The general consensus amongst commentators ahead of Rishi Sunak’s second Budget speech was that he would be concentrating on protecting the shoots of recovery appearing against the backdrop of both the Coronavirus pandemic and the evolving impact of Brexit. However, it is inevitable that taxes will have to increase – it is just a matter of when. The consultation on Capital Gains Tax published in November 2020 hinted about realigning the rates of tax with income tax and perhaps reducing the annual allowance, and then in recent weeks a prediction of some sort of windfall tax for those businesses which had benefitted from pandemic conditions emerged. As it happens, neither of these predictions made it to the Budget.
Extension of the Furlough scheme was announced ahead of the Budget and, perhaps predictably, this was mirrored by two further grants under the support scheme for the self employed. Add to that the extended business rates holiday and further local authority grants to assist with getting businesses back open again, the clearest message was that we are still not out of the woods, and expect the ride to be rocky for another 6 months or so.
The housing market is a strong driver of the UK economy, impacting on so many areas, and with the Stamp Duty holiday due to end this month, our contacts in the building industry, legal profession and estate agents were obviously concerned that the market would stall in April. The extension of the holiday to the end of June, with a staggered return to full rates is obviously welcome.
The most eye-catching announcement was the increase in Corporation Tax from April 2023 to 25%, the highest rate in the UK since 2007. Whilst there was an expectation that the rate would increase, it had been predicted at one or two points. However, compared to the headline rates of Corporation tax internationally, it is still competitive, so this has to be a gamble that the tax hike for internationally mobile businesses is more palatable than the cost of moving operations overseas. The announcement of the Freeports is perhaps a carrot to those businesses that might baulk at the 6% hike in tax rates, giving them the opportunity to trade within a tax protected zone.
Overall, the message seems to be carry on as we are with a view to some sort of normality in the Summer of 2022. It is perhaps a “holding position” ahead of the Autumn statement, where we may see a more aggressive revenue raising agenda.
The speech on Budget Day is just a snapshot of headlines and the devil is always in the detail, which can sometimes take months to emerge. Our commentary here is based on press releases and current understanding of the measures, so is subject to changes as more information becomes available.
What didn’t happen:
- Alignment of the Capital Gains Tax rates with income tax rates had been expected on the basis of a consultation document issued towards the end of 2020. However, watch this space…
- Reform of Inheritance Tax has been kicked around for decades. It is perhaps too difficult to tackle with very little potential reward.
- Restriction of higher rate relief on pension contributions had been expected as the limit on tax deductible contributions has been hit pretty hard in recent years, leaving little room to squeeze the limits any further. Pension relief was left alone, but again, if you have scope to make pension contributions, use the relief while you still have it.
- A windfall tax on businesses that had benefitted from the Covid outbreak was a popular theory, but that would have constituted retrospective tax, which is generally avoided. The moment has probably passed for this one.
- Deferment of the IR35 off payroll rules extension to the private sector – probably more in hope than genuine expectation.
- If you are eligible for any of the covid support schemes make sure you claim it;
- New loan schemes will be available, but are subject to the banks’ participation;
- Don’t get too excited by the “super deduction”, it is not quite what it seems;
- Companies have two years to plan for the 6% hike in Corporation Tax;
- We can expect to see more on tax increases in the November Statement, so use the next 6 months to assess how your business is going, and perhaps plan for what you might need to do in relation to realising assets that are heavy with Capital Gains;
- If you have a high value pension fund, you may want to look at alternative structures for future funding with the long term freeze on the lifetime allowance;
- Sort out your deferred VAT before June;
- Maybe defer trading in your van until after 5 April;
- If you make claims for R&D make sure you have your say in the consultation – deadline 2 June 2021;