With tax reliefs on the table but further inflation on the horizon, what does the Autumn Budget mean for finance directors and CFOs? Karen Campbell-Williams, Head of Tax at Grant Thornton, explains what’s in it for you.
With wine mentioned as many times as innovation and business rates in Chancellor Rishi Sunak’s Autumn Statement, UK CFOs and finance directors will need to keep a clear head following today’s Budget announcements.
Key takeaways from the Autumn Budget
OBR warns inflation could hit 5.4%
Rising inflation looks to be a longer-term issue than predicted as the sudden surges in demand following the easing of COVID-19 restrictions are not met by similar levels of supply. In its scenario planning, the Office of Budget Responsibility (OBR) predicts inflation could hit 5.4% – its highest in about 30 years. Further increases will put more pressure on the Bank of England to respond, with the OBR forecasting a Bank Rate of 3.5% (from just 0.1% today) if this eventuality occurs.
Further measures to unlock innovation investment
From 1 April 2023, Research and Development (R&D) tax reliefs will be reformed to expand qualifying expenditure to include data and cloud computing costs - which for many is an intrinsic and growing part of their R&D activity.
The changes to focus innovation spend on the UK alone are much less positive, although they come as no surprise as it aligns the incentives to other countries such as USA, Canada, Hong Kong, and Australia.
A full update from HMRC following the recent R&D tax consultation is expected later in autumn.
Increases to the National Living Wage
The National Living Wage will increase to £9.50 an hour, up from £8.91.
While welcome for employees, finance leaders need to consider the impact this will have on company finances and cash flows, especially given previously announced increases to National Insurance Contributions.
Business rates changes
The Chancellor introduced a new 100% ‘business rates improvement relief’ for 12 months after making qualifying property improvements and a 'green investment' exemption for eligible green energy equipment.
There is also a one-year 50% business rates discount for retail, hospitality, and leisure sectors, some of the hardest-hit in the pandemic. Any eligible business in these sectors can claim a discount of up to 50% up to a maximum of £110,000 – a business tax cut worth almost £1.7 billion.
How should finance leaders react?
Change is here to stay. Whether it’s forecasting the effects of rising inflation or capitalising on the best incentives to kickstart innovation, having the headroom to take stock can transform your challenges from priorities to plans.
Here are a few things to focus on:
Take advantage of available support
With financial support for businesses much less of a focus compared to most recent Budgets, you should access the new and extended reliefs as much as you can. Take the time to explore the details to see if you’re eligible.
One of the biggest opportunities for business will be around the expansion of eligibility for R&D tax reliefs – though care will have to be taken given new geographical restrictions. Businesses should be modelling the impact of the changes, planning to access the new reliefs and mitigate the impact of the less favourable changes.
Don’t forget the capital allowances super-deduction from the March budget – that runs until March 2023 and is worth up to 25p cash for every £1 spent – so worth accelerating qualifying capital spend. The £1 million Annual Investment Allowance is now staying in place until March 2023 so another reason to look at capital spend.
Prepare for inflation and associated moves in interest rates
Review exposure in longer term contracts and initiate mitigation discussions early. In addition, consider actions such as:
reviewing impact on ability to meet covenants if extra costs cannot be passed through
updating investment appraisal methods
Focus on agility
You should prioritise retaining operational agility and adapt to remote/hybrid working given that COVID-19 has not gone away and our clients are telling us that hybrid working is the new normal. Employees want the flexibility to work in an agile and flexible way and the businesses who can adapt quickly will win in the battle for talent.
Not only can the finance function work in an agile way, but it can also help to support agility across the whole of the business to help drive performance and recruit and retain talent.