MHA | Emergency Tax Measures – reactions and predictions

Emergency Tax Measures – reactions and predictions

Posted on: September 13th 2022 · read

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Liz Truss has already announced her much anticipated energy support package to alleviate pressures from soaring energy bills for both householders and businesses. Other tax cuts confirmed were suspension of the green levy, and a reversal of the NI increase (Health & Social Care Levy). 

Inaction is not an option

The huge spike in energy prices is causing the UK existential fiscal and social problems. Several measures to counteract these issues have been announced by the Truss team already, including the energy price freeze, suspension of the green levy, and the reversal of the corporation tax, and health & social levy.  

Will any of these measures help where they are most needed? What other tax cuts and measures could the Government introduce over the next month to ease the cost-of-living crisis and boost economic growth? 

Our team of tax and industry experts share their views below on tax cuts that have already been announced, and those that are in the pipeline:

UK energy price guarantee and the need for renewable technology

Following the announcement of Liz Truss’s Energy Price Guarantee on 8 September, cutting down price volatility and providing certainty for business is the only way to give businesses the confidence to maintain growth. 

Exposing businesses to the current degree of energy price volatility makes planning almost impossible, so a price cap for business is essential to allow businesses to survive, invest and move forward. Yet the 6-month guarantee is a very small sticking plaster and is simply not enough.  

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Windfall Tax - what is the reality?

Following the announcement of Liz Truss’s Energy Price Guarantee on 8 September, a potential increase in the current windfall tax on UK oil and gas producers will not cover today’s bailout package, despite reports to the contrary. 

While it’s easy to assume an increase in the UK’s windfall tax will fund the Prime Minister’s energy price cap guarantee, particularly on the purported £170 billion profits to be made by UK gas producers and electricity generators in the next two year, what is the reality? 

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Corporation Tax Reversal

One of the first things Liz Truss has promised is the reversal of the planned corporation tax rate rise on 1 April 2023 to 25%. One assumes the prevailing rate of 19% will remain in force albeit, prior to covid, the government’s Business tax road map had the UK on a path to having the lowest corporation tax rate in the G20 at 17%. What will be more interesting therefore is how she sets out the Business tax strategy over the remaining terms of this parliament and beyond.    

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Support for retail, consumer and hospitality businesses

The Prime Minister must act decisively to provide urgent support for hospitality businesses who face crippling energy prices. The cap on energy prices to include businesses is very welcome but insufficient on its own and Treasury help should be extended to restore the reduced rate of 5% VAT across the hospitality sector. This will provide businesses with much needed support over the next year as inflation, increased interest rates and the cost of living reduce the buying power of consumers.

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New “low-tax and low-regulation zones” for innovation and enterprise

Liz truss has mentioned the creation of low tax – low regulation zones (now “investment zones”) to create hubs for innovation and enterprise around the country. Arguably “enterprise zones” by another name.  

Details of the deregulation plan are not clear, but there are reports that the zones will have commercial, residential, and industrial development zones, as well as streamlined residential planning processes. 

These investment zones are part of her plan to create new towns, and aim to attract investors by reducing tax burdens, easing restrictions, and tailoring regulations to the individual situation. Truss has called these zones “at the heart of my vision for “levelling up” 

There are question marks over whether enterprise zones create growth and/or skilled jobs, or simply result in businesses relocating lower skilled jobs to lower cost areas because of the fiscal and regulatory incentives to do so. 

The detail of any announcements in this case will therefore be key in understanding the intentions and considering the likely outcomes. 

The manufacturing industry can breathe a slight sigh of relief 

Although we don’t know all the details, the energy plan seems reasonably encouraging. A 6-month price cap for businesses is essential to get us through the winter. The measure is certainly a start for businesses, and it is vital that the government has taken action.  

However, the support needs to be kept under review during these challenging times. Help would need to stay until energy prices stabilise. The use of a furlough type scheme, working with averages and a price cap should allow for the flexibility required without making it too difficult to provide help to businesses quickly.  

We also need a targeted reduction in VAT for critical industries, including parts of the manufacturing sector. 

Issues in the market need to be addressed. Recent falls in gas prices have not reached businesses yet, so the Truss team needs to do more to ensure falls in prices are passed on promptly in the wholesale market. 

IR35 and the Reversal of NI Increase (Health & Social Care Levy) 

Liz Truss has committed to reversing the 1.25 percentage points rise in National Insurance which was introduced in April 2022 to help pay for health and social care. The debate around this has largely focused on the impact on individuals. However, as employers also pay National Insurance on employee wages, many businesses will welcome this easing of the overall employment tax burden, at a time of unprecedented cost pressures.    

Interviewed during her leadership campaign, Liz Truss also commented on the ‘IR35’ employment tax rules. Following a change in April 2021, more obligations were introduced for some businesses who engage self-employed individuals via one-person limited companies. Her view is that “if you’re self-employed, you don’t get the same benefits as being in a big company. Therefore, the tax system should reflect this”. This statement may signal her appetite to make further changes to IR35 which favour the self-employed sector. 

For further guidance on any of the tax measures discussed in this article, please contact your usual MHA advisor or Contact Us

Read the latest tax commentary - visit our dedicated hub where we will be providing resources, advice and practical guidance on what these emergency tax measures mean for you and your business, to help you prepare and manage their impact. 

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