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Dishy Rishi Serves Up a “Shit Sandwich”

When I was young and being taught management skills, I was told to sandwich bad news between pieces of good news the proverbial “shit sandwich”.

Early on in his budget the Chancellor set out three phases:-

  • Doing what is necessary to support the economy and jobs during the final months of the pandemic (The Good News Part 1)
  • Being honest about the cost of the measures needed to pay for the cost of the support which is estimated to be £407BN (The Bad News)
  • Detail plans for the rebuilding of the economy (The Good News Part 2)

If we look at the detail of the individual sections:-

  • The furlough scheme will be extended till the end of September but employers expected to contribute of 10% in July and 20% for August & September
  • An extension of the Self Employed Income Support scheme with two further tranches capped at 80% of the limit for those business that have suffered a 30% drop in turnover and 30% otherwise. Any taxpayers who delivered a 19/20 SA return as their first return will be eligible for the last two tranches
  • The £20 per week universal credit uplift will be kept till the end of September, with a similar £500 enhancement to Working Families Tax Credit.
  • A restart grant of up to £6,000 for None Essential Shops
  • A restart grant of up to £18,000 for Hospitality, Gyms, Leisure & Personal Care
  • A new recovery loan scheme from £25,000 – £10M with 80% government grants
  • The rates relief holiday being extended by 3 months with a 2/3rd cut for the following 3 months
  • 5% VAT rate for hospitality to 30 September and then 12.5% for the next 6 months
  • The stamp duty holiday will be extended till 30 June and then an increased nil rate to £250K for 3 months after.
  • A £3,000 Apprentice contribution
  • An increase to £8.91 per hour in the National Living Wage
  • A new support mortgage for low equity purchasers

The chancellor then said he had to be honest as to the measures that would be needed to curb the increases in National Debt to an unserviceable level.

He announced a combination of tax raising measures and investment incentives, delivering good news in the short term with longer term pain. These included:-

  • Extending loss relief carry back to three years for the next two years
  • Increasing Corporation Tax Rates to 25% with effect from April 2023 for businesses with profits over £250,000 with a taper for those with profits between £50,000 and £250,000
  • Income tax thresholds pegged for 5 years
  • National Insurance thresholds pegged for 5 years
  • Inheritance tax thresholds pegged for 5 years
  • Capital gains tax thresholds pegged for 5 years (no change to rates despite expectations)
  • Pension life time thresholds pegged for 5 years
  • VAT thresholds pegged for 2 years
  • Alcohol & Fuel duties frozen for a further year.
  • Air passenger duties to rise with inflation
  • R & D Relief capped at £20,000 plus 3 times PAYE & NIC bill.

The Chancellor then announced a list of measures to create an investment led recovery

  • Offering a 130% Capital Allowances “Super Relief” for the next two years
  • The introduction of “Freeports”
  • The introduction of a “Help to Grow” support scheme
  • A new infrastructure bank based in Leeds with £12BN of capital to support £40BN of projects
  • A green bond to allow the public to invest into green projects

Prior to the budget, there had been talks about changes to the capital gains regime, which did not appear to happen, which will allow many of our clients to breath a sigh of relief.

The freezing of thresholds was always an easy way for the chancellor to raise money without increasing rates and is spread across the country as a whole.

Whilst the Chancellor has said that the rise in Corporation Tax Rates were targeted at Companies who had benefitted from his measures, the truth is he deliberately refused to give help to those who used a strategy of low salary & dividends, yet these changes will increase the tax charges for that sector by nearly 10%, which strikes me as what my junior school teacher used to call “double punishment”

Whilst the strategy of a low salary and dividends still appears to be tax efficient, but the benefits have been significantly reduced. Company owners with underlying profits over £50,000 will need to give a lot more consideration to ensuring that payments, like pension contributions, charitable donations, cars and even holidays are put through the company rather than being paid for personally.

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