Autumn Statement: Businesses need continuity to face post-Brexit uncertainty

Menzies LLP's Stephen Hemmings explains why business continuity and long-term planning are crucial for UK companies to boost investment.

In the current climate of Brexit uncertainty and currency fluctuations, entrepreneurs and small and medium-sized businesses need tax changes that provide continuity and encourage long-term planning and investment.

In particular, Chancellor Philip Hammond has an opportunity to introduce fiscal measures to incentivise international corporate investment in the UK, while also encouraging home-grown businesses to invest in capital, innovation, skills and business growth.

We would like to see the Chancellor launch a far-reaching investment manifesto for the UK, backed up by tax legislation that will attract multinationals and boost the thriving tech sector. This manifesto needs to encompass core areas such as incentivising R&D, attracting inward investment and encouraging investment in training and skills development.

SMEs will be hoping that the Chancellor announces changes that are designed to boost business confidence. Further reductions in the headline rate of Corporation Tax are unlikely. However, it is possible that the Chancellor might opt to boost consumer spending and grease the economy by cutting VAT for a temporary period. This could be beneficial in the short-term but could have an inflationary effect, encourage imports and increase the balance of payments deficit. This could be counterproductive in the longer term.

Instead, the Chancellor should concentrate on scoping out a more long-term vision for the UK tax system that takes into account Brexit.

The measures that would provide most support for UK-based and incoming SMEs include:

Annual investment allowance (AIA)

There were no changes in this year’s Budget, but any move to increase the AIA above the current level of £250,000 would help to encourage business owners to invest in capital assets and facilitate growth. Setting out a three or five-year plan for AIA increases would also allow businesses to plan for the long term.

R&D tax relief and Patent Box

There is an opportunity to put in place a plan for incentivising innovation to be introduced post-Brexit, once EU State Aid restrictions are removed. The R&D tax relief scheme could be extended to provide further encouragement to innovation-led businesses. Simplifying and extending the Patent Box regime could also help to attract international investment.

Apprenticeship levy

Due to be introduced in April 2017, the Apprenticeship Levy is more limited in scope than it needs to be. Instead of just creating a fund to support the creation of openings for apprentices, it could be extended to encourage more investment in training and skills development generally. Taking this approach could help SMEs to address current skills shortages and prepare for a future which may exclude access to low-cost EU workers.

Free trade zones

As well as doing some of the above, the Chancellor should consider ways to mitigate the impact of reduced EU investment in the UK post-Brexit, whilst also boosting Britain’s attractiveness to growing businesses.

The Chancellor can afford to be creative about ways to support innovative companies in the future. For example, a version of the free trade zones established in regions such as Dubai and Shanghai could be replicated here in parts of the country that most need inward investment. These zones could offer small and medium-sized businesses a favourable tax environment in which to grow, with each area focussing on a specific industry. I would see this as a more targeted and effective version of the UK Enterprise Zones which, Canary Wharf aside, have not left a substantial legacy to date.

Stephen Hemmings is a tax partner at accountancy firm, Menzies LLP.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

Related Topics

Autumn Statement
Brexit