With the Chancellor’s Autumn Budget due to be announced tomorrow, speculation around what could be in store is increasing. The next few months will be a critical time for businesses as they rebuild after the pandemic, so many business leaders will be keeping a close eye on the announcement to understand how it could impact their operations.
This Autumn marked the end of the furlough and self-employment income support schemes, both of which have been instrumental to the recovery of thousands of businesses. The Government has spent billions on the delivery of both schemes as part of a raft of wider COVID-19 support measures, and there are already some indications that the Chancellor will look to pull on fiscal levers to raise revenue and balance the books, as we saw with the recent National Insurance tax hike, which will come into effect in April 2022.
Businesses across the UK will be focused on the Chancellor ahead of what is to be a pivotal political moment in the UK’s post-pandemic recovery. Encouraging collection figures come from the Exchequer, and with COVID-19 support schemes drawing to an end, it’s clear the Government’s emphasis will be on how business activity is returning to normal.
The Budget will be announced at the same time as the Government’s Spending Review, so it’s likely we will see more detail around its spending and financial strategy, and plans to ‘build back better’ to deliver the ‘high wage, high skill, high productivity economy’ outlined in the Prime Minister’s speech at the Conservative party conference.
With the UN’s COP26 climate change summit also on the horizon, it’s likely that sustainability and measures to support the UK’s transition to a zero-carbon economy will feature highly on the agenda.
The Government invested a significant amount of money into its Coronavirus response efforts, so it’s unlikely that this Budget will be centred around public spending – especially with rising inflation. Instead, it’s likely to focus on taxes to help fund the UK’s recovery.
The Institute for Fiscal Studies (IFS) has suggested that the Chancellor is on track to lift the UK’s tax liabilities to the highest sustained level in peacetime through a package of tax increases. There are rumours circulating around the imposition of an online sales tax, after delays to the long-promised review of business rates. It is thought that this would serve to level the playing field between large e-commerce businesses such as Amazon and high street retailers, who have questioned the fact that online retailers aren’t beholden to the same business rates. This would accompany the recent hike to National Insurance along with a host of cuts to public services spending, with the IFS stating areas such as local government, further education, prisons and courts could have their budgets cut by more than £2 billion next year.
Capital Gains Tax (CGT) has been a topic of discussion for the past two years, and there has been strong speculation that the Government is looking to raise rates to be in line with income tax. However, it’s difficult to predict whether doing so would actually provide the Government with much income, so it’s likely that we’ll have to wait for future reviews for any changes.
However, recent figures suggest that the UK’s post-pandemic recovery has been stronger than first thought, so while the Government will be looking to raise revenues to cover the deficit, there could also be room for tax reductions should the recovery continue at a similar pace.
With unemployment rates still high following lockdown, we can also expect to see emphasis on additional support to help people back into work. This would complement the £500 million extension of the Government’s ‘Plan for Jobs’, which looks to help previously furloughed employees and those claiming universal credit back into work, and would fit in with the Prime Minister’s promises to develop a ‘high skill, high wage economy’. With job vacancy rates currently at a record high, such policies would be welcomed by businesses – especially in the face of the challenges currently being experienced by UK SMEs.
With the COVID-19 government support measures coming to an end, the onus is on businesses to recover and return to growth independently. Even if the Government does introduce support measures to bolster productivity and employment as a part of the Budget, many of these businesses will still have to manage accrued debts while balancing other liabilities that they may have built up during the past 18 months.
Whereas a viable business should have continued to service its debt throughout the pandemic, many will have not been in a position to do so. Tax arrears have increased dramatically since the pandemic began, and a further increase in the tax burden in the Autumn Budget would likely exacerbate this and could leave many firms in a challenging position throughout the winter.
The introduction of an online sales tax will act as a boost for bricks-and-mortar retail traders over what is usually the busiest period of the year – and, with the busy Christmas period traditionally followed by reduced demand, businesses may find themselves unable to meet the repayment schedule regardless of whether business activity returns to pre-pandemic levels.
In many cases the level of HMRC debt is now akin to a term loan provided by a bank, whereby the repayment term is usually in years. However, with current Time to Pay (TTP) arrangements for this debt stipulating that it must be repaid within 12 months, many businesses may struggle to meet the repayment schedule unless new arrangements are made by the Government.
Whereas HMRC has been very vocal about its willingness to work with businesses in order to agree workable, realistic proposals to deal with tax arrears, the majority of the restrictions placed on the presentation of winding up petitions have now been eased. This brings a host of enforcement measures back into the picture for firms that are unable to satisfy statutory demands.
Alongside this, we’re approaching other key repayment dates, including the end of the moratorium on landlord action for commercial rent arrears which falls in March. With the moratorium having already been extended twice before, it’s unlikely that we’ll see the Government extend this further as part of the Autumn Budget, so businesses must prepare to factor backdated rent payments into their outgoings when planning for the months ahead.
With the pressures facing businesses, even where turnover has recovered to pre-pandemic levels, their forecasts might not be sufficient enough to meet payments – additional to raw material shortages and supply chain challenges, both of which are impacting all sectors. In the event that changes are made to repayment arrangements in the Autumn Budget, we may begin to see an uptick in distressed businesses in the winter months.
For this reason, it’s important that businesses develop a strategy to build resilience tailored to their specific needs. It is never too early to seek advice so that all options can be considered.
Addressing challenges as soon as they appear – and seeking any help needed – will maximise the amount of time management teams, their advisers and partners have to assess the issue and consider a range of possible options. This will in turn maximise their chances of recovery.