Spring Statement: How is your business affected?

The Chancellor of the Exchequer, Rachel Reeves, delivered her Spring Statement last week in which she outlined the government’s economic plans, including spending decisions, tax policies and efforts to boost growth while managing public finances.


What did the statement tell us about public finances and the economy?


The Statement came on the back of the latest forecasts prepared by the Office for Budget Responsibility (OBR). The forecasts showed a more challenging outlook than was the case last autumn. The OBR cited falls in business and consumer confidence, rising European energy costs, increased government borrowing costs and global uncertainties from issues such as the war in Ukraine and trade tariffs.


As a result, the OBR have downgraded their forecast of GDP growth to 1% for this year. Last autumn they predicted growth of 2%, so this is a significant adjustment in their expectations. However, their projections of growth in the next four years have been upgraded, suggesting that they see the long-term more positively.


The OBR have forecast inflation to average 3.2% this year, up from 2.6% in their previous estimate. They predict that inflation will fall to 2.1% in 2026 and 2% in 2027.


The forecasts also showed that without intervention, public finances would fall short of the targets set at the Autumn Budget.


What has the chancellor done about it?


Much has been made in recent weeks of the Chancellor’s self-imposed stability and investment rules, and whether she will be able to maintain them in the face of the afore-mentioned challenges.


However, the Spring Statement confirmed the Chancellor’s commitment to the rules.  Governments often use these fiscal rules to provide credibility to financial markets.


This decision meant there was pressure on the Chancellor to either raise taxes or reduce spending to cover the forecast shortfall.


In good news for businesses, the Chancellor made no direct increases to taxes. She confirmed her intention to have only one major fiscal event a year and so further tax changes will wait until the 2025 Autumn Budget.


Instead, the Statement outlines a number of plans to reduce public spending, including welfare reforms, and reduced day-to-day spending in government departments. In addition, it is clear the Chancellor has adopted a policy of growing the economy and is looking at ways to promote that, including by supporting increased homebuilding activity. Economic growth is aimed at ‘putting more money in people’s pockets’, but it also indirectly boosts the revenues the government receives.


The OBR have confirmed that the policies outlined in the Spring Statement largely restore the public finance targets set last Autumn.


Will there be any effects on my business from policies announced in the Statement?


Here’s some quick highlights of measures that may affect your business.


Making Tax Digital


The Spring Statement confirmed that Making Tax Digital for Income Tax (MTD for IT) will be further extended to bring in sole traders and property landlords with income of £20,000 or more.


Read our separate article on MTD for IT to see how and when your business might be affected.


Business rates reform


The government has been consulting on longer-term measures to support high street businesses. The Spring Statement confirmed that an interim report on the future of the business rates system will be published in the summer. Further policy detail will follow in the autumn.


Additional clarity on R&D reliefs


Due to the complexity of the rules around R&D reliefs, many companies do not know at the point of making an R&D investment whether the costs will qualify for R&D relief. This can lead to no claim being made, or a claim being made that doesn’t qualify.


HMRC already offer voluntary advance assurances to businesses to help them have more certainty about their claim. However, this service is not commonly used.


The government is consulting on widening the use of ‘advance clearances’ to try and make them more useful and reduce errors and fraud. One aspect being considered is whether to make assurances mandatory in certain areas – particularly those where HMRC feels the risk of an incorrect claim is high.
The consultation also considers whether there should be a minimum expenditure threshold before R&D relief can be claimed. In the past, a £25,000 threshold has been used.


Phoenixism to be tackled


‘Phoenixism’ is where company directors go insolvent to evade tax and write off debts owed to others, and then start a new business.


HMRC, Companies House and the Insolvency Service will be delivering a joint plan to better tackle those abusing the insolvency regime. This will include making more directors personally liable for the taxes of their company and increasing the number of enforcement sanctions.


One aspect that could affect newly formed companies is that HMRC may ask for an upfront payment of tax as security.
Final thought


Some may have hoped the Spring Statement would bring some relief from the Employers NI changes due to go into effect in April, however the Spring Statement mainly focused on government policies related to public, welfare and defence spending. Announcement of any further tax changes will now wait until the 2025 Autumn Budget.


If you are concerned about how any aspect of the Spring Statement may affect you, please get in touch with us. We would be happy to provide you with personalised advice.