Chancellor Rishi Sunak’s first budget for the post-pandemic era has focussed on economic growth and higher public spending, including support for research and development (R&D) and hospitality – rather than the tax hikes anticipated to pay for Covid-19.
AAT has welcomed the change on Capital Gains Tax (CGT) reporting from 30 to 60 days, and the inclusion of cloud computing in R&D tax relief – both measures it fought for.
But it is disappointed by the decision to reduce the duty on internal flights in the face of environmental arguments.
Leading practitioners in accountancy firms were likewise positive about some of the Chancellor’s announcements and underwhelmed by others.
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Common sense changes
A 30-day deadline for reporting qualifying CGT liabilities came in last year, causing concern to AAT members, especially AAT licensed accountants. After listening to representations, including those from AAT, the Government has altered the deadline to 60 days.
“AAT was convinced that the most effective solution to this problem would be to double the reporting period from 30 to 60 days,” said Adam Harper, Director of Professional Standards and Policy, AAT.
“That’s what we spoke to various stakeholders about and made representations to Treasury Ministers and provided a Budget submission on, so naturally we are very pleased that they’ve listened and acted accordingly.
“We were also happy to see the confirmation that data and cloud computing costs will be included in qualifying expenditure for R&D tax relief, which we called for in our consultation response earlier this year, along with other measures to support small businesses.
“Additionally, we welcome the planned increases to the National Living Wage – ensuring everyone gets a fair day’s pay for a fair day’s work – which was overwhelmingly backed by AAT members and the Government’s ongoing commitment to lifelong learning through expanding the Lifetime Skills Guarantee and increased funding for apprenticeships.
Air Passenger Duty disappointment
However, the Government did not heed AAT’s arguments against lowering Air Passenger Duty (APD) on domestic flights, prioritising the economy over environmental concerns.
Adam Harper commented:
“The decision to cut APD for domestic flights flies in the face of a wealth of national and international evidence about just how environmentally damaging this will be and seriously undermines the UK’s credibility just a few days before COP26 begins. There can be no doubt that this contradicts and greatly weakens government policy on seeking to reach ‘net zero’ by 2050.”
The Government has increased APD on long hall flights but according to Harper has “slipped in a reduction for domestic flights under the radar”.
He added: “It’s important to understand that domestic and other short-haul flights are the most carbon-intensive form of travel and emit more CO2 per person per mile than long haul flights.”
Clamp-down on unregulated accountants
As individuals and small businesses prepare for the tax changes announced in the budget, AAT continues to press the Government to make it mandatory for anyone offering paid for tax or accountancy services to be a member of a relevant professional body as part of its ongoing Accountable campaign. More information about this campaign, including the free consumer guide, ‘What you need to know before appointing an accountant’, is available here.
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Accounting firms respond
Leaders of accountancy firms urged businesses to make the most of the fiscal incentives and reliefs to aid their recovery.
Chancellor Rishi Sunak confirmed that the Office for Budget Responsibility (OBR) has revised up growth forecasts for the economy, which it expects to return to pre-Covid levels by the turn of the year.
Instead of announcing more tax increases, the Chancellor has chosen to focus on increasing spending in areas that will drive economic growth in order to increase the tax take and re-balance the economy in the wake of the pandemic.
The Chancellor announced plans to proceed with reforms to the business rates system by ensuring rent re-evaluation takes place more frequently – every three years from 2023. From 2023, he also announced that businesses making property improvements will not pay anything extra in business rates for 12 months.
For retail, hospitality & leisure businesses, the Chancellor announced a new 50% business rates discount up to a maximum of £110,000.
Rebecca Wilkinson, Tax Partner specialising in the property and construction sector at accountancy firm, Menzies LLP, commented:
“These changes could help to kickstart the redevelopment of the high street as retailers in particular start to feel more confident about investing in improvements to their properties, without incurring a hefty business rates penalty for doing so.”
Incentives for capital investment and manufacturing
The Chancellor announced that the Annual Investment Allowance (AIA) will not drop to £200,000 at the end of this year and will stick at the much higher level of £1 million until March 2023.
“This gives businesses a bit more certainty so they can plan ahead to make investments over the next 18 months. It should also help to bolster confidence at a critical time when many firms are concerned about rising costs and supply disruption, ” said Richard Godmon, Tax Partner at Menzies LLP.
“Some businesses that had been planning to invest in new machinery and equipment before the end of the year had been worried about being able to complete them in time, due to the current supply shortages. This will allow them more time.”
Modest VAT changes fail to excite
Robert Marchant, VAT and Customs Duty Partner, audit, tax, advisory and risk firm, Crowe said “none of the VAT changes measures was particularly headline-grabbing but they will still be important to those impacted”
- Confirmation that a new VAT penalty system will be introduced for VAT return periods starting on or after 1 April 2022.”
- Potential changes to the VAT margin scheme to apply in Northern Ireland for motor vehicles sourced from Great Britain and introduction of a Second-Hand Motor Vehicle Export Refund Scheme for businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland.
- Extension of a VAT exemption for imported dental prostheses.
- A commitment to reviewing the VAT rules applicable to fund management fees.
“The VAT aspects of today’s announcements were more interesting for what was not covered, rather than what was included,” Marchant added.
He said the Government didn’t take the opportunity afforded by Brexit, to deviate from EU VAT law in making headline UK VAT rate changes, for example by reducing VAT on household energy bills, providing a zero rate for cladding works or incentivising green measures such as solar panels.
AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.