In conjunction with Liverpool Chamber patrons RSM, we hosted a special round table event to discuss the key measures in the Chancellor’s Autumn Statement. A summary of the event can be found below, while the full discussion is available on our website.
Paul Cherpeau, Liverpool Chamber
The purpose of today’s event is two-fold.
We hope to gain insights from around the table about how the latest Autumn Statement might affect the decision-making of businesses in the near future.
With a General Election looming next year, we would also like to gain a broader understanding of the different levers the government might choose to pull to improve the economic outlook and trading environment for businesses in the next 12 months.
David Hawley, RSM
This year’s Autumn Statement was largely understated, with few significant changes announced.
One notable trend is that HMRC is becoming more active in its pursuit of revenues and is now achieving a greater return than it has for many years, with an estimated £18 return for every £1 spent.
Rob Adams, RSM
The measures announced around R&D are double-sided.
There is an effective reduction in the allowances available to SMEs, with greater HMRC compliance activity around R&D, partly in an attempt to clamp down on firms making ‘ambitious’ claims that include more general thinking and planning as R&D activity. This clearly has an impact on the many other SMEs making more transparent claims. HMRC is applying a less-targeted approach, raising enquiries against SIC codes.
The second aspect is around capital allowances, which is an area that never seems to stand still from year to year and is regularly subject to tinkering. The latest update is that full expensing on capital expenditure has been made permanent, rather than the previously announced period of three years. There is some cynicism around this measure, as it seems nothing is ever permanent in the world of capital allowances. It also appears to be a move that may not benefit the majority of smaller firms who spend less than £1m.
As well as the headline rate of Corporation Tax increasing, there are changes to the timing of corporation tax payments. Hitherto, small companies paid their tax nine months after their year-end, and larger companies paid quarterly, with half in year and half after, and the very largest companies paid their tax quarterly entirely in year. New rules mean that companies in common ownership, even if they are not part of a corporate group, are taken into account in looking at the size of companies. This could be a particular issue for PE backed companies, which may now become liable to pay all their corporation tax in the same year, potentially placing more stress on their cashflow.
David Hawley, RSM
When you consider that in the context of the marginal rate of Corporation Tax increasing to around 26% and the cost of finance also rising, clearly this is a challenging time for businesses.
The National Minimum Wage is also a complex area for some businesses and we are seeing many caught out by technical compliance breaches. The vast majority of operators do not intentionally ignore their responsibilities around the National Minimum Wage, but it is often the case that businesses may accidentally breach due to poor measurement of timekeeping or the lack of clarity around the specific work practices of individual members of staff. Examples of this might include insufficient recording of clocking in and out, or the length of time that it takes to put protective clothing on. Despite the technical aspect of such a breach, it can create negative media publicity and word of mouth for those firms.
John Miller, Sure Steps Day Nursery
There are lots of pitfalls around the National Minimum Wage and investigations can be lengthy and time-consuming for business owners.
There are examples of businesses in our industry whose staff had stated rates of pay, fixed hours and were paid monthly, meaning they might work slightly different hours in different months, but over the course of a year it averaged out. They were deemed in breach because their contract did not state that they were salaried.
Where staff have children at a nursery, the nursery can deduct childcare fees directly from their pay, but this can mean their payslip looks much lower than it should be. The same applies for savings schemes or benefits such as cycle to work schemes. Again, HMRC might rule that business is technically in breach, so businesses need to be very careful.
The threshold for naming and shaming is still low, even though it has increased in recent times.
Rob Adams, RSM
Inheritance and Capital Gains Tax saw no changes, despite speculation to the contrary ahead of the Autumn Statement, but we cannot rule out changes in the near future. Possible moves might include changes to CGT on death or the removal of IHT, which raises considerably lower tax revenues than CGT and is mainly collected in London and the South East. Again, this is merely speculation at the moment.
David Hawley, RSM
HMRC is certainly increasing the level of investigations and there is evidence of this being focussed on particular sectors or geographical locations.
Another issue that may be coming down the line for SMEs is the requirement for more Tax Governance and Tax Risk Strategies. Presently this only applies to larger businesses, but it may extend further down the food chain in the coming years.
The so-called ‘one to many’ approach, whereby HMRC prompts a large group of firms to confirm their submitted information is accurate, is also proving effective in spurring many businesses to stay on top of their tax affairs.
Neil Wong, Rathbones
Context is everything when it comes to drawing out the investment implications from the Autumn Statement.
