for AI must include investment in digital professionals – people – who will work with it and lead it at all levels.

“They need not just high degrees of competence, but an understanding of ethical principles, which are key when using automated technology that affects our lives, like processing patient data, or responding to emergency enquires.

“We need the public to trust that the UK’s journey to become the next Silicon Valley will make their lives better, knowing it is delivered by accountable experts who meet independent standards.”