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The impact of the Budget on you

Atif Butt 1280.jpeg

The impact of the Budget on you

Atif Butt examines the challenges and opportunities for the independent pharmacy sector arising from the recent Budget…

The Chancellor Rishi Sunak used his Autumn Budget on October 27 to set out his plans for growth and show the government will support businesses to “build back better” and create “a stronger economy for the British people”.

While there was a commitment to provide an extra £5.9 billion in funding for the NHS, there was no specific mention of community pharmacy or of any plans to provide additional support to the sector in the future.

This was disappointing news for those who had been hoping that the Chancellor would use this opportunity to recognize the critical role the sector has played in responding to the Covid pandemic and the unprecedented challenges and financial pressures it currently faces. However, among the new measures unveiled there was both good news and bad news for community pharmacies.

The bad news…
From 1 April 2022 the government will increase both the National Minimum Wage and the National Living Wage, with the increases amounting to 10 per cent for 21-22 year-olds and 6.6 per cent for those aged 23 years and over.

Prior to the Budget, in September 2021, the government had announced an increase to National Insurance rates of 1.25 per cent that also takes effect from April 2022. Taken together, these changes represent a big increase in staff costs for a sector where wages account for a significant proportion of overhead costs.

With funding levels frozen by the five year contractual framework and inflation rising sharply, sector leaders have expressed concern that increased wage bills will add to the financial pressures already faced by struggling pharmacies, who are unable to pass rising costs on to their customers.

… and the good news
Following the conclusion of an 18-month government review that was published on the day of the budget, the Chancellor stated that business rates would not be abolished, but would be reformed to create a “simpler, fairer, and more competitive tax system” for businesses.

A new business rates relief has been introduced in England for eligible retail properties that will be available for one year to support local high streets as they adapt and recover from the pandemic. Community pharmacy businesses will receive a discount of up to 50 per cent from their business rates bills, capped at a maximum of £110,000 for the 2022-23 year.

In addition to this, the planned annual increase in business rates for 2022 has been scrapped for the second year in a row. Although only temporary, these measures will provide a welcome cash-flow boost for operators struggling with rising costs in other areas.

The Chancellor also announced a number of key reforms to the system to make it fairer and more timely, starting with a move to three-yearly revaluations from 2023.

Two other new reliefs were announced. From 2023 a new Investment Relief will be available to support businesses investing in green technology, and a new Improvement Relief will be introduced giving 12 months’ business rates relief on improvements and expansion to business premises.

The government will consult on how best to implement the Improvement Relief, but it is planned to take effect from April 2023 and be reviewed in 2028.

For pharmacy businesses that operate as limited companies, and that are planning to carry out a store refit or other property improvements or expansions in the near future, it’s advisable to consider the timing of this to see if there is an opportunity to reduce your overall tax bill, as there have been other recent tax changes that you could benefit from.

In the Spring budget in March, the Chancellor announced several tax changes, including an increase in the main corporation tax rate from 19 to 25 per cent that will take effect from 1 April 2023, and the introduction of new super-deductions for qualifying capital expenditure incurred from 1 April 2021 to 31 March 2023.

If you are considering making improvements to your property, take advice from your accountant on getting the timing right, so you can maximise the available tax savings.

Atif Butt is a senior accountant from Hutchings Accountants.

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