Columnist Maybeth Shaw BDO NI Tax Partner
A Very Taxing Time For Business T
he dawn of the new financial year brought with it several tax changes which will impact both our personal and business finances. Whilst a number of these changes were announced during the recent Spring Statement, others have been in the pipeline for considerably longer. If we think about how much the world had changed since the Chancellor announced his budget back in October 2021, with the significant rise in the cost-of-living crisis coupled with inflation at a 30-year high and ongoing global pressures, we could be forgiven for questioning if there is any light at the end of the tunnel. In September 2021, the UK Government introduced a new 1.25% Health and Social Care Levy which came into operation in April this year. This will initially be part of National Insurance contributions but will be ring-fenced for health and social care and from 2023 will apply as a separate levy. The UK Government will work with the new NI Executive (if and when one is in place) to identify areas where the new funding should be applied locally. The commitment to reduce income tax by April 2024 and to increase the National Insurance threshold by £3,000 from July were two of the key takeaways from the Chancellor’s Spring Statement. With the increases in National Insurance contributions in place, it is only taxpayers on lower incomes who will benefit from the headline £300-per-year saving from the subsequent increasing of the National Insurance threshold to £12,570. Nevertheless, working on the basis that more disposable income benefits local businesses, this too could be very positive. This should, however, be heavily caveated with the fact that
this £300 extra could well be swallowed up by the ever-increasing costs faced by households. The planned 1% cut in income tax, whilst a welcome announcement, will seem a very long way off to many. The reduction of fuel duty by 5p per litre for a period of one year was a welcome addition, however, the difference it will make to those businesses and indeed households that have been badly hit by spiralling fuel increases could be minimal.
“The temporary reduction in the VAT rate for the hospitality sector to 5% initially, followed by 12.5% in October 2021, returned to the 20% status quo from April this year. The end of this support mechanism, which was seen to be a ‘lifeline’ for many within hospitality in NI, will no doubt have knock-on effects on their cashflow. ”
Other indirect tax changes will surely have an impact on local business and their investment and operational plans for 2022 and beyond. The temporary reduction in the VAT rate for the hospitality sector to 5% initially, followed by 12.5% in October 2021, returned to the 20% status quo from April this year. The end of this support mechanism, which was seen to be a ‘lifeline’ for many within hospitality in NI, will no doubt have knock-on effects on their cashflow. The removal of the rebate on red diesel (5% VAT) will have substantial implications across a range of industries, including manufacturing, construction, logistics and waste management. With the rebate only staying in place for a very limited number of industry sectors, switching to a higher cost of fuel will have significant financial implications for businesses. With the continued rise in global commodity prices, it is surely not a time to cut such an important VAT exemption for businesses already feeling the impact of growing business costs. Looking further down the line, businesses posting profits of over £250k will, from April 2023, see an increase in corporation tax to 25%. In the Autumn Budget we will be expecting to see movement on investment and innovation with reform of R&D relief to help boost productivity. The government may also revisit the idea of regional variations in R&D relief within the UK as part of its wider levelling-up agenda. As we see a range of tax changes applied this year alongside the ending of some vital Covid-19 support packages, time will tell how this will impact the future of many within the business community.
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