Backed by a £13bn windfall of higher-than-expected tax receipts and lower borrowing figures, the chancellor confirmed his intention to increase public spending on the NHS by £20bn per year over the next five years. However, he also warned that while an end to austerity is ‘in sight’ there is still a lot riding on the Brexit negotiations and a different strategy would be required if the government is unable to secure a frictionless trade agreement with the EU.
Among the key announcements for business, the chancellor outlined plans to increase the Annual Investment Allowance. The tax-free amount that businesses can spend on building and machinery will increase from £200,000 to £1m, with effect from 1 January 2019, for a two-year period. This sizeable increase in the allowance will be popular with businesses, particularly those that are planning to make investments in new plant or machinery in the near future. However, businesses might have preferred freedom to plan their investments over a longer timescale.
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Addressing another prominent issue for businesses in the current climate, the chancellor also announced a £695m initiative to help small firms hire apprentices. This includes plans to cut the small business co-investment level for apprenticeships from 10% to 5%. This could be particularly beneficial to many small and medium-sized businesses who are concerned about the impact of Brexit on their access to skills in the future and could create an important opportunity to introduce and grow their own talent.
When Entrepreneur’s Relief was mentioned for the first time in the chancellor’s speech, it seemed possible that he might be intending to curtail or even scrap the scheme. Fortunately, he has decided to the retain it, whilst tightening some of its eligibility criteria.
Specifically, the move to double the qualifying period for Entrepreneur’s Relief to 24 months will take effect immediately and is designed to encourage longer-term investment in businesses. In view of this change, investors who are uncertain about whether they will qualify, may need to delay business sales and it will be important to get their timing right. The changes could also potentially have a knock-on impact on the Enterprise Management Incentive (EMI) scheme and businesses may need to bring forward the date at which share options are issued to employees ahead of a planned sale.
A less popular, but not unexpected announcement was the government’s plan to roll out IR35 to the private sector, with effect from April 2020. Businesses in the construction and manufacturing sectors are among those most likely to be impacted, which may affect the employment status of contractors or off-payroll workers.
These changes could force some highly-skilled contractors to rethink their plans and employers will be concerned that some of them could look overseas for employment, in territories where tax conditions are more favourable.
The changes, due to take effect in April 2020 mean contractors will no longer be responsible for deciding if IR35 applies to them and this responsibility will shift from their personal service company to the end user of their services. In essence, this means that businesses that want to continue to use contractors, because of the flexible terms they offer, will have to make sure they are treated as self-employed in the future.
Overall, this was a Budget that will benefit businesses, particularly in the short term. However, with Brexit approaching there is still much uncertainty and businesses will need their own plans and potentially their own ‘buffer’ in place to ensure their success in the longer term.
Will Sweeney, tax senior manager at accountancy firm Menzies.