UK Budget buys breathing space for businesses but rising costs could temper business confidence
Businesses and entrepreneurs across Northern Ireland are likely to greet the UK Budget with cautious relief, with new incentives to encourage entrepreneurial growth balanced against increased costs and tax changes that will leave some business owners better off than others.
Among the standout measures is the introduction of Founders Relief, offering a 10% tax rate on the first £10 million of lifetime qualifying gains on shares in high-growth innovative companies.
While the detail and qualifying conditions will be critical, the measure sends a clear signal that the Government wants to encourage entrepreneurs to build, scale and ultimately realise value from innovative businesses.
The wider capital gains tax picture is more mixed. A reduction in the Business Asset Disposal Relief (BADR) limit will restrict the benefit available on some business disposals, meaning there will be clear winners and losers among business owners.
Perhaps equally significant, however, is what was not announced. Despite speculation ahead of the Budget, there were no major broad-based increases in business taxation. For businesses looking for greater certainty to support investment and planning decisions, that will come as a relief.
The Budget also includes measures aimed at smaller businesses and entrepreneurs, including an increase in the trading allowance from £1,000 to £3,000 and increased funding for women-led businesses.
However, businesses continue to face pressure on their cost base. The 3.9% increase in the minimum wage will mean increased payroll costs for employers paying at or close to the minimum wage and may temper some of the optimism created by the wider package.
Alan Gourley, Tax Partner, Grant Thornton NI, said:
“There are clear winners and losers in this Budget, but the strongest signal is to entrepreneurs. Founders Relief is a potentially significant incentive for people prepared to take risks, build innovative businesses and scale them in the UK.
For the wider business community, there will also be relief that some of the significant tax increases that had been feared have not materialised. That certainty matters. Businesses need confidence to make long-term decisions about investment, recruitment and growth.
That doesn’t mean the pressure on businesses has disappeared. Higher employment costs will be a real consideration for many employers, while changes to BADR will be less welcome for some business owners. The real test of this Budget will therefore be whether the combination of greater certainty and targeted incentives translates into businesses having the confidence to invest and grow.”
For individual taxpayers, there is also more to digest. Property and investment income will face a higher tax burden following a further two percentage point increase in the tax rates applying to property and interest income. Changes to self-assessment payment dates could bring some tax liabilities forward, creating an additional cash-flow consideration for affected taxpayers.
While the legislation and supporting detail will require further analysis, the immediate business reaction is therefore likely to be one of cautious relief rather than outright celebration: targeted tax changes create winners and losers, but measures supporting entrepreneurship and investment, together with greater certainty over the direction of business taxation, should help businesses plan for the future.