In 2016, the Chancellor made the surprising announcement that he was moving the Budget from Spring to Autumn. So instead of the Autumn Statement, there is now a Budget, and instead of the Budget in March, there is now a Spring Statement.
The first Autumn budget will be held on Monday 29 October. Initially, the Chancellor wanted the Budget to be held on Wednesday 31 October but it was thought that holding it on Halloween would not bode particularly well! In this week’s blog, we look at what may be included in the budget.
Tax rises are widely expected in the Budget after the Prime Minister promised a £20billion boost for the NHS. The Chancellor confirmed that “across the nation, taxpayers will have to contribute a bit more in a fair and balanced way to support the NHS we all use.” With this in mind, we would anticipate that the Budget will focus on raising revenues.
An election pledge was made to raise the threshold at which workers start paying income tax. Ministers pledged to raise the tax-free allowance to £12,500 and the 40p rate starting salary to £50,000.
It is now anticipated that the Chancellor could drop or delay this pledge arguing that it is simply unaffordable when budgets are tight.
Whilst it has already been announced that a further reduction of the rate of corporation tax to 17% from April 2020, we do not anticipate a further drop will be announced despite calls for this to attract post-Brexit investors.
VAT on small businesses
During the last budget, there was speculation that the Chancellor was looking to drag “hundreds of thousands” of small businesses into the VAT system.
Currently businesses register and charge VAT if turnover exceeds £85,000 per annum. By halving that threshold to £43,000 per annum could raise £1.5billion.
However, HM Revenue and Customs are currently in the process of implementing Making Tax Digital (MTD) for VAT whereby all VAT registered entities must submit VAT returns electronically from April 2019. We believe that it would not be practical for businesses to register for VAT and be in a position to submit VAT returns electronically from April 2019. As such we do not anticipate an increase in the VAT threshold.
Contractors working through their own limited company and claiming that they self-employed face stricter rules that would see many of them pay the same level of tax and National Insurance as employees.
Last year, the government toughened IR35 rules for public sector workers so that it is up to a public authority to decide their contractor status rather than the contractor themselves. Critics have said that this has led to some genuine freelances being classed as employees.
There has been some speculation as to whether the Chancellor may look to abolish the dividend allowance in the budget.
The dividend allowance was introduced in 2016 where shareholders could receive £5,000 of dividends without incurring tax. This has since been reduced to £2,000 per annum.
It is estimated that that the Treasury could raise £1.3billion per year through the abolition of the allowance. Whilst we do not believe that the allowance will be abolished, it would not be unsurprising to see the allowance reduced by a further £1,000.
Pensions tax relief
Currently, when someone makes a payment into a pension they get tax relief at the rate they pay on their income. So a basic rate taxpayer who puts £8,000 into their pension pot effectively gets £2,000 from the government.
Taxpayers in the 40% tax bracket can claim back up to a further £2,000 through their tax return, reducing the effective cost to as little as £6,000.
This subsidy for relatively wealthy people is likely to fact some soft of cut. This may be done either cutting the tax-free annual allowance or by lowering the rate of relief.
Currently certain employers receive an allowance of up to £3,000 per annum in respect of Employers National Insurance. Employers do not pay any Employers National Insurance below £3,000. There has been some discussion over whether this allowance could be reduced or abolished entirely leading to an increased burden to employers.
Insurance Premium Tax (IPT)
Up until a few years ago, this tax received very little attention due to a relatively low standard rate of 6%. The rate is now 12% and the tax raises £5.6 billion each year for the Exchequer.
There has been some discussion over whether IPT could be increased further from 12% to 13% which would raise an additional £400m per year without encouraging individuals or businesses to underinsure. Although certain countries align IPT and VAT rates, we believe that the Chancellor is unlikely to increase IPT in this budget.
Its clear that this budget will focus on raising revenues but with Brexit fast approaching, much is uncertain. Like everybody, we await the budget with interest and as it is announced before Halloween, we hope that it will be a case of treat rather than trick!