Budget rumours and predictions from George Hardey

 

 

With just a couple of days to go, how do we try and predict what changes Chancellor Rishi Sunak and the Government may have in store for the tax system, come the Budget this Wednesday, 3 March?

Where to start?

We know since the Covid Crisis began early last year the level of Government support for most businesses and individuals has been unprecedented, running into hundreds of billions of pounds.

Regardless of anyone’s political views, it is obvious that we are going to need to pay for that support at some point, and inevitably that means tax rises.  Many people accept that fact, but it has got to be fair, hopefully measured, and affordable, and of course the big question is, when does the time come for us to start paying it back.

When might that point in time come?

When people have asked me what might be announced in the Budget, my feeling for a while has been that since we are still in lockdown under ‘maximum’ restrictions, and with many businesses still under forced closure, it has always felt like it would be very difficult for the Government to announce significant immediate tax changes.

I have therefore wondered whether some tax rises may be announced on 3 March, but with only a few coming into force on 6 April 2021, perhaps those with moderate impact but with many more planned to start a year later on 6 April 2022.

Such a timescale could have a number of advantages for the Government, including: 

• Avoiding the bad press, of what would be seen as pulling the rug out from under many businesses, in terms of the phased withdrawal of Covid Support, coupled with an immediate increased tax burden.
• Giving people advance notice to try and help them be ready for the pressure on finances and cash flow that tax increases will inevitably result in.
• Possibly bringing them a tax windfall, because advance notice of tax changes influences taxpayer behaviour, and could result in many people realising income or gains earlier than planned, possibly some of which might not have paid/triggered for years to come if tax rises were not on the horizon.

  The most obvious example of this is the early sale of assets and investments to trigger capital gains.

In the last few days, the leaks and press interviews coming from the Government certainly seem to point towards less significant changes being introduced on 3 March/6 April 2021 (but never count out a possible u-turn on that!).  There is also the hint that perhaps some decisions are being delayed until the Autumn Statement (real second Budget) later in the year, by which point the Government will be starting to see indications of how the country is hopefully recovering.

What changes might we see?

I think that because the Covid Crisis has been beyond what anyone would ever have anticipated or planned for, everything could be on the table.  Might even the Government’s tax lock be out the window and we see a rise to the basic and higher rates of Income Tax?

In Autumn 2020, following the review by the Office of Tax Simplification, we heard talk of possible sweeping changes to Capital Gains Tax and Inheritance Tax, both in terms of changes to tax rates and to the various rates and reliefs currently available.

I don’t think a complete reform will happen for the moment.  Do the Government really have time to write/amend such a large amount of legislation?  However, Capital Gains Tax has remained a strong rumour since that time, and we have seen many people looking at their affairs, trying to predict the impact of CGT rates increasing to perhaps 40% or more, and considering any possible action to take before Budget Day.

I think a review of the difference in Income Tax/National Insurance paid by the self-employed compared to the employed could be high on the list, because when schemes such as Furlough and the Self-Employed Income Support Scheme were first announced, the Chancellor observed the ‘inconsistencies’ between these two groups of taxpayers.  An increase to the rate of National Insurance paid by the self-employed would be the obvious way for this to be addressed.

Pension Tax Relief is always under threat, and now is no different to previous years.  However, a reduction to the Pension Annual Allowance is problematic for the Government, because the allowance applies equally to all taxpayers (subject to certain rules/conditions) and could create a significant disadvantage to more senior staff in the NHS (because of the specifics of that scheme), so I doubt it is something the Chancellor wants to disturb at the current time.

Corporation Tax now appears the strongest rumour in recent days, with the indication we will see the rate rise from the current level of 19% via a phasing over a few years until it reaches 25%.  To help support smaller businesses, I wonder if we might return to a system whereby, we have a lower ‘smaller companies’ rate of corporation tax, together with a higher ‘standard’ rate for larger companies.

A potential freeze on certain tax allowances and rate bands such as the Personal Allowance has been called a ‘stealth tax’ by some of the press, because a freeze is not a direct tax rate rise as such, but would result in quite a large percentage of the population paying some extra tax.  Interestingly, we have already seen HMRC issue tax codes for tax year 2021/22 showing an increased Personal Allowance … so watch that space.

It will be interesting to see how right or wrong our predictions might be, come Wednesday afternoon.  I suspect we might hear a lot more about ongoing support, particularly for the high street/retail and hospitality, whilst future potential tax changes/rises are perhaps played down for the time being.  Whatever happens, be sure to check our website and social media for all the latest news and insights into the announcements in the days that follow.

George Hardey
Director, Head of Tax

Email: george.hardey@waltonscw.co.uk
Tel: 01429 234414

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