Scottish financial sector responds to Spring Statement

Scottish financial sector responds to Spring Statement

Rishi Sunak

Scottish accountancy firms and financial regulatory bodies have responded to Chancellor Rishi Sunak’s Spring Statement announced yesterday.

The Chancellor cut fuel duty by 5p per litre, which came into force from 6pm last night and will last until March next year. He also announced that the income threshold for people to start paying National Insurance will rise to £12,570 in July. Mr Sunak claimed this is worth over £330 per year for millions of UK workers.

At the same time, the Chancellor promised to cut basic rate of income tax from 20p to 19p in the pound before the end of this Parliament in 2024.

The Employment Allowance, which gives relief to smaller businesses’ National Insurance payments, will increase from £4,000 to £5,000 from April.

The Chancellor also revealed that local authorities will get another £500m for the Household Support Fund from April.

However, John Cullinane, director of tax policy at the Chartered Institute of Taxation (CIOT), has urged that the actual National Insurance threshold for 2022/23 will end up being lower than the income tax personal allowance because the changes don’t take effect until July.

He highlighted that for the first 13 weeks of the new tax year, National Insurance will be paid at the original earnings threshold of £190 per week.

From 6 July, this threshold will increase to £242 per week. Mr Cullinane said: “There are practical reasons why this change can not be made immediately, but it has the effect of reducing the effective NI threshold over the course of the upcoming tax year from £12,570 to £11,908”.

“Once this year’s changes have been implemented, the impact of the Scottish Government’s 19p starter rate of tax will mean that workers earning less than £27,850 will be up to £21.62 better off compared to someone doing the same job for the same salary elsewhere in the UK.

“However, the announcement does nothing to address the anomaly that will see Scots with earnings between £43,662 and £50,270 taxed at a marginal rate of 54.25% on this portion of their income, compared with 33.25% in the rest of the UK.

Discussing what the Spring Statement means for Scottish businesses, Martin Bell, partner and head of tax at BDO in Scotland, said: “The Chancellor set the scene for an overhaul of Britain’s corporate tax system to boost business investment and improve the UK’s economic growth prospects.

“Themes in focus were capital, skills and ideas with the hint of new incentives for investment as the existing super deduction relief is currently due to end in 2023. This may be extended or expanded in its use. Overall, he was clear that businesses will be encouraged to invest for growth. “

He continued: “The statement also highlighted plans to improve the apprenticeship levy, to ensure it is incentivising employers to deliver the right kind of training to boost productivity. Currently, Scottish employers with an annual wage bill over £3 million have to pay it regardless of where their workforce is based.

“The Chancellor confirmed further proposals to expand and improve R&D tax relief to supercharge innovation. This will hopefully be welcomed by business as BDO’s most recent Rethinking the Economy survey showed that research and development was the most immediate business priority for 20% of Scottish businesses.

“As the Chancellor consults with businesses ahead of the Budget, he will find businesses are looking for very targeted support. A third of businesses told us they believe the Government should prioritise tax cuts or subsidies for businesses based outside London, for example.”

Andrew Howie, managing partner of Grant Thornton Scotland, warned that the measures announced will “not immediately ease the pressure on households and businesses facing pressure to raise wages.”

He added that “while it’s clear the economy is not out of the woods”, Grant Thornton looks forward with interest to the Autumn Budget and to learn more about the Chancellor’s plans to cut business taxes to drive innovation and investment and supercharge future growth.

Sharon Blain, tax director at PwC Scotland, said: “While income tax thresholds are set in Holyrood, the rate of National Insurance Contribution remains a reserved matter and so the changes announced by Rishi Sunak will apply in Scotland, meaning the impact of the health and social care levy will be partly mitigated for lower income earners.

“The planned 1p cut in the basic rate of income tax will not apply in Scotland but it may influence the decisions made by Kate Forbes. Since income tax rates were devolved in 2016 the Scottish Government has been able to declare that the majority of Scottish taxpayers pay less income tax than the rest of the UK - this may no longer be the case if the cut goes ahead in 2024.

“To help reduce the cost of living there was also a 5p cut in fuel duty, representing an 8.6% reduction, though there had been calls for a greater temporary cut to offset the recent increases at the pump.”

Susan Love, strategic engagement lead for ACCA Scotland, commented: “The Chancellor needed to use today’s statement to prioritise supporting Scotland’s small and medium businesses through the current onslaught of cost increases. While some positive steps were announced, many small businesses would have wanted to see more immediate support.

“Changes to the Employment Allowance and National Insurance Contribution thresholds are both welcome steps, though we called for the NICS increase to be postponed by a year. Many small firms will welcome the fuel duty cut announced but are likely to be frustrated by the lack of help on business energy bills.”

Sandy Begbie, chief executive of Scottish Financial Enterprise, welcomed the intent of the future tax plan in relation to “encouraging greater productivity and incentivising businesses to invest in growth and innovation.”

He added: “As the Chancellor rightly acknowledges, a key defence against falling living standards lies in a successful economy, innovation, and crucially, improving our energy security and continuing to invest in the transition to net zero. Scotland’s world-class financial services and energy sectors will play a pivotal role in this endeavour which will be the focus of discussion at our ‘Financing Energy Transition’ Summit later this year, which the Chancellor has been invited to attend.”

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