REWARD
The dust has settled after the autumn budget, but the impact of some of the measures will likely still be felt for months to come. Richard Hattersley, managing editor of AccountingWEB, considers the chancellor’s historic first budget
As always, it’s in the budget red book where the real story is often hidden. The stories that attracted the most attention on AccountingWEB on the day of the budget were buried in the depths of the red book. The first was the surprise announcement that ‘Making Tax Digital’ will be expanded to those with income exceeding £20,000 by the end of this Parliament, although the precise timing is still to be determined. The other story that caught the attention of readers was the news that double-cab pickups are set to be taxed as cars. This comes after a series of calamitous U-turns on the taxation of these vehicles earlier in the year. The change coincided with changes to inheritance tax over business property relief and agricultural property relief, where readers expressed concern over the impact this will have on their farmer clients. Other interesting measures hidden in the undergrowth centred on HM Revenue and Customs (HMRC), tax administration and digitisation. The government is set to £1.4bn in additional compliance officers and £262m in debt management staff over the next five years. Alongside modernising HMRC’s digital capabilities, including the HMRC app, the government revealed plans to mandate registration of tax advisers who interact with HMRC on behalf of clients from April 2026. Biggest impact for businesses But arguably, the measure that is likely to impact employers the most is the increase to employers’ NI. Much-expected ahead of the budget, the rise will come as a blow to businesses that also have the increases in national minimum wage to deal with. However, the chancellor softened the impact by increasing the employment allowance from £5000 to £10,500. The angst ahead of the budget was such that when the announcements were eventually made, businesses and their agents had already made a head start in preparing for the changes. But that didn’t stop accountants from picking up the pieces the morning after the
announcement and wondering what support they could provide to their clients. For some, the budget may feel like a distant memory, but the impact is lasting much longer. The day after the budget, I spoke “The measure that is likely to impact employers the most is the increase to employers’ NI. Much- expected ahead of the budget, the rise will come as a blow to businesses” with accountant Dan Heelan on our podcast. While he was a fan of doubling the employment allowance, he ran the calculations on a couple of his clients. One of those was a coffee shop with a couple of 18-year-old part-timers and full timers, and even if they qualify for the new employment allowance, they’d have to find at least £3,400 a year. Outlining the struggle for small businesses, Heelan said: “Plenty of accountants who work with coffee shops and retail will know how much those businesses struggle to make any money to pay the owners. They’re not driving around in Aston Martins and going on six holidays a year. It’s a real struggle.” Accounting firms are not immune from the measures either. Heelan did the sums on his own small business. “We employ about 40 people. So we’re not a tiny employer, but we’ve grown. And for us, [the increase in employer’s NI] is at least a £35,000 a year problem. That’s someone’s wages. Or it’s going to, realistically, go on our pricing to make it work.” For Heelan, these sums only emphasised the need to take immediate action and support his clients. “[The trouble comes when] small businesses react slowly. They might feel like nothing’s going to really happen for a while. People
then start realising the impact on their cash balances.”
What to do? In the budget, the chancellor also
announced that there will no longer be biannual fiscal events with tax changes. Having to wait 12 months before more tax changes at least gives advisers plenty of time to navigate the measures. It should also provide a sense of stability for businesses that have experienced a treadmill of budget announcements since the Covid pandemic. It’s important then that advisers use this breathing space wisely. In the days after the announcement, I already saw some jump into action and advise their payroll clients and explain how the increase in employers’ NI would affect them. The key message was to proactively use the five months before the changes roll out and give clients early notice to prepare for any added costs they’ll incur or in some cases, how the measures will yield savings. Many firms are advising clients to prepare for the increase by reevaluating their pricing models, assessing expenses for potential savings and exploring more efficient ways to deliver services, all of which can help offset the impact of rising costs. But the breathing space is actually of use to advisers too. With 12 months free from new tax changes, accountants have a unique opportunity to forecast the year ahead and prepare clients for upcoming challenges. Events like the Festival of Accounting & Bookkeeping on 12-13 March (see https://ow.ly/ klu250U82UP) provide an ideal forum to address the challenges in the budget and discover new tools to strengthen their practices – without the risk of missing sudden fiscal updates. After enduring eight budgets since March 2020 – and that’s not even taking into account the countless Covid support updates and furlough shenanigans – the next 12 months will finally be a chance for firms to step off the never-ending treadmill. Embrace the opportunity. n
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| Professional in Payroll, Pensions and Reward |
Issue 106 | December 2024 - January 2025
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