There has been no significant loosening of tax policy, with the government giving and taking away at the same time. The tax take is still increasing as a percentage of the economy and recession in the UK is likely with the economy slowing down, inflation falling and a looming general election.
The impact of the first interest rate increases are only just now being felt, with many mortgages yet to be renewed. We can foresee inflation being back down to 3% by next year, but there is still a squeeze on living standards.
The gilt market is looking more positive than it has in some time, with returns of around 4% meaning they are attractive to investors, even when compared to cash, as the capital gains on gilts are tax-free. We have increased gilt investments in the past year for clients.
We expect interest rate cuts to come through towards the middle of next year, as recessions become apparent, though they won’t return to the levels of a few years ago.
We have a number of triggers to change our current cautious investment stance, including a peak in interest rates, which we have probably hit. While there may be a bumpy landing to navigate, markets are likely to recover into the end of 2024.
Tax changes aimed at encouraging investment are very welcome but their ability to boost the economy can take years to be felt.
John Miller, Sure Steps Day Nursery
Funding for nurseries has increased but it was ringfenced and expires in March, making it difficult to plan forward.
Staffing remains our main challenge. A new scheme allows candidates to be recruited and undertake a 9 month remote training course if they have GCSEs in Maths and English. This gives them the equivalent of a Level 3 qualification in the eyes of OFSTED and will certainly ease our recruitment challenges.
We would have liked to see the Business Rates Relief for hospitality and leisure business extended to nurseries, but it wasn’t, and with Corporation Tax and National Living Wage increasing, the fees charged to parents will inevitably rise again next year.
If the additional funding for one and two-year-olds is not sufficient, we are likely to see some operators go out of business or refuse to accept children on funded places. Clearly, the motive behind this measure is to get people back to work, which is a great idea in principle, but in practice it raises lots of difficulties.
Early years is a fractured sector, with around 165 PVIs in Liverpool alone, often comprising one or two businesses and sometimes with remote owners, so it’s very difficult to get a consensus. The government would welcome greater consolidation among larger operators so that they have a more distinct ‘sector’ to engage with.
David Hawley, RSM
The Covid legacy means some businesses are carrying hidden unsustainable debts; with company liquidations on the rise and HMRC becoming more active in its activity, this clearly represents a problem for businesses.
Robert White, Brabners
Finding and retaining talent is a major issue in the professional services sector, particularly in an environment nearing full employment, where firms need more people to support their growth aspirations. Some businesses have struggled since Covid, and where business failure does occur, whilst not ideal, it does create an opportunity for other businesses to recruit and strengthen.
The greatest challenge facing the UK is a history of under-investment and a lack of productivity. In particular, post the financial crisis and since 2016. A lack of a long-term investment strategy that transcends short-term political cycles does not help and, in particular, flip-flopping on policy and five Prime Ministers in seven years, has certainly not created a stable environment. We need a long term skills and investment plan aimed and boosting overall productivity. This isn’t necessarily traditional academic or technical ability, but also leadership and management skills.
Alongside more investment, greater devolution also provides a major opportunity and is essential to allow purpose-led businesses to partner and collaborate with devolved local authorities, to face into these long-term structural challenges.
Gavin Sherratt, MASHBO
The process to recover R&D allowances has slowed down significantly. It used to be a quick response, which obviously helped with cashflow and reinvestment, but now it is taking months to hear back.
Mel Cheung Turner, My Creative Thoughts
I have known clients to wait 18 months and the whole process can be daunting for businesses.
David Hawley, RSM
It’s worth noting that RSM is on the national committee for HMRC R&D policy, so if you do encounter issues or hear of any other common problems, please do let us know so we can feed that in.
The North West is consistent with what we see in other parts of the country in terms of tax and advisory issues.
Pete Sandman, City of Liverpool College
We need to get smarter about how we spend funding such as the Apprenticeship Levy. It is challenging to keep pace and pay a skilled lecturer compared to industry rates, so we need a different relationship with industry.
It is good for us to engage better with businesses and help them to solve their challenges. That insight needs to be hardwired into our college and provide a knowledge exchange.
Alison Lobb, Morecrofts Solicitors
We have taken on an apprentice who was already at a different firm and we found it really difficult to get the necessary information and guidance around how much we needed to contribute. It took a lot of time and effort to resolve that. Now we know how it works, we will feel more confident next time, but it did highlight the lack of information available to businesses around apprenticeships.
John Miller, Sure Steps Day Nursery
There is a cap on the number of apprenticeships a business can have at any one time, which can be really counter-productive when you consider that not all apprentices get through to completion. That rule actually restricts our ability to recruit all of the people we need.