Spring Budget 2017 – Manufacturing and Engineering Sectors
The most noticeable aspect of the final Spring Budget (for the foreseeable future) was the brevity and lack of new content!
At the same time, the lack of major reform also allows for a period of certainty which is welcome whilst wider economic issues take precedence. Notably, whilst there had been commentary from the government that the Budget would encourage positivity ahead of Brexit, there was little mention of the impact of Brexit, positive or negative.
Tax Measures Impacting Manufacturing Businesses
The tax related measures were mainly limited to raising taxes from the self employed and owner managed businesses, whilst softening the impact of previously announced changes to Business Rates and Stamp Duty Land Tax.
Owner managers and the self employed were subjected to a week during which they were faced with an increase in Class 4 NIC in addition to a reduction in the dividend allowance. The Chancellor’s rationale in raising more tax in this way was to find the money to pay for increases in funding for Social Care and to help soften the impact of the Business Rates increases. The Chancellor also sought to remove any disparity in tax payable between the employed and the self employed to ensure that those opting for the so called ‘Gig Economy’ are doing so for commercial rather than tax reasons. Seven days later the Chancellor announced a U-turn in respect of the hike in Class 4 NIC and confirmed that the abolition of Class 2 NIC will still occur in April 2018.
To one extent or another, these measures will impact owners of many businesses involved in the manufacturing and engineering sector. For example, owner managers will face increased costs in the form of increased income taxes on extraction of profit. At the same time, in tax terms, it will be less attractive to be a “consultant”. It remains to be seen whether we will see an increase in businesses hiring on fixed term or full time employment contracts, rather than using workers who operate as self employed or via personal service companies.
Ginni Cooper, Corporate Services Director comments:
“As expected, the budget was far from exciting for the most part, firming up on some previously announced measures here and there. The controversy surrounding the planned increase in Class 4 NIC rates was certainly a talking point and our owner manager clients will welcome the U-turn at a time when, as an individual consumer, they are already feeling the pinch elsewhere. We’ll have to wait until the Autumn Budget to see how the Chancellor plans to fill the gap now left by the reverse decision.”
From an administrative perspective, the deferral of entry into Making Tax Digital for businesses below the VAT threshold will be helpful to a large number of the smallest businesses across the UK.