23.2.2021 | taxThe most important budget for decades – a few predictions
Beatons’ Andrew Diver looks at some of the rumours and whispers surrounding next months budget.
It can be difficult making predictions on upcoming budgets – but this year is harder than ever.
With the news we will slowly be coming out of lockdown over the next few months, businesses are eager to discover the Chancellor’s plan to pay for the pandemic.
It will be a balancing act, recouping some of the expenditure while giving businesses the chance to open stronger than ever.
And with the end of the furlough scheme possibly being extended past April, employees seek clarity on what the future holds.
Here, Andrew Diver, head of taxation at Beatons Group, looks at some of the rumours and whispers surrounding March’s budget.
Capital Gains Tax
There is a lot of speculation whirling around capital gains tax (CGT).
It was the subject of a review by the Office of Tax Simplification recently, which came up with 11 recommendations to how it should be reformed.
It is likely CGT could be used as a source of tax revenue by the Chancellor as it is expected to affect the wealthiest in society and is unlikely to create a drag on the economy’s recovery.
At the moment, the capital gains tax rates are significantly lower than the income tax rates.
Expect these differences to be reduced and the capital gains tax annual exemption frozen at the least, but potentially halved.
Rumours abound about a proposed increase in corporation tax as the UK has one of the lowest rates in the G7 at 19%.
However, coming out of Brexit, the government will be keen to attract business to the UK, so the Chancellor may think this is not the best time for a rise. There are whispers of a series of 1% annual increases over the next four years to a high of 23%.
Before the pandemic hit, the government sought to reduce income tax rates, or at least increase the personal allowance and higher tax threshold. However, this now looks not to happen.
I do not see the government bringing any direct tax rises in terms of rate increases, but rates will not rise with inflation which would raise around an extra £1billion a year.
Fuel duty has been frozen for many years, but there are distinct rumours that fuel duty will rise again at this budget – fitting in with the green drive from Rishi Sunak to reshape the economy.
Fuel duty brings inflationary impact to almost all aspects of business as any goods that require transportation will have increased costs due to the fuel duty increase.
We may see specific initiatives launched to help those hit hardest by lockdown restrictions, as well as others to kick start the economy.
I could see a scheme involving the hospitality sector being introduced – although I do not anticipate another Eat Out to Help Out as this was only thought to be around 5% effective in stimulating activity. The extension to the reduced rate VAT for the hospitality sector should also be continued until the sector can trade free of restrictions.
We could also see a reinforcement to the Kickstart Scheme supporting new apprenticeship and self-employment incentives to give some encouragement for those who lost their jobs to launch their own businesses.
The next budget is always the most important, but this one certainly is the most important for years; the first post Brexit, dealing with significant unemployment and a changing economic landscape.
The balance between encouraging the economy’s growth and tax revenue generation is more finely balanced than ever. It is hard to say exactly what we will see – what I can be sure of, however, is I will be watching the announcement with bated breath.
For more information on Beatons Group, visit beatons.co.uk