Bristol’s financial services sector was on the whole encouraged by the Budget – but with some reservations.
Karen Kirkwood, regional head of tax for accountants EY, pictured, described it as a ‘tales of the unexpected’ speech but said Philip Hammond had been careful to make sure he had enough wriggle room to hold a Spring Budget if warranted. 
“The Chancellor confirmed that, if there is a no-deal Brexit, there will be another full fiscal event early next year, upgrading the Spring Statement to a Spring Budget. It’s clear that Brexit might satisfy that ‘economic circumstances require it’ but perhaps the ‘unexpected’ might be a little more debatable.”
On the proposed digital services tax, she said Mr Hammond had drawn away from the EU model.
“The Chancellor set the rate at 2% – compared to the EU proposal of 3% – and targeted the tax at social media platforms, internet marketplaces and search engines. He also committed to a review in 2025, clearly indicating that he thinks that it may take quite a while for the OECD to gain any consensus on the international stage. The new tax will raise £440m per annum by the end of the Budget period but will include elements to protect those with low revenues and margins – namely technology start-ups.
“In drawing distinctions from the model under discussion in Europe, the Chancellor can be seen to be, once again, leading the debate in this contentious area, and we now wait to see which other countries follow in this battle over who should have the right to tax the profits of the internet giants.
“Caught up in the disputes between governments, businesses face the risk of double taxation and complex rules. That isn’t the best environment to encourage innovation at a time when the Chancellor is looking to the digital sector to boost the economy.”
The Chancellor’s move to prevent abuse of the SME payable R&D tax credit was welcomed by Jenny Tragner, director of Bristol-based R&D tax credit consultancy ForrestBrown and a member of HMRC’s R&D consultative committee.
Jenny, pictured, said: “We have seen first-hand the fantastic benefits that claiming R&D tax credits can deliver and so it is important this relief reaches genuinely innovative UK businesses. 
“To achieve this, the Government will reintroduce the PAYE and NIC cap on the SME payable credit that was abolished in 2012. This time, from April 1, 2020, the limit will be set at 300% of the company’s total PAYE and NIC for the period.
“For the vast majority of businesses, R&D tax credits are a valuable source of funding that helps them to grow and prosper. However, the Chancellor has done this to drive the right behaviours among businesses and help the incentive achieve its aims: to increase private sector investment in innovation. If SMEs invest in hiring their own staff, and creating STEM (science, technology, engineering and maths) jobs, the cap will not impact the cash they can receive.
“It is interesting that this Government is reintroducing a measure that it previously abolished. Unintentionally, early-stage innovative start-ups could be penalised if they can’t yet afford to take on permanent staff. We look forward to consulting on this issue with the Government.”
Jenny Batchelor, tax partner in the Bristol office of national accountancy group Grant Thornton, pictured, also singled out the ‘digital services tax’, saying Phillip Hammond’s announcement moved the UK ahead of international bodies like the OECD, although it did follow the actions of other countries such as Italy and Spain. 
She added: “The UK has to tread a fine line between being seen to be tough on multinationals and showing it is open for business, particularly as we prepare for a post-Brexit economy. One of the reasons that innovative businesses are attracted here is the combination of a stable tax regime and an even-handed approach.
“The UK has rightly prided itself on being at the forefront of international efforts by the OECD and G20 to tackle Base Erosion and Profit Shifting (BEPS – tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations).
“We believe now is the very time for the UK to be working alongside other countries in a concerted way, rather than going it alone and we are encouraged to hear that the Chancellor will look to adopt a consensus solution from the OECD/G20 when they report again on the digitalisation of the economy in 2019.”
