Acknowledging the challenging economic climate that businesses are facing today, and with uncertainty over the short to medium term, UK Chancellor Alistair Darling’s 2008 Pre-Budget Report (PBR) has given a ray of hope to UK companies, particularly small and medium enterprises (SMEs).
The report includes:
- Measures to help SMEs facing credit constraints, including a new Small Business Finance Scheme to support up to £1bn of bank lending; a separate £1bn guarantee facility to support bank lending to small exporters; a £50m fund to convert businesses’ debt into equity; and a £25m regional loan transition fund.
- A new HM Revenue & Customs (HMRC) Business Payment Support Service to allow businesses in temporary financial difficulty to pay their HMRC tax bills within a timeframe they can afford.
- More generous tax relief for businesses now making losses and the modification of a number of planned tax reforms, including vehicle excise duty, air passenger duty, and deferral of the 1p increase in the small companies’ rate of corporation tax to 2010. Businesses can now carry back losses up to £50,000 for three years instead of the normal one, but this extension is only for a year.
- A package of reforms to the taxation of foreign profits, including the introduction of a foreign dividend exemption for large and medium-sized businesses in 2009, supported by a worldwide debt cap on interest
- The Value Added Tax (VAT) rate will be temporarily reduced by 2.5% to 15% from 1 December 2008 until 31 December 2009.
- A new initiative to fill 500,000 job vacancies with 20 major employers by speeding up recruitment and improving access to training.
Specifically addressing the need of companies to delay their tax bills, the HMRC will offer further practical help by not imposing additional penalties or surcharges on the tax within a time-to pay arrangement. In a statement on its website, HMRC chief executive, Lesley Strathie, said: “We are committed to supporting businesses experiencing temporary difficulties and understand that some businesses want to talk to us about the amount of time they need to pay their HMRC taxes. Our new Business Payment Support Service will make this easier and faster. Callers will get through to an HMRC officer who will listen and provide a solution tailored to specific circumstances. Business people who find that they need more time to pay will receive a sympathetic response.”
Responses to the 2008 PBR
The primary objective of the PBR is to re-establish liquidity in the UK economy and it has gone a long way to doing that. By pumping about £20m into the economy through VAT cuts and other measures over the next year or so, Darling has presented a package which is both affordable in the long term but also effective in boosting the economy in the short term, according to John Hawksworth, head of macroeconomics at PricewaterhouseCoopers (PwC).”We think this will definitely help to take the edge off a recession, but I think some of that money will be saved and some of it will leak out in imports. So in itself it won’t save us from recession but if you can combine it with interest rate cuts, which hopefully we will get more of soon, we do think it will be positive for the economy over the next year,” he said.
For UK companies, Albert Ellis, CEO at Harvey Nash, says that the PBR presents a mixed, but on the whole positive, bag of reforms.”For companies, it is difficult to argue with many of the initiatives,” he said.”The proposed 2.5% reduction in VAT combined with low interest rates represents good news for every industry, but particularly the tech sector, making both hardware and software cheaper for the end user and reducing the cost of investment in capital on which IT spend is so reliant. This and the multi-billion pound pot of tax relief and credit support for smaller businesses provide a much-needed fiscal injection, which will kick start credit flow, reinvigorate business confidence and ultimately stabilise the economy. Larger firms, too, stand to benefit from tax breaks on foreign dividends.”
Barry Marshall, UK head of tax at PwC, pointed out that large business will welcome the long awaited participation exemption for foreign dividends to be brought in from April 2009.”However,” he warned,”we must await until December for more details of this, along with more information on an introduction of a worldwide cap on interest deductions and changes to the controlled foreign company rules, only then can it be determined if the overall package will make the UK more competitive for multinational companies.”
As individuals, however, UK companies will be called upon to foot some of the bill of this bid to boost cash flow, as the PBR introduces a new higher rate of income tax of 45% for incomes above £150,000. Senior executives face higher income tax and increased national insurance contributions, which will directly impact bonuses and disposable income. Ellis from Harvey Nash warns that this sort of punitive taxation on high earners will have a direct impact on the UK talent pool.”Our recent research has shown that the high cost of living is already deterring senior talent from working in the UK and this new income tax hike could penalise C-level executives even further, reducing the UK’s appeal as a place of work and commerce and ultimately denting its global competitiveness,” said Nash.
There has been an uptick of treasurers inquiring about interest rate risk management in recent months as interest rates in the US and UK have started to show a rise in momentum, said Chatham Financial at the annual Bellin treasury conference.
The global economy has seen about eight years of growth, but we are starting to see the end of this which is triggering some volatility in global markets, Stefan Bielmeier, DZ Bank, argued in his keynote speech at the Bellin annual 1TC conference. Other speakers discussed blockchain, cyber crime and netting.
A series of governments are now very worried about the idea of bitcoin and these currencies because customers would be able to make sustainable ongoing transactions and payments without having to ever introduce the use of a typical financial model or banking system. To combat this potential threat, several countries including major central banks like the Bank of England and the Bank of Israel will be launching their own version of a cryptocurrency. This could bring big advantages to customers.
Inthe UK’s recent Autumn Budget, Chancellor Phillip Hammond vouched for a plan to build a British economy that is “fit for the ... read more