Rachel Reeves delivered her Spring Statement with a focus on fiscal discipline rather than business relief, offering a sober assessment of Britain's economic outlook. Despite intense lobbying from business groups, the Chancellor provided no concessions on the significant cost increases set to hit firms from next week, choosing instead to emphasise the need to balance the nation’s books. Speaking at the despatch box for just 25 minutes, the Chancellor painted a picture of economic challenges requiring fiscal restraint.
The statement confirmed that the raft of business cost increases announced in October's Budget will proceed without mitigation. From 1st April, employers' National Insurance contributions will rise by 1.2%, from 13.8% to 15%, while the threshold at which businesses begin paying National Insurance on a worker's earnings will be significantly lowered from £9,100 to £5,000. Alongside this, the National Living Wage will jump 6.7% to £12.21 per hour.
For many businesses - particularly those in the hard-pressed retail, hospitality and leisure sectors who had hoped for an increased relief rate - the lack of new support measures represents a substantial financial challenge.
Though no new taxes were announced, the Chancellor placed significant emphasis on tackling tax evasion. The Government will increase investment in cutting-edge technology and HMRC capacity, with plans to raise the number of those charged with tax fraud by 20% annually. These measures are expected to generate an additional £1bn in revenue, bringing the total from tax evasion crackdowns to £7.5bn.
For accountants, several significant policy announcements emerged in papers released after the statement. The Government confirmed that Making Tax Digital will expand to include taxpayers earning over £20,000 from April 2028. Additionally, penalties for late payment of income tax under self-assessment will double to 10% from 1 April 2025, with further increases for prolonged non-payment.
Other policy consultations address tax avoidance, tackling tax advisers who facilitate non-compliance, and enhanced use of third-party data by HMRC. Collectively, these represent a substantial shift in the compliance landscape that accountants must keep an eye on for more detail and then navigate on behalf of their clients.
Although brief and to the point, for businesses and their accountants, the practical implications of this Spring Statement are not without drama. Firms must now prepare for significant increases in employment costs from April without any new relief measures. The enhanced focus on tax compliance, coupled with higher penalties for late payment, means ensuring accurate and timely tax support will be vital.
With confirmation of Making Tax Digital's continued expansion, accountants should look at the impact (and benefits) on their practices. Clear and proactive communication with clients is always a strong starting point where changes like this are concerned.
Looking ahead to the Autumn Budget later this year, there is widespread speculation about what further measures might be needed to balance the books. The Government may need to break manifesto pledges on tax rises or extend frozen thresholds and allowances to meet its targets. There are likely to be a few surprises ahead.
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