As part of a detailed response to the Chancellor’s Budget from MHA MacIntyre Hudson, Alison Horner, Indirect Tax Partner said freeports would usher in a new dawn for the UK to emerge as a global exporting power.
She said freeports will help the Government regeneration and levelling up agenda as well as promoting trade despite the UK’s slightly unorthodox use of them.
“Freeports are a major innovation for the UK. The UK’s use of them may seem slightly unorthodox because the benefits of a freeport are normally felt in high-tariff jurisdictions. As the government has recently made significant alterations to the UK’s Customs Tariff, by liberalising over 2,000 commodity codes to 0%, the benefits of operating within a freeport might be thought to be somewhat reduced.
“However, the government clearly see regeneration as a key factor in its use of freeports, and it is notable they are being set in areas such as Teesside and the Humber. This makes sense, as they could lead to the movement of manufacturing and warehousing into the Freeport zones as businesses seek to minimise their customs obligations and take advantage of UK tax reliefs that have been announced in the Budget, stimulating local economies.
“In addition, freeports will still be particularly attractive to those businesses that import goods with high customs tariffs such as textiles and footwear, as well as to food products which are processed in some minor way before being sold on to the EU. This is because they will enable these companies to avoid the double customs duty hit without having to use expensive customs warehousing regimes.”
On the super-deduction scheme – the standout tax giveaway the Budget – Nigel May, Partner, said it would produce enhanced relief, far beyond the usual investment allowance but is time-limited for good reason.
“It is clearly targeted at companies that have accumulated cash during the pandemic. Getting cash moving is vital to the economy and the measure should ensure that businesses are properly equipped to make the economy grow.
“The operation of the relief depends upon what the cost relates to. For most business equipment, there will be a super-deduction of 130% of the expenditure incurred. This will mean that on a spend of £100,000, the corporation tax deduction will be £130,000, giving corporation tax relief at 19% on £130,000 which is £24,700.
“It is no surprise the provision is not open ended. The government wants companies spending within the prescribed window. An extension of the policy would seem unlikely, although this will depend to an extent on its results. Ultimately, the success of the policy will depend on whether it generates large-scale capital spending in the UK by large companies.”
Sue Rathmell, Indirect Tax Partner, said that the Chancellor’s extension of the reduced VAT rate and the furlough scheme as well as his promise of cash grants allow the UK hospitality sector to breathe a sigh of relief.
“The UK hospitality sector is breathing a sigh of relief as the Chancellor seem to have listened to its pre-Budget requests. In particular, the extension of the 5% VAT rate for the UK hospitality sector for an additional six months up to the end of September 2021 is good news for businesses in the sector as it will cover the much important summer season. It was even more reassuring to see that in addition from October 1, 2021 to March 31, 2022, the VAT rate will increase to 12.5% before it returns to 20% with effect from April 1, 2022.
“With the lockdown easing over the next three months, tourism and hospitality businesses in the UK will be hoping that this VAT reduction will encourage the UK public to stay in the UK this year and make the most of UK resorts and destinations whilst supporting UK businesses. They desperately need a good summer 2021 season to help save jobs and shore up finances to be able to survive the current crisis.”
Brendan Sharkey, Head of Construction and Real Estate, said it was an extremely positive Budget for the sector and looks set to stimulate demand considerably.
“It is rare to listen to such an encouraging Budget and confidence will have increased markedly across the construction sector after hearing the Chancellor speak. The extension of Stamp Duty relief makes perfect sense given the backlog of housing purchases. The tapering of relief takes the angst out of deadlines while stimulating the number of transactions and new builds, which is all good news for the economy.
“In fact, when this is combined with the Chancellor’s new government mortgage guarantee scheme we could see an unprecedented rush to buy. So ,the only question is whether the developers can meet the demand as it takes time to bring stock in the market.”
Chris Denning, Head of Corporate and International Tax, said the rise in Corporation Tax, while still not necessarily a good idea, was complemented by enough innovative measures to give sceptics pause for thought.
“Viewed in isolation, increasing Corporation Tax as the Chancellor has done is a self-defeating strategy, but he did complement it with a very bold and radical response to the issues we are now facing. He’s at least given the doubters pause for thought and he is not guilty of a crude populist tax grab, but has put some real effort into making the UK more competitive.
“The government’s responsibility now, more than ever, is to create a platform from which the economy can grow. This budget appears to go some way towards achieving this. Assuming it’s uncapped, the 130% investment allowance (the super deduction scheme) is an unprecedented measure and should encourage investment. The introduction of the UK Infrastructure Bank is another bold move and should support and encourage investment, as will the Freeport proposals.
“There will still be debate around how the Corporation Tax increase in itself will impact our global fiscal competitiveness, particularly given our geographic and cultural proximity to Ireland, which could replace the UK as the gateway to Europe. The delay in implementation at least gives time for this to be reviewed and if possible reversed, if it needs be.”
Greg Taylor, Head of Financial Solutions, said that whilst replacing CBILS with the new Recovery Loan Scheme is much needed, together with other support measures, it risks creating a legion of ‘zombie’ companies not viable for the long term, with support extended beyond what was required.
“Although the Chancellor’s vow to support UK businesses during pandemic is absolutely the right move, my concern is that this Budget is increasing the risk of creating a legion of zombie companies. Allowing companies which are not viable in the long term to continue operating can hinder the restructuring of capital and labour from less productive businesses to more productive ones.
“The new Recovery Loan Scheme, which will allow businesses to borrow between £25,000 and £1m with an 80% government guarantee, is something UK business were calling for. It replaces the old and now outdated Coronavirus Business Interruption Loan Scheme (CBILS) with a scheme far more tailored for the current situation millions of businesses find themselves in a year into the pandemic. However, to ensure this new scheme really works and helps businesses cover their fixed costs and the costs of restarting or growing as restrictions are lifted. SMEs still require greater detail around who can borrow, the scheme criteria, and rates, plus security from borrowers.
“Overall there are some big giveaways for business. However, we should not forget the big tax increases potentially coming soon too, to enable the extra £60bn of COVID-19 support for this year to be paid for.”