The recent Budget was delivered against a backdrop of feverish expectation of tax increases for both individuals and businesses. With the assumption being not is much “if” but “when” and “how much”. With the government forced to come to terms with the massive fiscal deficit resulting from the coronavirus pandemic.
There had been extensive press speculation that the Chancellor would increase CGT rates following on from the Office of Tax Simplification’s review into CGT last November. Inevitably this led to the recent spike in corporate transaction activity.
As it turned out much of the worst fears for tax rises did not come to pass, certainly for individuals concerned about potentially significant changes to the Capital Gains and Inheritance Tax regime, loss of high rate tax relief on pensions.
Of course the sting in the tail for business was the 7 % rise in Corporation Tax to 26% (the first rise since Denis Healey in 1974), although this was sweetened to a degree firstly by its staged introduction over 2 years, secondly by the fact only larger business pay the top rate (although here the definition of “larger” will still catch most SME’s) and lastly and perhaps most interestingly a “super deduction” for tax of 130 % of business investments. Undoubtedly an innovation aimed at stimulating growth in the immediate aftermath of the pandemic. It will be a key to whether UK business has the confidence to take advantage of the 130% capital allowances that will be on offer in the near term.
The new ‘super-deduction’ will be available for companies investing in qualifying new plant and machinery between 1 April 2021 and 31 March 2023. How business will react is unclear since it is the business who will pay the biggest price in making contributions to address the deficit. The steep rise in corporation tax was the first bitter pill in the Covid financial recovery plan but there will need to be more to follow.
….And finally, so many of the Budget announcements were trailed in the media ahead of time, it would have saved a larger number of entrepreneurs (and their advisers!) significant stress if the Chancellor could have indicated that he didn’t intend to raise the rates of CGT with effect from today. Such a rise during lockdown was always unlikely. We all suspected that was the case but for those people in the midst of selling their businesses or companies that couldn’t take the risk it caused a wholly unnecessary and preventable mad dash.
For Commercial advice contact Phil Whitehurst on 0151 230 1224 or email Philip.whitehurst@dtmlegal.com
