Implications for family and owner-managed businesses

Kwasi Kwarteng’s mini-Budget on 23 September spooked the gilt market and so drew considerable political criticism which culminated is his forced resignation on 14 October. 

On the same day, Prime Minister Liz Truss bowed to economic and political pressure and in a short press conference announced that ex-chancellor Rishi Sunak’s original plan to increase corporation tax to 25% from 1 April will now go ahead – generating £18 billion of additional tax from UK corporates, including many modest sized family and owner-managed businesses.   

The U-turns continued on 17 October with new Chancellor Jeremy Hunt and the reversals taken together comprise direct contradictions of Truss’s stated tax policy and leaves her mandate in severe political difficulties.

Kwasi Kwarteng’s September announcements are now mostly reversed save for 1.25% additional dividend tax, some Stamp Duty Land Tax and some extensions to capital reliefs for investors. Chancellor Jeremy Hunt made an emergency statement in an effort to calm markets and will surely say more on spending in a further announcement (‘The Medium-Term Fiscal Plan’) planned for 31 October 2022. 

Such is the febrile nature of the political landscape at present that whatever Hunt says, businesses will need to keep an weather eye on the process by which new government policy becomes a Bill and then an Act of Parliament before they can be certain of what the fiscal environment will be next year and into the medium-term. We have now entered a period with much uncertainty but where the tax burden in business looks set to increase. 

Jeremy Hunt spoke of challenges and those who manage family companies will surely be defensive for a time, thinking about manging cash, reducing debt, hedging currency risk, and keeping an eye on customer behaviour and debtor exposure in a recessionary environment. Some fast thinkers will be examining their income-recognition approach and extraction policy in the light of higher tax company profits and dividends. 

The brief prospect of businesses operating in the free-market sunny uplands of a lower-tax environment has suddenly and significantly receded and who knows when it may return?

For more information on the issues raised in this article or to discuss your current circumstances get in touch with Simon Warne or your usual Crowe contact.