The upcoming Budget statement on March 11 could be one of the most interesting in recent years, with a brand-new Chancellor under pressure from multiple sources to somehow increase spending without raising taxes – a feat the Institute for Fiscal Studies has said is not possible – as well as steer his first Budget towards the UK’s net zero carbon target.
Rishi Sunak is working with the inherited fiscal aim of his predecessor to bring spending into balance by 2022, at the same time as his boss needs to forge ahead with significant spending, not only on the NHS, schools and social care in response to public demand, but also on infrastructure projects if they are to remain on track by the next election. The complicated elephant in the room is the Conservative election manifesto pledge of no increases in income tax, national insurance or VAT.
These are the items on the Budget agenda that we think you’ll be particularly interested in:
A subject we’ve blogged about before, IR35 is the controversial legislation coming into effect in April this year that requires companies to treat contractors working through a personal services company as employees. Despite widespread calls for a delay so that it can be rewritten, the Government has confirmed it is coming into force on time. It seems that the best its opponents can hope for in the upcoming Budget is leniency on its enforcement or possibly some amends to the finer small print to help either employers or contractors in some way.
- Digital tax:
The previous Chancellor announced that there would be a new 2% turnover tax for tech companies with revenues of over £500 million coming in this April, but it remains to be seen whether the incumbent Chancellor will uphold this. Despite the prospective tax estimated to raise more than £400 million a year for the Treasury, the PM is wary that there is no international standard or comparable precedent in place, and furthermore the UK has yet to negotiate trade deals with the US, whose tech giants it will directly affect.
- Entrepreneurs’ relief:
ER was introduced in 2008 to encourage entrepreneurialism in the UK by offering a capital gains tax break of 10% to business owners when they sell their shares, however it has only really benefitted the “staggeringly rich” large business owners, according to the PM. On top of that, its cost to the Treasury is £2.4 billion a year, opening a window for some serious savings. There’s an outside chance it could be abolished completely, though it is more likely it will be curtailed in this next Budget, possibly singling out industries such as tech and science to continue to benefit fully.
- Business rates:
The Retail sector is hoping that the Government’s election manifesto pledge of reviewing rates is upheld in the Budget statement, with 130,000 small businesses that collectively pay £4.2 billion a year in taxes, writing to the new Chancellor to encourage reform. Business rates are a constant for any government, bringing in approximately £30 billion each year, but the long-running argument of them being paid by retail tenants rather than the landowners, might finally bring about a welcome change for retailers, particularly in light of the recent devastation of the UK’s high streets in general.
- Pension tax relief:
Currently, tax relief on pension contributions matches the income tax brackets, but there is an option for the Government to make an extra £11 billion by making the relief less generous for those in higher tax brackets, potentially halving it from 40% to 20%. It would be a hugely divisive, controversial move, however, particularly unpopular among the Tory party’s typical supporters, so is perhaps unlikely to happen in the Budget. The knock-on effect, according to the Institute of Fiscal Studies, would be an increase in income tax for anyone earning over £50,000, something that the Government also wants to avoid.
What are you hoping or expecting to see announced in the Budget? We’d love to hear from you.