This year’s Budget, to be delivered on Wednesday 3rd March at around 12.30pm, will be one of the most closely watched for years. We will see Chancellor Rishi Sunak set out the next phase of the plan to balance the books whilst protecting jobs. However, before that he is also expected to deliver a ‘recovery plan’ on 22 February alongside Boris Johnson’s road map out of the pandemic and restrictions.
We believe that the Chancellor’s two biggest challenges lie in:
· how the UK will start to pay off the increasingly large debts currently accumulating due to the pandemic;
· and how he will balance the books by continuing to support businesses and those hardest hit.
As we adapt our shopping habits in the current ‘brick to click’ retail revolution, an online sales tax might be applied. This follows the large profits made by online retailers during lockdown.
Corporation Tax for larger companies who have done well during the pandemic could be on the cards – this may be sensible as it wouldn’t be to the detriment of smaller or struggling businesses and wouldn’t affect consumer spending.
It would make sense to continue the reduced 5% VAT level for hospitality and leisure sector, possibly supported with another scheme to get us to go out again in the summer. Extending a VAT reduction across the board is another short-term possibility.
We predict that there will be potentially multiple incentives for business investment and funding for growth, most likely with some linked to the government’s environmental ambitions.
Capital Gains Tax
Accounting for £10bn per year for the Treasury, CGT is under reform and is widely rumoured to be changing this year. A higher rate of CGT would provide a good income for the Treasury whilst affecting few tax payers directly so it could be one way of starting to increase government revenue.
Some feel it unlikely that the Chancellor will choose this year to announce changes that might affect consumer spending. However changes to tax relief of pensions could be an option, with a flat rate tax relief rather than the higher tax relief presently given to some.
Also the planned IR35 changes are coming in and we see no change to this. The IR35 reforms will force medium to large organisations to treat contractors as full-time employees. The Treasury expects to raise £3 billion from this by 2024. We have a growing number of IR35 resources available on our website and are actively working with our freelancer clients to advise and guide them through IR35.
In terms of recruitment incentives, there are already NIC reductions for employers who employ ex-services personnel. The previously announced incentives to recruit younger employees are likely to be extended.
NIC contributions might be increased for very high earners – another way of increasing revenue.
It will be interesting to see how Rishi Sunak manages the furlough system, due to end on 30 April, after being extended 3 times since it was introduced last year. It is generally accepted that support measures will remain in line with restrictions.
Will there be an extension to the popular Stamp Duty holiday?
Business Rates may also come under review, following significant pressure to address them, with a later start date on any changes being implemented.
We will be reporting live on Budget Day when Jill Evenden will provide commentary on the key points of the announcements.