How Osborne can use Budget to counter uncertainty with tax incentives

Looking ahead to the Budget on 18 March 2015, tax specialists at accountancy firm Clement Keys are urging the Chancellor to use the tax regime to encourage long-term thinking and promote political and economic certainty


Looking ahead to the Budget on 18 March 2015, tax specialists at accountancy firm Clement Keys are urging the Chancellor to use the tax regime to encourage long-term thinking and promote political and economic certainty

Ahead of the pending General Election, which has been described as the most unpredictable in modern history and the prevailing uncertainty in Europe, businesses are finding it difficult to plan ahead. This is prompting calls for the Chancellor to use the tax system to provide some stability. 

Having recently risen to £500,000, the Annual Investment Allowance (AIA) is encouraging businesses to invest in capital expenditure. However, this is set to reduce to £25,000 from 1 January 2016 and, with a number of changes having been made to the level of the AIA over recent years, this has an impact on businesses and their long-term investment plans. The AIA is particularly important to SMEs as it provides businesses with upfront tax relief on their capital expenditure.

Adam Longmore, director of corporate tax services at Clement Keys, said: 

“The Chancellor has the opportunity to encourage businesses to invest by extending the current £500k AIA for another year, or preferably even longer. Extending or increasing this allowance will provide SMEs with greater certainty and enable them to plan for the future at a time when they are naturally cautious about how the political and economic landscape could alter this year.”    

Other ways in which the Chancellor could use the tax system to counter uncertainty is by helping businesses to feel confident about the cost of hiring extra staff. Employers National Insurance (NI) is a significant cost for many small businesses and assistance with the recruitment of new employees would be welcomed.

Adam Longmore added: “For many businesses, hiring new staff is a long-term objective and, before doing so, SMEs need to feel confident that planned growth will be achieved. Previous initiatives such as NI holidays for new businesses are no longer available and therefore a similar incentive would boost confidence at a time of uncertainty, leading to more job creation.”

Retaining existing relief

Whilst new initiatives to promote certainty will be welcomed, there are also important reliefs that SME’s will want to see retained.

“Entrepreneur’s Relief promotes business investment and is a valuable relief that business owners will want to at remain unchanged or even enhanced. Some business owners would also like to see Entrepreneur’s Relief ring fenced so that it cannot be altered in the event of a change in government.” 

The Government’s well publicised intention to clampdown on tax avoidance are also having an unsettling effect on businesses. Clarification is therefore needed so SME’s can be confident that they are managing their affairs legitimately.

Adam Longmore concluded: “Businesses are concerned about the way government appears to be focussing on taxpayers’ affairs and ensuring that a fair share of tax is paid. Whilst we welcome further protection of law abiding businesses from those who use illegal tax evasion techniques, the distinction between legitimate tax avoidance and illegal tax evasion is becoming harder to define. With the possibility of further anti avoidance being introduced in the Budget, we would urge the government to protect legitimate tax reliefs that are contributing to growth in our region, such as Entrepreneur’s Relief.” 

Looking ahead to the Budget on 18 March 2015, tax specialists at accountancy firm Clement Keys are urging the Chancellor to use the tax regime to encourage long-term thinking and promote political and economic certainty.  

Ahead of the pending General Election, which has been described as the most unpredictable in modern history and the prevailing uncertainty in Europe, businesses are finding it difficult to plan ahead. This is prompting calls for the Chancellor to use the tax system to provide some stability. 

Having recently risen to £500,000, the Annual Investment Allowance (AIA) is encouraging businesses to invest in capital expenditure. However, this is set to reduce to £25,000 from 1 January 2016 and, with a number of changes having been made to the level of the AIA over recent years, this has an impact on businesses and their long-term investment plans. The AIA is particularly important to SMEs as it provides businesses with upfront tax relief on their capital expenditure.

Adam Longmore, director of corporate tax services at Clement Keys, said: 

“The Chancellor has the opportunity to encourage businesses to invest by extending the current £500k AIA for another year, or preferably even longer. Extending or increasing this allowance will provide SMEs with greater certainty and enable them to plan for the future at a time when they are naturally cautious about how the political and economic landscape could alter this year.”    

Hiring confidence

Other ways in which the Chancellor could use the tax system to counter uncertainty is by helping businesses to feel confident about the cost of hiring extra staff. Employers National Insurance (NI) is a significant cost for many small businesses and assistance with the recruitment of new employees would be welcomed.

Adam Longmore added: “For many businesses, hiring new staff is a long-term objective and, before doing so, SMEs need to feel confident that planned growth will be achieved. Previous initiatives such as NI holidays for new businesses are no longer available and therefore a similar incentive would boost confidence at a time of uncertainty, leading to more job creation.”

Whilst new initiatives to promote certainty will be welcomed, there are also important reliefs that SME’s will want to see retained.

“Entrepreneur’s Relief promotes business investment and is a valuable relief that business owners will want to at remain unchanged or even enhanced. Some business owners would also like to see Entrepreneur’s Relief ring fenced so that it cannot be altered in the event of a change in government.” 

The Government’s well publicised intention to clampdown on tax avoidance are also having an unsettling effect on businesses. Clarification is therefore needed so SME’s can be confident that they are managing their affairs legitimately.

Adam Longmore concluded: “Businesses are concerned about the way government appears to be focussing on taxpayers’ affairs and ensuring that a fair share of tax is paid. Whilst we welcome further protection of law abiding businesses from those who use illegal tax evasion techniques, the distinction between legitimate tax avoidance and illegal tax evasion is becoming harder to define. With the possibility of further anti avoidance being introduced in the Budget, we would urge the government to protect legitimate tax reliefs that are contributing to growth in our region, such as Entrepreneur’s Relief.” 

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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