Grow economy by encouraging firms to invest, says tax expert

By MHA

24 Feb 2021

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Tony Medcalf, tax partner at MHA Moore and Smalley, looks ahead to the budget on March 3 and the measures the Chancellor could put in place to support business recovery from the Covid-19 pandemic.

If I could ask one thing of the chancellor for the upcoming budget it would be a focus on tax relief schemes which encourage businesses to expand by investing in their own productivity. I believe the government should prioritise putting measures in place to help the UK economy grow out of the current financial situation, which will in turn help generate more tax revenue.

Prompting companies to invest in their own productivity could be done through extending capital allowances, such as the Annual Investment Allowance, or giving businesses better access to money to help them make these investments.

This could be through government-backed funding initiatives but also by better incentivising shareholders to invest money into their business.

I would also like to see targeted tax relief for business investment into certain areas. There is a lot of speculation about how the government will support the creation of a series of freeports across the UK which it is likely to link to the ‘levelling up’ agenda.

We may also see further government support for Enterprise Zones, which benefit from enhanced capital allowances.

This year’s budget could see an increase in capital gains tax. We could also see new taxes based around how long an asset is owned.

Speculation is also circulating about increases to corporation tax. While I believe it is currently more important to introduce measures which prompt business growth, if raising corporation tax is firmly on the government’s agenda it may be sensible to do this now, rather than avoid raising taxes during an election year.

Fuel duty is often a point of discussion when the budget comes around, and an increase in fuel duty would not be unreasonable this year. With less people currently using their cars, the government may see this as an opportunity to raise rates without much immediate impact.

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