|The Autumn Budget will take place on Wednesday 27 October 2021, although you may have thought that the Prime Minister announced the most important tax news of the year on Thursday 7 September when launching the new Health and Social Care levy.
The current rumours are that, rather than further headline announcements, the Chancellor will announce a ‘technical’ Budget in his speech meaning the devil will no doubt be in the detail. Nevertheless, there are some key questions that the Chancellor will have to face.
What does recovery look like?
After positive news on Government borrowing in July 2021 together with better tax receipts, the Chancellor may just have some good news for Parliament and taxpayers. If the recovery is sustained at the rapid pace seen over the summer, many of the Chancellor’s financial headaches will ease. However, the CJRS (furlough scheme) has only just stopped, so despite the news headlines of labour shortages in certain sectors, unemployment may spike soon affecting Government spending on benefits and perhaps even growth forecasts despite the impressive increases this year.
Can the Government keep running a deficit or will taxes have to be raised?
The Chancellor has already said that Government finances have to return to balance at some point and the deficit be reduced to more sustainable levels. After the announcement of the Corporation tax and NIC increases there are hints that there won’t be more tax rises in the Budget, but is this just delaying the inevitable? Future tax rises must still be a possibility, but they are unlikely to take effect immediately and are much more likely to be of the ‘stealth’ variety.
Which stealth taxes are on the cards?
Holding a ‘technical budget’ gives the Chancellor plenty of scope to make changes that raise revenue. Take the ‘reform’ of basis periods for the self-employed. This is being badged as a simplification measure to help sole traders and partnerships with the move to Making Tax Digital quarterly reporting from April 2023 but, in practice, it will at the very least accelerate revenue for the Exchequer for 2023 and the next 5 years.
Lots of commentators are also predicting changes to Inheritance Tax and Capital Gains Tax following recent ‘simplification’ reviews by the Office of Tax Simplification. IHT is increasingly bringing in more tax for the Treasury (a record £571m in July 2021) and it would be quite straightforward for the Chancellor to ‘simplify’ many IHT rules that result in increasing future revenues without directly changing headline tax rates. Better still, the vast majority of taxpayers would not be affected.
Don’t forget other stealthy tax rises have already been announced – it’s just that they may not feel like rises. For example, freezing personal tax allowances from April 2022 will raise considerable revenue due to fiscal drag (i.e allowances not rising as wages/inflation goes up means more tax is collected). Freezing other allowances and thresholds at a time of rising inflation could be a nice little earner for the Chancellor over the next few years.
Will Capital Gains Tax rates go up?
Increasing capital gains tax, possibly by aligning with income tax rates, would be a more visible tax rise but may not collect a great deal relative to the total tax take. Of course, announcing a tax rise for say April 2023 could incentivise asset owners to sell up in 2022/23 and bring a nice cash boost for the Treasury in the short term. However, in the light of the NIC increase, perhaps making technical changes that cut back CGT reliefs is a more likely option.
Will there be more business taxes?
As we know corporation tax is already set to rise substantially in 2023 and various forms of pandemic support (from furlough to business rates relief) are being phased out this autumn, so it doesn’t seem likely that the Chancellor would risk many more business tax increases. But that doesn’t mean that the Government can’t increase its tax take from businesses in other ways. HMRC is already highly focused on tax errors and avoidance related to pandemic support and the government might offer a ‘disclosure facility’ to all those coming forward to correct mistakes in the short term.
Will there be more incentives to help businesses grow?
The post-pandemic recovery will be high on the Chancellor’s agenda but it is unlikely that there will be many more measures like the capital allowances super deduction announced in the March Budget. The review and consultation into improving the UK’s R&D tax reliefs may result in announcements of enhancements to R&D reliefs – perhaps even higher rates of relief.
After the end of the furlough scheme, job creation and skills shortages have already been addressed by the announcement of more job search support for individuals and short extensions of the Kickstart scheme and apprenticeship grant scheme. There may be successor schemes for 2022 to replace these. The Government has also announced special work visa schemes for EU workers to reduce skills gaps in the short term – for example, a special scheme to increase the number of HGV drivers. It is possible that there will be more sector-based schemes announced in the Budget.
It is also possible that venture capital tax reliefs for investors (EIS, SEIS, etc.) will be enhanced to boost business investment now that the UK is not restricted by EU rules.
What is going to happen with Business Rates?
Reform of Business Rates is a can that has been kicked down the road so many times that many questions whether true reform will ever take place. The Chancellor promised to publish the final findings of the Government’s Business Rates Review this autumn – having delayed the final report due to the ongoing pandemic. It is probably rather hopeful to assume that radical reforms will be announced in the Budget as Business Rates look set to stay for now but the Government is trying to improve the way the tax works and is likely to announce a consultation on technical changes. Whether these make the system more palatable for businesses who question its fairness remains to be seen.
What is going to change with pensions?
The Government has already announced that it will “temporarily” set aside the triple lock for the state pension because the current high rates of wages growth would push up pensions faster than general inflation. The state pension will probably increase in line with inflation.
Therefore, although it is a recurring prediction that the Chancellor will look at tax relief for private pensions again, the current political climate will probably make that an even trickier nut to crack than before. Like his predecessors, the Chancellor will probably back away from genuine reform but that doesn’t mean that there won’t be some ‘technical’ changes that chip away at the annual £40bn costs to the Treasury.