Budget is coming – so is Halloween!

This month’s Budget will be very important for the Government as it threads through difficulties in the post pandemic and Brexit world we are now in. As a bit of fun, I thought it would be interesting to see if we can predict where the Chancellor is going with his economic visions. It will not be easy to sell any tax rises and, as we enter the winter solstice, this budget could be a scary time for the Chancellor. Predicting politics is never easy but here goes!

Technicalities

Current Westminster rumours are suggesting we will see a more ‘technical budget’ rather than a blockbuster set of reforms. We could see a lot of small tweaks, which may be revealed in the government documents published after the speech. However, commentators are suggesting we should expect the Budget to be filled with stealth tax changes rather than headline tax rises to income tax or national insurance contributions.

Bobbing for tax rises

Among possible changes to the tax regime, there has been quite a bit of gossip surrounding the proposals already published to reform inheritance tax (IHT). With the strain on the Treasury’s revenues, some changes to IHT could be on the cards. In 2019, the Office of Tax simplification published its review of IHT but the proposals where shelved, they may make an unwelcome surprise spooky return.

It would be quite easy for Mr Sunak to simplify many of the current complex IHT rules resulting in increasing future revenues without directly changing headline tax rates. Better still, the vast majority of taxpayers would not be affected, they say!

Personally, I would predict we could see more allowance freezes being brought in, which would mean, with inflation and potentially rising wages, Mr Sunak would create a revenue boost for the Treasury.

Pension tax reliefs – pennies for the guy!

In my nearly 40-year career, almost every budget is preceded by rumours this will be when the Chancellor reforms pension tax relief. However, to date, we have yet to see wholesale changes despite the rumours and tabloid headlines. We have seen in recent years cuts to the Annual Allowance and the Lifetime Allowance, I do not expect to see any reversal of these.

In addition, this year has other issues the Chancellor needs to address and it is my view the current political climate will make pension tax relief reforms an even trickier nut to crack than before.

Like Mr Sunak’s predecessors, the chancellor will probably back away from any genuine reform but that does not mean he will not have a dabble at some technical changes. He might want to look at ways where he can chip away at the annual £40bn cost to the Treasury of pensions tax relief!

Nothing to see here, move along please.

Corporation tax – the bonfire of vanities is still burning!

In the Spring Budget, Mr Sunak announced large scale increases to corporation tax. Companies will see these changes impacting dramatically from 2023. This means it is unlikely he will announce any further increases to business tax next week, However, the government could still address some of the tax breaks it has dished out during the pandemic.

We are very aware HMRC is highly focused on tax errors and avoidance related to pandemic support and the government might offer some form of ‘disclosure facility’ to businesses that are coming forward to correct mistakes in the short term. Similar facilities addressing thorny issues such as collecting unpaid tax on offshore assets have been successful revenue raisers in the past, so watch this space, easy win for the Chancellor on this one.

The mask has already slipped here so other than some technical adjustments, I do not expect any further surprises.

Capital gains tax – trick or treat?

Another reform we might see could concern an overhaul to the capital gains tax (CGT) regime.

It has been rumoured Sunak is considering aligning it with income tax rates. If this happens this would be a much more visible and explosive tax rise. It is also not clear if it would collect a great deal relative to the total tax take.

Announcing any tax rise for April 2023 could incentivise asset owners to ‘sell up’ in 2022/23 and bring a nice cash boost for the Treasury in the short term. However, in the light of the NI increase already announced, making technical changes that cut back CGT reliefs is, perhaps, a more likely option.

This is one of those, he could go either way. Will he trick us? Not sure.

EIS changes – blood curdling for SME

We have seen and read the headlines following the end of the furlough scheme that the government is focused on job creation and further announcements to changes to work visas to deal with labour shortages is highly likely.

To assist the SME world and seek to stimulate investment, we might see some significant reforms to Enterprise Investment Schemes (EIS) and Venture Capital Trusts. Changes to the rules here will be easier to implement now the UK is out of the EU. Any positive news here could see more investment in British start-ups which is one of the Chancellor’s pet projects.

This could be a feeding frenzy for money-stretched zombie companies. High risk, politically speaking, but the vampires are getting desperate.

Green policies – surprise, surprise (car drivers watch out!)

The Government recently published its net-zero carbon emissions policy in advance of next week’s Budget and the COP 26 conference in Glasgow. In the current political climate, I think it is a no-brainer that we should expect more dynamic and focused green policies to be announced by Mr Sunak. However, motorists should be aware there are loud noises coming from Westminster that we could see a return of fuel duty rises in the years to come.

For further information on any financial matter, please speak to your Prosperis Ltd adviser on 01423 223640 or email us below.