QUESTION: I own a family business that trades through a limited company. What impact will the Spring Statement have for me and my business?
ANSWER: The Chancellor’s statement contain a limited amount of changes to the UK tax code however some of these are important for business owners.
The reduction in fuel duty will obviously have a modest but positive affect on you personally and perhaps within your business depending on the size of your vehicle fleet.
Of more interest perhaps is the Government commitment to supporting investment in capital equipment by companies. As you trade through a company you can benefit currently from the so called ‘super deduction’ which treats every £100 spent on new plant as £130 of capital expenditure (capex) – a £25 cash saving at the 19 per cent corporation tax rate.
This was set to end in March 2023 but the Chancellor hinted at the development of a longer-term incentive plan for businesses investing capex which could include increasing in the current rates of relief, introducing a new first year allowances and increasing the level of the Annual Investment Allowance.
These measures will be consulted upon over the summer and you can expect an announcement on this in the Autumn. The Government has ‘tinkered’ with capex allowances over the past decades and if business owners had more certainty on what tax relief, they could rely on over the longer term, then they might commit to a more holistic long-term plan of capex, rather that try and cram a more modest amount in before the qualifying period expires.
An expansion to the UK’s R&D tax relief regime to include data and cloud computing costs could also be beneficial for your company. The UK R&D tax relief regime for companies is a valuable tax relief and it looks set to be extended.
On the income tax side, there are measures that will affect both yourself and your employees. The impact of the previously announced 1.25 per cent hike in National Insurance (which will be replaced by the health and social care levy, chargeable at the same rate in April 2023), will be softened because from July 2022, the national insurance annual primary threshold and lower profits limit will be increased to the equivalent of the income tax personal allowance of £12,570. This will take lower paid workers out of this levy. This measure finally unites the rate at which income tax and national insurance become payable and will simplify the tax system.
The Chancellor also announced that, from April 2024, the basic rate of income tax would be reduced to 19 per cent. Which will benefit all taxpayers regardless of income.
The Employment Allowance will increase from £4,000 to £5,000 from April 2022, meaning eligible employers will be able to reduce their employer NICs bills by up to £5,000 per year.
In summary therefore, the Spring Statement appears to be a precursor to a more extensive Budget in autumn by which time many of the proposals and measures will be fully consulted on and ready for enactment.
:: Paddy Harty (p.harty@pkffpm.com) is a senior tax director at PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
