Last Month’s Budget was Largely Positive for UK Businesses
With the dust now settled on the autumn budget, what are the main takeaways for the business community?
With a Brexit a little closer and turmoil among ministers leading to growing discussion of a leadership challenge, the last thing Theresa May’s government needed was a controversial budget. It is unsurprising, therefore, that when the attention focussed on Phillip Hammond at the end of last month, there were no major points on contention in his red briefcase.
Yet while the usual pinch points such as personal taxation and the prices of alcohol, tobacco and fuel produced no surprises, the media coverage was less clear on how the budget will affect businesses. It is a question that business accountants up and down the country have been fielding from their clients over the past couple of weeks, so let’s get the low down.
The government has been outspoken in its support of small businesses and startups, and there are a number of initiatives already in place that provide loans and grants for entrepreneurs. The budget announced increased investment funding, in a clear bid to deter businesses from battening down the hatches in the run up to Brexit and to prevent stagnation in the small business economy during these uncertain times.
To do this, the Chancellor announced a new capital allowance for expenditure on non-residential structures and buildings. He also confirmed that the annual investment allowance would be temporarily inflated to £1 million.
Referred to as the Structures and Buildings Allowance (SBA), the new incentive means that eligible construction costs incurred after 29 October will be eligible for tax relief at a rate of two percent over a 50 year period on a straight-line basis.
As things currently stand, buildings and structures are not eligible for capital allowances. A similar incentive was in place prior to 2008, when allowances were made available at a rate of four percent for capital expenditure on industrial buildings. These allowances were gradually phased out between 2008 and 2011, after which only plant and machinery inside a building was eligible.
So what is meant by “structures and buildings?” While the details are yet to be formally published, it is broadly accepted that offices, retail premises, wholesale premises, warehouses, factories, bridges, walls and tunnels will all be included. The incentive will apply both to new constructions and to the conversion or renovation of existing commercial buildings and structures. The allowance does not apply to residential dwellings or to expenditure made on land itself.
Short term stability, long term obscurity
The above measures are good for businesses, but there is a definite feeling that they are sticking plasters aimed at keeping the economy afloat over the difficult months ahead. Mr Hammond’s budget provided little information in relation to any long-term strategies for business.
It is understandable given the broader political and economic landscape, but also a little frustrating. After all, a business that is serious about investing capital in buildings and infrastructure clearly needs to have a long term focus. Both businesses and their financial advisors were left with a feeling that the post-Brexit economy is something that nobody at government level wants to start talking about just yet.