The Autumn Budget provides welcome stability for businesses, but more must be done to stimulate growth, investment and productivity, according to BDO Northern Ireland Partner and Head of Tax, Lorraine Nelson.
Chancellor of the Exchequer John Healey presented the Budget as one for “working people”, combining fiscal discipline with measures on energy bills, wages, business investment and enterprise. While the Government’s focus on stability may provide reassurance following several years of economic uncertainty, businesses and households continue to face pressures from weak growth, rising inflation and elevated costs.
“After several years of fiscal firecrackers, greater stability is welcome,” comments Lorraine Nelson. “But with growth remaining weak and the overall tax burden remaining high, the UK needs targeted tax relief and a credible plan to unlock private investment. No country has ever taxed itself into prosperity, we are not the exception.”
Among the measures announced for households and employees, the Chancellor reaffirmed a commitment not to raise taxes on working people and extended the temporary VAT reduction on household electricity costs from 5% to zero until next Spring.
The tax-free mileage allowance will become permanent at 55p per mile for the first 10,000 business miles, while the rate above that threshold will increase from 25p to 35p per mile. The National Minimum Wage and National Living Wage will also rise by 3.09%, while self-employed fathers and partners will gain access to new paternity leave entitlements.
For those starting a business, the Budget introduces a new £3,000 trading allowance and an entrepreneurs’ allowance to help cover first-year costs. A new pension tax allowance will also mean those receiving only the State Pension will not be liable to pay tax above the normal personal allowance.
For businesses, Lorraine said the most significant announcements relate to capital allowances and enterprise incentives. “Full expensing remains in place, preserving 100% relief for qualifying plant and machinery investment.
“A new 40% first-year allowance will provide upfront relief for certain main-rate assets, particularly where full expensing is unavailable, including some leasing and unincorporated-business expenditure. At the same time, the main rate of writing-down allowance will fall from 18% to 14%, with the new first-year allowance intended to accelerate relief and encourage investment.
“On capital gains, which has always been widely tipped to be raided, Business Asset Disposal Relief will be reduced to £500,000, while Founders’ Relief will apply at 10% on gains up to £10 million,” Lorraine said.
The Budget also introduces higher taxation on savings interest and rental income, with an additional two percent applied to rates, taking the basic rate to 24%, the higher rate to 44% and the additional rate to 49%. Self-assessment is also expected to move towards more regular payments from 2029 as part of the wider Making Tax Digital programme.
“These measures risk discouraging saving, investment and entrepreneurship, at precisely the time when the economy needs more of all three,” continues Lorraine.
“This was clearly a Budget designed to avoid headlines rather than make them, which in the short term should reassure the market and provide certainty. Growth issues will not be solved by stability alone however, and to support long-term prosperity, there needs to be a reduction of the tax burden on work, investment and business to boost productivity and ultimately create more jobs.”