The Spring Statement – will it help down on the farm?
The Spring Statement was always going to be a delicate balancing act. At the height of the pandemic, it looked as if there’d be a set-off between keeping the economy going and trying to fund both the NHS and the borrowing costs of the support package. As the economy recovered and tax revenues held up, we started to think that there might be some tax cuts, though perhaps not enough to stoke inflation. Latterly, of course, we’ve seen rocketing prices, fuel and power shortages and events in Ukraine.
Whilst the main thrust of the Statement was tilted towards helping families across the country cope with the difficulties ahead, rural communities won’t be disadvantaged. The fuel duty cut will be welcome, as will the removal of VAT on energy efficiency improvements. For businesses, other changes such as the freezing of the business rates multiplier and a 50% relief for eligible retail, hospitality and leisure premises will be welcome and will particularly benefit farms with a qualifying diversification. Those with employees will appreciate the £1,000 increase in the employment allowance.
The proposed changes to National Insurance didn’t come as much of a surprise, having been well leaked beforehand. The promised 1.25% increase to fund the NHS and care costs will go ahead, but its impact will be mitigated by a significant increase in the lower NIC threshold from 6 July 2022. The better/worse calculations will need to be done individually, but for example, a three-partner farming partnership with profits of about £40,000 will be better off by several hundred pounds since they’ll benefit from the rise in threshold with significantly less income subjected to the increased rates. Only when profits are above about £28,000 each will the NIC cost be higher under the new rules. As a general point, all this underlines that NIC is now a significant tax, and needs to be an important part of the calculations when planning takes place.
Looking into the detail, there are also some intriguing promises for the future. The reduction of the basic income tax rate to 19% in 2024 seems something hostage to fortune ˜ who knows where the economy might be by then? More immediately, the Chancellor has promised a review of the capital allowance system over the summer. He’s recognised that the relief for capital expenditure is lower in the UK than elsewhere within the OECD countries (or at least it will be when the current ‘super deduction’ comes to an end) and is proposing a review which will look at:
Increasing the permanent level of the Annual Investment Allowance (currently £1m but set to reduce to £200,000 in March 2023).
Increasing Writing Down Allowances for main and special rate assets from their current levels of 18% and 6% to 20% and 8% (i.e., back to the 2018/19 rules).
Introducing a higher First Year Allowance (back to 2002 rules).
Introduce a new form of ‘super allowance’ to give first year relief at over 100%.
Introduce ‘full expensing’, to allow businesses to write off the costs of qualifying investment in the year they are incurred (unlikely since this would be more generous than in almost any other country).
Consider changes to other allowances, such as the Structures and Buildings Allowance, or new reliefs targeted at specific investments (or perhaps even extend the super allowance to individuals and partnerships – currently it can only be claimed by corporate entities, a structure which is relatively unusual among farming businesses).
It’s not clear whether the entire cost to the Exchequer of the super deduction would be passed on into new forms of relief, not least because the Government doesn’t yet know what that cost will be, but it seems as if the Chancellor has recognised that increasing investment incentives will increase the tax take in the longer term. It also means that, for those who are struggling to bring all of their investment costs within the current regime, the new rules may not be significantly less generous than they are at present.
If you’d like to discuss this in more detail, please get in touch with your usual Larking Gowen contact. You can find contact details in the Our People section of our website. Alternatively, call 0330 024 0888 or email firstname.lastname@example.org.
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