We were braced for a difficult Budget, but businesses will be reeling this morning following the chancellor’s £40bn of tax rises, most of which fell on employers and entrepreneurs.
Hampered by the Labour party's manifesto, Rachel Reeves decided that the only way to keep the letter of the promises made was by targeting employer national insurance, arguing that this is not directly a tax on working people.
The rate increase, now confirmed as 1.2 per cent (from 13.8 per cent to 15 per cent), was widely leaked prior to yesterday, but is still a shock, as this was one of the taxes which has never previously been cut (ie this is not a reversal) – 15 per cent is the highest this tax has ever been.
The decrease in the secondary threshold (the rate at which employers start paying national insurance per employee) from £9,100 to £5,000, was not expected. Together, the impact is significant.
Taken together with the increase in national minimum wage from £11.44 to £12.21, the impact on some businesses could be an increase in their wage bill of more than 9 per cent, at a time when employment tax is already many business’s largest tax. This will be hitting hard.
More than most, this Budget has a lot of small print.
The chancellor’s speech was entirely silent on corporation tax, but a 'Roadmap for Corporation Tax' was published alongside the other materials, which includes some welcome commitments to keep many regimes the same; notably full expensing and the £1mn annual investment allowance for capital allowances, as well as R&D tax credits.
Also of note was the commitment to provide resource to HM Revenue & Customs in order to “close the tax gap” – this will take the form of additional staff and also modernisation of digital systems. This will be welcome for anyone who has ever sent a fax to HMRC.
Flora Barnes is a corporate tax partner at RSM UK
