Spring Statement: What It Means For Family Firms

The Chancellor today delivered his Spring Statement, setting out the latest economic forecasts and unveiling a series of announcements.

Headline announcements include:

• Increasing the NI threshold by £3,000 a year for individuals (no change on NI employers)
• Increase in Employment Allowance for small firms to £5,000
• Pre-announcement of Income Tax basic rate cut from 20% to 19% in 2024
• Fuel duty will be cut by 5p per litre - in place until March 2023, and taking effect from 6pm tonight.
• For the next five years, households installing energy efficiency or green energy upgrades such as solar panels, health pumps and insulation will pay zero vat.

Tax Plan

Alongside the Statement the Chancellor announced his ‘Tax Plan’, which sets out how he intends to reform and reduce taxes during the rest of this Parliament.  The Government have said they will reform and reduce taxes in three ways:

• Helping families with the cost of living.
• Boosting productivity and growth by creating the conditions for the private sector to invest more, train more and innovate more – fostering a new culture of enterprise.
• Sharing the proceeds of growth fairly.

The Tax Plan states the Government will “cut and reform taxes on business investment. We want to build on the momentum of the super-deduction to drive business investment.  The challenge now is to find the most effective way to cut taxes on investment while ensuring value for the taxpayer. We will engage with businesses and confirm plans at the Budget later this year.”

It also highlights the need for businesses to invest in skills saying “We will encourage businesses to offer more high-quality employee training and explore whether the current tax system – including the operation of the Apprenticeship Levy – is doing enough to incentivise businesses to invest in the right kinds of training.”

The plan also commits the Government to reform and improvement of the R&D tax reliefs at the next Budget.

Initial Reaction

We were pleased to see the Chancellor signal his intention to tackle long term issues that family firms have been raising for some time - like using the tax system to support business investment, and reforming the Apprenticeship Levy. However, reviews rather than changes mean that today's statement was a missed opportunity to support business in facing the huge challenges they are dealing with today.

What Next?

We will be working with the Treasury and other departments on the reviews of taxes on business investment, skills training landscape and R&D tax reliefs announced today in the Tax Plan – all areas where we have been calling for the Government to take action to support family businesses to grow, create jobs, and reach their potential.

On business investment, the Government must look at how it can support businesses to invest in themselves and the future. For many, the money they had planned to use for investing in their business has been used to keep them afloat in the past two years of the pandemic. Others have taken on significant debts.

Businesses need measures which help lower the cost of entry for investment, in both people and capital expenditure. This approach would help recovery, productivity improvements, and good quality job creation. The Government should therefore look at incentivising investment through targeted allowances, and set out what this regime will look like after the Super Deduction announced in March 2021 draws to a close. For example, extending the capital expenditure which is eligible for First Year Allowances. An increased Annual Investment Allowance should also be made permanent. In line with the family business sector’s strategy for long term sustainable growth targeted incentives for green investment should also be supercharged, to support the ambition to build back better, and greener.

The Chancellor also committed to review whether the Apprenticeship Levy is doing enough to incentivise businesses to invest in the right kinds of training. We welcome this commitment and look forward to contributing to these discussions. In order to improve the Levy we believe the Apprenticeship Levy system should be overhauled to allow businesses to use a portion of their pot on in-house training. This funding could go towards vital upskilling of employees in new, green working practices. There is also a need to develop a more coordinated approach between the different systems in each nation to ensure training and apprenticeship are delivered where they are most needed, not where a business happens to pay the most in Levy payments.

Finally, on R&D tax reliefs I often hear from businesses that they don’t make use of this because the system is overly bureaucratic and difficult to understand.  We hope that the Government will review and reform the accessibility of the reliefs, as well as the types of activity they support.

Energy Prices

On energy prices the Chancellor made no announcements on relieving the pressure being faced by businesses. If you would like to share the impact energy price increases are having on your business, please get in touch.