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Various rumours were swirling around Westminster in the days before Philip Hammond rose to deliver his first Budget – confirmed as the last time a major fiscal statement will be made in the spring.

The Chancellor, still scarcely nine months in the job, has a reputation as a cautious man and in advance many expected that much of today’s speech would be laying the ground for the Prime Minister to begin formal negotiations for the UK to leave the EU.

That said, the day before Mr Hammond stood up to address the Commons, the Organisation for Economic Co-operation and Development (OECD) upgraded Britain’s growth forecast, which inevitably raised questions about whether there was yet room for manoeuvre.

Would the Government prove willing to make money available to shore up struggling services or answer the growing criticism over business rates reforms? Would it be tax rises or surprise giveaways bothering the headline writers?

Economic overview

In his opening statement, the Chancellor said that the resilience of the UK economy had continued to defy expectations and the country had enjoyed robust growth. Indeed, he noted that last year Britain’s growth was behind only Germany’s among the world’s biggest economies.

Mr Hammond confirmed that the Office for Budget Responsibility (OBR) had raised its growth forecasts for the year, with the economy now projected to grow by two per cent in 2017, compared with the previous estimate of 1.4 per cent. The independent body suggests growth next year will be 1.6 per cent and in 2019, 1.7 per cent.

But he made clear that there was no place for complacency in the current climate, acknowledging that levels of debt were still too high (peaking at 88.8 per cent next year), productivity needs to be improved and many families up and down the country continued to feel the pinch almost a decade on from the financial crash.

OBR figures also suggest that inflation will peak at 2.4 per cent this year, with expectations that it will drop off as we approach the end of the decade.

Trying to strike a balance between prudence and positivity, the Chancellor told MPs that the Budget presented an opportunity to put money into public services while ensuring that the nation continued to live within its means. Crucially, he said, the tax and spending plans would form the bedrock of the EU negotiations ahead.

Business and enterprise

Following several weeks of sustained criticism over the burden that business rates changes would place on many enterprises, Mr Hammond announced a three-point plan which he said would amount to an additional £435million support.

Any firm losing existing rate relief will be guaranteed that their bill will not rise by more than £50 a month next year. In addition, there will be a £1,000 discount for pubs with a rateable value of less than £100,000 and the creation of a £300million fund which will enable local authorities to offer discretional relief.

The Chancellor made clear that a fair tax system was one of the best ways to make Britain a top destination for businesses. He reiterated the commitment made by his predecessor, George Osborne, to bring the Corporation Tax rate down to 17 per cent by 2020. A reduction to 19 per cent will take effect from next month.

Following concerns about the current timetable, he confirmed that quarterly reporting would be delayed for small businesses for a year (at a cost of £280million).

Transport and infrastructure

Acknowledging that congestion was an issue in large parts of the country, Mr Hammond said that some £690million would be made available to tackle traffic problems in urban areas and get local networks moving more freely.

The Chancellor also announced a £270million investment to keep Britain at the forefront of research into biotechnology, robotic systems and driverless cars.

An additional £200million will be ploughed into projects to help secure private sector investment in full-fibre broadband networks and £16million put aside for a 5G mobile technology hub.

Personal tax

Controversially, it was revealed that National Insurance contributions will rise for the self-employed.

Under proposals, Class 4 NICs will increase from nine per cent to 10 per cent next April and to 11 per cent in 2019.

Trying to defend what will undoubtedly be a contentious move, the Chancellor said that the “unfair discrepancy” in contributions between different groups of workers could no longer be justified. Critics have suggested the move has broken with a commitment in the 2015 manifesto.

In more positive news, the personal allowance will rise to £11,500 – the seventh consecutive increase.

The Chancellor reiterated the Government’s previous commitment to increase the allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament in 2020.

There was a boost for road users with confirmation that vehicle excise duty for hauliers and the HGV road user levy will both be frozen.

The Chancellor also announced there would be no change to the previous planned duties on alcohol and tobacco. There will, however, be a new minimum excise duty on cigarettes based on a £7.35 packet price.

Pensions and savings

In what is likely to be an unpopular move, Mr Hammond confirmed that the tax-free dividend allowance for shareholders would be cut from £5,000 to £2,000 as of April 2018.

The Treasury said that the change would “ensure that support for investors is more effectively targeted”, but critics fear it will could further hurt entrepreneurs.

Public spending

Mr Hammond had faced some pressure from his own MPs to plough more revenue into public services.

In an attempt to address criticism that institutions were buckling beneath the strain, the Chancellor confirmed an extra £260million for improving school buildings and funding for an additional 110 free schools (on top of the 500 previously announced). There has been some controversy, however, that some of these are set to be selective.

In an attempt to address the mounting crisis in social care, Mr Hammond announced there would be an extra £2billion in funding over the course of the next three years.  A Green Paper will be published later this year with a view to drawing up a long-term funding plan.

Tax evasion, avoidance and aggressive tax planning

The Chancellor said that a fair tax system required people to pay their dues and a series of measures to curb abuses of the system are expected to raise an additional £820million for the Treasury.

A raft of measures to tackle non-compliance were announced, including preventing businesses converting capital losses into trading losses, curbing abuse of foreign pension schemes, introducing UK VAT on roaming telecoms services and imposing new financial penalties for professionals who help facilitate a tax avoidance arrangement that is later defeated by HM Revenue & Customs.

Summary

In his closing remarks, Mr Hammond struck an optimistic tone. Whatever the uncertainties surrounding Brexit, he told MPs that the UK should be confident that our best days lie ahead of us.

It would be fair to say that the Budget was not strewn with giveaways, but the Chancellor did try and take the sting out of some of the main criticisms levelled at the Government in recent months – including its handling of business rates reform and the sluggish response to a mounting care crisis.

