Dawn MacDougall

The budget announcement on March 3 will finally reveal how the chancellor is going to tackle the tangle of financial challenges brought about by a global pandemic, an economic crisis, the fallout of Brexit and the climate emergency.

The firm has predicted an announcement on Freeports, a rise in corporation tax, altered R&D incentives and moves towards a more wide-ranging surcharge on online sales.

Dawn MacDougall, tax director at MHA Henderson Loggie, said that Government borrowings are currently at their highest since the end of the Second World War, yet she urged that it is unlikely there will be tax rise surprises in the Spring budget statement.

She said: “Instead, businesses in sectors most affected by Covid control measures could see job support schemes being extended beyond April 30th. There may be similar extensions for the business rates relief due to end 5 April and the reduced VAT rate for the hospitality sector due to end on 31 March. However, in line with the manifesto pledge we see no further cause to increase the VAT rate.”

MHA Henderson Loggie expects to see a 1% increase in the headline rate of corporation tax, to 20%. Following the recession caused by the financial crash in 2008 the government extended the corporation tax loss carry back from 12 months to 36 which made an enormous difference to the cash flows of viable businesses. The Chancellor may opt to reintroduce such a measure.

Ms MacDougall continued: “The UK’s digital services tax was introduced with effect from 1 April 2020, and generally operates as a 2% tax on the turnover of groups of companies providing certain digital services.

“However, the thresholds are set such that the tax only applies to the largest digital businesses, and only a narrow set of activities are in-scope. Due to lockdown some outlets are reporting a boom in online sales and it has been widely reported that the Chancellor is considering introducing a more wide-ranging surcharge on online sales.

“It would be a surprise if legislation to implement an online sales tax was introduced at Budget 2021, but a consultation on the potential design of such a regime is certainly a possibility.

“Boosting business investment will be high on the agenda so increases in capital allowances rates – particularly those that support the Government’s carbon reduction agenda such as low carbon vehicles and energy efficient technology - are quite possible.

“The government had previously announced that the reduction in the Annual Investment Allowance, a 100% relief for qualifying expenditure on plant and machinery, from £1m to £200,000 would be delayed until 1 January 2022. To boost investment, it is possible a further deferral will be announced.”

Ms MacDougall added that R&D incentives are another way of boosting the economy. In the Spring 2020 budget the government announced it would consult on an expansion of the existing cost categories to include expenditure on data and cloud computing costs.

This consultation closed in October 2020 and it is likely the chancellor will use the budget to confirm he will proceed with this proposal.

Ms MacDougall concluded: “Finally, I am expecting we will hear an announcement on Freeports. Following the UK’s departure from the EU the government sees the establishment of new Freeports as a means of boosting trade, jobs and Investment across the UK.

“Businesses will be able to claim reliefs from key business taxes within a Freeport, for example, enhanced rates of Structures and Buildings Allowance and enhanced relief for companies investing in qualifying new plant and machinery assets.

” As well as these anticipated announcements on Freeports the Chancellor may seek to announce new Enterprise Zones, in areas hit hard by Covid. Current enterprise zones already benefit from some of the tax advantages being mooted for the freeports.”