With the Autumn Budget just days away, everybody is wondering what Rishi Sunak’s next move will be. On Wednesday 27 October, The Chancellor of the Exchequer will reveal his spending review plans, setting out the government’s financial strategy. He’s expected to reveal a number of measures to curb spending and balance the books after racking up trillions in debt during the pandemic.
But rather than just waiting for Rishi to appear in the Commons, we caught up with our Executive Director, Paul Hulme, to tease out his predictions.
Paul said “The big take-aways from Rishi’s first budget back in March, were the announcement of the ‘Super Deduction’ for capital expenditure and the upcoming corporation tax rate increases".
“The Corporation Tax increases are estimated to raise an additional £12billion in 2023/2024 rising to £17billion in 2025/2026, but this time round The Chancellor claims to want to cut taxes at the same time as putting public finances back on a sustainable footing. In my mind, this can only mean that we should expect a relatively quiet budget”.
Thanks to the pandemic, national debt is currently at its highest since 1963, however the economy is still booming, furlough has ended and the number of people back in work is back to pre-COVID levels.
This year has already seen significant tax increases, including freezing personal allowances and the new Social Care Levy, nonetheless the UK now faces its highest tax burden in decades. So, what does this mean?
Here are Paul’s eight key areas to watch…
1. Income Tax & National Insurance
With the recent proposal of a 1.25% increase in National Insurance & Income Tax Rate on dividends from April 2022, its unlikely that there will be a further increase in this budget.
2. Capital Gains Tax
Compared to other taxes Capital Gains Tax doesn’t raise that much - it only actually affects around 300,000 tax payers and raises less than £10billion each year. By comparison, the new Social Care Levy (1.25% increase in National Insurance & Income Tax on Dividends) is likely to raise £12billion per annum.
Entrepreneurs Relief could possibly be dropped; however, this has already been cut considerably, most noticeably in 2020.
Capital Gains Tax Allowance has been frozen until 2025/2026 so Rishi is unlikely to reverse this decision.
In 2020 the Chancellor commissioned the Office of Tax Simplification to undertake a review of Capital Gains Tax. It recommended aligning rates with Income Tax, but again, Paul thinks this is unlikely right now.
3. Inheritance Tax (IHT)
Paul doesn’t predict any fundamental changes here, with the tax rate remaining at 40%. The nil rate is £325k and has been the same since 2009/2010, and since then the IHT receipts have doubled from £2.5billion to £5billion.
However, business property relief could be tweaked.
4. Climate change
With COP26 just days away and the government committed to achieve net zero emissions by 2050, there will surely be further incentives for both people and businesses to become greener and support the mission. There could be incentives for electric vehicles, home installations and heat pumps, plus tax increases on gas and electric.
Fuel tax, which has been frozen for over 10 years, is unlikely to rise given the relatively expensive cost of alternatives to diesel and petrol and the growing concerns on inflation.
5. Cost of Living
With the UK braced for higher inflation and significant increased costs of energy, food, wages and other supplies, there are calls for The Chancellor to do more to help poorer families and those with low incomes. With this in mind, we could see a ‘Brexit dividend’ to help families through a tough winter or even an increase to the National Living Wage.
6. The High Street & the Consumer
The hospitality industry was hit hard during the pandemic and to support businesses in their recovery, they benefited from a reduced 5% rate of VAT. As of 1st October 2021, this rate was increased to 12.5% with a planned increase to the standard 20% due to take place from 1st April 2022. However, the sector is still struggling, so we may see an extension to this reduced rate.
With online sales booming, high streets across the UK have died. To create balance, there have been whispers of an online sales tax, teamed together with a reform of business rates. This would create a fair balance; however, it is unlikely at the moment giving the concern on inflation with any additional taxes further increasing consumer prices.
Paul thinks we could see changes in pensions tax relief, in particular higher rate tax payers. Pension relief currently costs the government about £40billion each year, so this could be targeted by either a change to pension contribution tax relief or the lifetime allowance.
Currently the lifetime allowance is just over £1million and there was speculation this could be reduced to as little as £800,000, however this is unlikely to happen this, Autumn.
8. Wealth Tax
Wealth Tax was predicted by many in Spring, but didn’t make the budget. Paul thinks a ‘One-off’ Wealth Tax would help to pay towards the COVID debt and there are a few past examples of it working well. Definitely one to look out for.
All in all, in Paul’s view we shouldn’t expect too much from Rishi’s second budget. Although there’s a pressure to cut taxes, he’s got his work cut out balancing the books off the back of the pandemic.
Following the budget on Wednesday, we will produce a detailed report so you’re up to speed about the impacts on your business. Keep your eyes peeled.
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