That said he is also likely to have stirred up fresh controversies and the decision to increase National Insurance for the self-employed is perhaps evidence that in the current climate tough choices will still have to be made.

To discuss how any of the above changes will affect you and your business, please contact McPhersons on 01424 730000 or email info@mcphersons.co.uk

 

Every month the Directors at McPhersons share some useful financial tips especially for Business in Hastings readers. This month, Ainsley Gill looks at a summary of the 2015 Budget

Overview

Fifty days before the General Election, Chancellor George Osborne delivered his sixth and final Budget of this Parliament on 18th March.

Introducing the package of tax and spending plans to the Commons, Mr Osborne said: “Today I report on a Britain that is growing, creating jobs, paying its way. We took difficult decisions in the teeth of opposition and it worked. Britain is walking tall again.”

He said that difficult decisions had been taken and insisted the country had to stay the course, with forecasts that Britain will be running a Budget Surplus in 2018/19.

Although to eliminate the remainder of the deficit, he conceded that significant cuts would still be needed, including a £13billion reduction in the budget of government departments and £12billion from welfare spending.

Key proposals

Mr Osborne said that this Budget came against the backdrop of rising employment, improving growth forecasts and falling debt.

Headline announcements included an increase in the personal tax-free allowance, the introduction of a Help to Buy ISA and pensioners being given the freedom to sell their annuities for a cash lump sum.

Following recent controversy over tax avoidance and evasion, there was a commitment to close loopholes, while the rate of the bank levy was also increased (which will benefit the Treasury by £900million a year).

Fuel duty

A fuel duty increase scheduled for September has been cancelled, meaning the longest duty freeze in 20 years. The Chancellor said that the measure saved families £10 each time they had to fill up their car.

Personal tax

27 million people will benefit from an increase in the personal tax-free allowance. This will increase to £10,800 next year and then rise again to £11,000 in 2017. This will lift four million of the lowest paid workers out of income tax altogether.

The Chancellor also confirmed an increase in the threshold at which people pay the higher tax rate. This will increase from £42,385 to £43,300 by 2017-18, above the rate of inflation.

Mr Osborne said he would cut 1p from duty on a pint of beer and two per cent from cider and scotch whisky.

Business, enterprise and employment

Mr Osborne confirmed that in a fortnight’s time, the Government would slash corporation tax to 20 per cent – one of the lowest rates of any major economy in the world.

There was also good news for High Street businesses, with an admission from the Chancellor that the existing system needed far-reaching reform. Although precise details of what changes lie in store are not expected until the Autumn Statement.

Aside from a commitment to abolish the Class 2 National Insurance contributions for the self-employed during the course of the next Parliament, there was a further promise to abolish the annual tax return altogether. 12 million people and small businesses will benefit from the “simplified system”.

The Chancellor also gave assurances there would be support for all regions of the UK. He spoke of the need to build a “Northern powerhouse”, the creation of ten new Enterprise Zones nationwide and help for industries including the motor trade, film and local newspapers.

And changes were announced for Enterprise Investment Schemes and Venture Capital Trusts, ensuring they comply with the latest state aid rules.

Pensions and savings

The Chancellor announced four key reforms which he said would mean massive benefits for those with savings and investments. As was widely predicted, five million pensioners will be given access to their annuities, while plans to introduce a radically more flexible ISA were also announced.

Third is the creation of the Help to Buy ISA, this will mean that for every £200 a first-time buyer saves towards their deposit, the Government will top it up with £50 more.

Mr Osborne confirmed a new Personal Savings Allowance, that will take 95 per cent of taxpayers out of savings tax altogether. The measures, which take effect in April next year, create a tax-free allowance of £1,000 or £500 for higher rate payers. He hailed the move as the end of an entire system of tax collection.

There was also news that the lifetime pensions allowance would decrease from £1.25million to £1million.

Health

The Budget promised funding for a major expansion of mental health services for children (thanks to a £1.25billion investment) and more help for those suffering from maternal mental illness. These areas have previously been seen as under-resourced and Mr Osborne admitted that those suffering with mental illness had been “forgotten for too long.”

Charities

In a move that will be welcomed by many, a scheme that allows charities to automatically claim gift-aid on their donations is set to be extended –  from the first £5,000 they raise, to the first £8,000. Mr Osborne said that this would benefit over 6,500 smaller charities.

Elsewhere £75million in LIBOR fines was put aside for various good causes, including regimental charities, air ambulance services and the Church Roof Fund.

Tax evasion, avoidance and aggressive tax planning

A raft of measures was announced to tackle tax evasion and avoidance and Mr Osborne vowed that individuals and businesses who flouted the laws would be made to pay their “fair share.”

A new Diverted Profits Tax would tackle multinationals who attempted to artificially shift their profits offshore.  There will also be efforts made to close loopholes in Entrepreneurs Relief, changes to corporation tax rules to prevent contrived loss arrangements and confirmation that more Accelerated Payment Notices (APNs) would be issued in the year ahead.

Summary

With so many announcements leaked in the days prior, there weren’t many surprises in this Budget. But Chancellor George Osborne will be banking on his message of financial responsibility and increasing economic optimism striking a chord with the public. Summing up, he said: “Today I present the Budget of an economy stronger in every way from the one we inherited. The Budget of an economy taking another big step from austerity to prosperity.”

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This feature aims to give some informal hints and tips.  McPhersons Chartered Accountants and McPhersons Financial Solutions are offering business free advice so get in touch now to arrange your meeting.  Simply email info@mcphersons.co.uk or call our Head Office on 01424 730000 for a free consultation at McPhersons Hastings, Bexhill or London offices. www.mcphersons.co.uk