‘Tax later’ may be the byline for much commentary for the 2021 budget, but what effect will the changing tax environment have on business in the UK? Guy Foster and Lee Clark from Brewin Dolphin Wealth managers share their insights into the day’s tax announcements.
Guy Foster, chief strategist, for Brewin Dolphin had this to say on the changes to Corporation tax.
“The Chancellor announced a significant rise in the rate at which company profits are taxed, with a gradual rise from 19% to 25% over this parliament. The staggered increase will reportedly raise £12bn. The pandemic has had a huge impact on companies. Some have benefitted and will have broad shoulders on which the burden of this tax can rest. Other have received huge support from taxpayers and will not suffer from higher corporation tax rates yet but will as their profits recover.
“The impending six percentage point increase in the rate of corporation tax brings the UK closer to other G7 countries but means that the UK may have a corporation tax rate that is double that of Ireland. By contrast President Joe Biden plans to raise the equivalent tax from 21% to 28% in the US.
“Against the increase in corporation taxation are some appealing aspects for business. Tax advantaged areas have had limited impact in the past but these free ports are in areas which could now benefit from a business environment that is less dependent upon physical proximity. The temporary 130% allowance on investment is a further opportunity for UK industry to transition and transcend the new economic environment.”
Lee Clark, financial planner, for Brewin Dolphine had this to say on the income tax threshold freeze.
“We’ve all got to play our part. This is a good way for the government to maintain manifesto pledges to not raise income tax by freezing rates. There is a structural deficit; we are currently not raising enough tax to pay for what we spend. By freezing income tax, the chancellor will scoop up those people getting pay rises over the next few years. This will include unionised pre-approved pay rises. It will also include workers who will start to pay tax for the first time.
“But the flip side is that consumers will have less spending power as a result. We’re also concerned that people moving into high tax bracket will be affected by any future changes to pension tax relief for higher rate tax payers. It will affect consumer spending and saving power just at a time when many will be getting back on their feet financially.”