Labeled a “mini-budget,” Foreign Minister Kwasi Kwarteng’s September 23 Emergency Budget includes tax cuts on a scale not seen in more than 50 years paid for by high levels of government debt.
Kwarteng prefaced the announcements by stating that the current global energy crisis, for which he directly blamed Putin’s actions in Ukraine, required the same urgency for a government reaction as at the start of the Covid-19 pandemic.
Come as the cost-of-living crisis looks set to worsen, many, including those in the design industry, are likely to welcome the announced tax cuts for individuals and businesses.
But the Budget has been criticized for disproportionately benefiting the wealthy (protecting profits from energy giants and raising the cap on bankers’ bonuses) with little for the rest of the population beyond a 1% drop in the rate. basic income tax and temporary measures. to mitigate rising energy costs.
The mini-budget has also been criticized for being fiscally irresponsible, and the market reaction caused the pound to fall to an all-time low against the US dollar of $1.0327.
Power Bill Relief Scheme
The first and most pressing point concerned the energy crisis. In parallel with the energy price guarantee for households, it was announced that businesses, charities and the public sector will also see energy prices temporarily capped through government law. Power Bill Relief Schemewith an initial duration of six months, from October 1, 2022 to March 31, 2023. Design business owners are likely to welcome it, but it has limitations.
“A cap on energy bills for businesses will provide some certainty to rising costs, although we would like to see this benefit extend beyond six months,” says Deborah Dawton, executive director of the Design Business Association.
Tax cuts for individuals and businesses.
At the heart of the budget was a large package of tax cuts designed to make Britain more competitive and spur growth, factors that Michelle Denny-West, tax partner at accountancy firm Moore Kingston Smith, suggests are “key.” in the increasingly competitive design industry.
two changes to income tax coming in April 2023: the base rate will be reduced from 20% to 19%, a year earlier than planned, and the additional 45% rate will be removed for those earning more than £150,000. the national insurance The April 2022 increase will also be reversed effective November 6, 2022, and the proposed health and social care tax will be cancelled.
Among several tax cuts for businesses, the most notable is the cancellation of the planned increase in Corporation tax from 19% to 25% that was to enter into force on April 1, 2023.
Design Business Association CEO Deborah Dawson welcomed the news: “We are delighted that the planned corporate tax increase has been scrapped.
“Design companies making over £1m should be making over £50,000 in profit, so this would have affected a large part of the industry. This money can now be reinvested in the business or used to secure reserves against a possible recession.”
Other tax cuts include raising limits for employee share schemes Y venture capital schemes. While some of the proposed measures are of little help to SMEs, Denny-West highlighted changes in the Seed company investment plan (SIX). From April 2023, eligible design firms will be able to raise up to £250,000 under the scheme, a two-thirds increase over current levels, while the annual investor limit has been raised to £200,000. Those who invest under SEIS are entitled to generous tax relief, in particular, 50% of the qualifying invested amount is offset against your tax bill.
“Young companies in the design industry looking to raise funds for innovation and growth can only benefit from the increased investment limits of SEIS. This is a very welcome move.”
The planned increase from £200,000 to £1 million of the Annual Investment Allocation A 100% tax relief on capital will be made permanent for companies to invest in themselves. Denny-West suggests, however, that “those in the design industry will see little benefit unless they are planning significant investment in plant and machinery.”
Missed Investment Opportunities
Although the chancellor said the government “will not apologize” for focusing on growth, the mini-budget did not target the potential of the creative industries.
Creative UK Chief Executive Caroline Norbury OBE suggests: “If the Chancellor wants to boost economic growth, he should harness the huge potential of the UK’s highly innovative creative industries. They are growing at four times the rate of the economy as a whole, are the foundation of our global competitive advantage, and can play a vital role in this challenging economic climate.
“Modeling in 2021 revealed that, with the right investment, the UK Creative Industries could contribute £132.1 billion in GVA (Gross Value Added) and create 300,000 jobs by 2025, enough to employ two times the working-age population of Hartlepool and Middlesbrough.
“We look forward to the vision of the government’s creative industries sector this fall and other measures that will foster growth and ensure that our world-leading creative industries can thrive and fulfill their undeniable potential.”
Moore Kingston Smith tax partner Michelle Denny-West highlighted the missed opportunity to invest in R&D: “To encourage innovation and investment in the design industry, it would arguably have been more beneficial see greater availability of aid for the creative sector or a simplified R&D regime.”
She notes that some changes have already been seen, an idea also expressed by Design Council chief executive Minnie Moll: “It is encouraging that the review of R&D investments continues, and we hope to see the tax credit scheme UK R&D is expanded to include design Design is a driver and accelerator of innovation, but we know that 32% of businesses are still not using design.”
The reforms to IR35 will relieve the self-employed
Established to tackle “disguised employment” IR35 the rules required some freelancers and contractors to pay the higher rates of tax paid by employees, but without receiving the additional security of employment. These rules will now be removed as part of a plan to simplify taxes, a move welcomed by design leaders.
Design Business Association Executive Director Deborah Dawton says: “Removing IR35 rules in April next year eases the pressure on businesses to take on more responsibility, which will reverberate for the self-employed. This supports the government’s promise to take some of the complexity out of taxes, and that can only be a good thing.”
While little was said about “leveling up,” Kwarteng announced a plan to low tax investment zonessaying, “If we really want to level up, we have to unleash the power of the private sector.”
However, Shadow Chancellor Rachel Reeves argued that the plans would not achieve the intended results, but instead would have the effect of “moving growth across the country, not generating growth”.
Talks are underway with around 38 local authorities, with the chancellor mentioning the Tees Valley, the West Midlands, Norfolk and the west of England, while inviting devolved administrations to take part in the plan.
For companies in these areas there will be a 100% tax deduction on investment in plant, machinery and new buildings. In addition, employers will not pay National Insurance on the first £50,000 of workers’ wages.
Design Council Chief Executive Minnie Moll comments: “We welcome the government’s commitment to support local economies, with new investment zones across the UK.
“The design sector contributed £97.4bn in GVA in 2019, growing at twice the rate of the UK economy over the last decade. This is an opportunity to support growth through the expansion of existing design businesses and the creation of new ones.”
Growth at the expense of the environment
Alongside these investment zones, the chancellor announced plans to deregulate local planning regulations in order to speed up infrastructure and housing projects. However, this raises fears that factors such as environmental impact are not sufficiently considered.
This was a key point for Design Council’s Minnie Moll: “As 40% of carbon emissions come from the built environment, it is essential that environmental impact is prioritized in the proposal for liberalized planning reforms.
“We need to make sure the design will protect biodiversity in local areas and help meet the government’s goal of net zero emissions by 2050.”
What other thing?
Purchases without VAT for international tourists it will be reintroduced after then-foreign minister Rishi Sunak scrapped it in 2021, a change that will be welcomed by the retail sector.
Stamp duty will be permanently cut, meaning no property taxes will be paid on properties up to a value of £250,000. Threshold for first time buyers raised to £425,000
banker’s bonds will no longer be covered
Banner images by Dominika Zara, Shutterstock