Dogged by conflicting demands from different business groups, trade associations, and confederacies, the Chancellor will have to make some tough choices in the run-up to the Autumn Budget on October 27th.
There’s now a number of questions surrounding the Chancellor’s decisions for the upcoming Autumn Budget, particularly as he seems set on ‘balancing the books’ and reducing government borrowing to bring the deficit to more sustainable levels. Nevertheless, many currently speculate that, because of the NIC increases announced, the devil will most likely be in the details this Budget, with technical tax changes proposed over significant ones.
So, what might be on the table and why?
Income Tax, Inheritance Tax (IHT), and Capital Gains Tax (CGT)
- When the temporary increase to NIC was announced, many detractors suggested that increasing Income Tax would cover the shortfall in health and social care funding much more comprehensively. However, it’s unlikely that there will be any proposed changes to Income Tax in the Autumn Budget.
- It has already been stated that the ‘Making Tax Digital’ policy will be delayed until April 2024. Plans to change the date that businesses would have to report their profits have also been pushed back a year, taking place in 2023 now. These delays are likely to increase the need for the government to find alternative ways to raise revenue in the meantime, which is where stealth taxes may come in.
- Some commentators therefore predict that there will be some changes to either or both Inheritance Tax (IHT) and Capital Gains Tax (CGT) following ‘simplification reviews’.
- In July 2021, a record £571m was raised from IHT, thus the Chancellor could feasibly opt to simplify many IHT rules to increase future revenues without having a direct effect on headline tax rates. Such rule changes would also likely leave the vast majority of taxpayers unaffected. However, it’s been suggested that, if the Chancellor wants to keep the public onside, he should look to find a way of axing IHT altogether.
- It’s also possible that, instead of aligning CGT with income tax – which is what current rumours suggest may happen – the Chancellor could announce a 2023 CGT rise, incentivising asset owners to sell up in the 2022/23 financial year for a short-term cash boost. However, in light of the announced NIC increase, CGT reliefs are much more likely, protecting business owners during a crucial rebuilding period.
- Further to this, the Spring Budget saw the Chancellor announce the freezing of personal tax allowances from April 2022. This could raise considerable revenue due to the projected fiscal drag, where allowances fail to rise along with inflation and/or wages, thus drawing more income into higher tax bands and leading to the collection of more tax to boost revenue.
- There’s been recent talk indicating that the Chancellor hopes to aid small businesses and independent companies by announcing an online sales tax, with the intent of making brick-and-mortar shops more attractive to consumers.
With economic growth weakening and prices rising, the Bank of England and Chancellor have little room for manoeuvre in the upcoming Budget – all eyes will be watching to see who the Budget is set to benefit, and who will be left out in the cold. After all, this Budget in particular is essentially a balancing act and, at such a crucial juncture post-pandemic and post-Brexit, the Chancellor has a lot of people to please – something will have to give.
We will provide a comprehensive summary of the Autumn Budget in the days following October 27th. In the meantime, if you have any questions or would like further advice, please get in touch and speak to one of our knowledgeable advisors, who will be more than happy to help.
