On 27th October the Chancellor will deliver an update on the nation’s finances and economic outlook. This will be accompanied by his Autumn Budget – his second in 2021.
This latest fiscal event has already been preceded by the announcement of a 1.25% rate increase in National Insurance Contributions and dividend tax as a precursor to funding of the Health & Social Care Levy coming down the track in April 2023.
What else could we expect the Chancellor Rishi Sunak to unveil in October to help pay for the financial cost of the pandemic?
As part and parcel of the Government’s ‘listening’ approach, the Treasury encouraged external stakeholders to submit representations as to what should figure in the financial reckoning. This process ended on 30th September and the die will now be cast.
So, what could the Budget include?
Individuals are already bracing themselves for the freezing of personal Income Tax allowances and the higher rate threshold, and businesses for a phased increase in Corporation Tax from 19% to 25% by 2023.
The reduction and withdrawal of COVID support across the economy will help to stem the outflow of money from the Treasury. However, signs of recent economic and supply chain difficulties together with the huge hike in wholesale energy prices may make this another belt-tightening Budget.
Some financial commentators have pointed to the possibility of ‘stealth taxes’ which often arise from consultations on draft proposals put forward by the Office of Tax Simplification.
There is already a proposal to change the basis periods upon which business profits are taxed. This reform which would affect the self-employed sole trader or partnerships and has been promoted as being a step towards making the move to Making Tax Digital for businesses. What is not pointed out is that it will oblige those sorts of businesses to pay their tax much earlier!
Another ‘simplification’ affecting Inheritance Tax (IHT) being considered for implementation may bring in more IHT without having to change the headline existing rates or allowances.
There has long been talk about the possibility of aligning Capital Gains Tax (CGT) with Income Tax rates, but the reality is that there is not a huge tax gain in doing this due to the relatively low contribution that CGT makes to the overall tax take. We may find that there is a tinkering with the various CGT reliefs to bring in a higher contribution from this tax.
We’ve mentioned the coming increase in Corporation Tax and with the Spring 2021 Budget having introduced the ‘super-deduction’ relief for investment, it’s unlikely that a heavier tax burden will be imposed on these businesses. However, there may be initiatives led by HMRC to encourage greater disclosure of tax errors or mistakes. Such ‘amnesties’ have proved successful in bringing in revenue more efficiently and in quick order to the Treasury.
The Government has already announced that the ‘triple lock’ for the state pension will be suspended temporarily, with the rise probably restricted to the inflation rate.
Whether the Chancellor will look to reduce tax relief for private pension contributions is a recurring Budget speculation. Although root and branch reform of the pension tax rules is unlikely in the current climate that’s not to say there won’t be some tinkering with the ‘technical’ aspects of the rules which may reduce the existing, significant cost to the Exchequer.
The devil with be in the detail
In conclusion most commentators are not expecting any rabbits to be pulled from hats or to see draconian, swingeing taxes imposed. Instead, as is often the case, the devil will be in the detail!
As usual, PayStream will be keeping you updated on the Budget Day announcements and providing contractors and agencies with a perspective on how proposed changes will affect them.
