Jonathan Yeomans, Head of Tax at untied, the UK's personal tax app, attempts to predict what we might see in the Autumn Budget this year
The Autumn Budget will take place on Wednesday 27 October 2021, alongside publication of the government's latest Spending Review.
Haven't we already had a budget this year?
Indeed we have! A Spring Budget already took place in March this year. However, ever since the mid-1970s it's been a duty of the government to publish two economic updates each year. As a result, for most years since we've had a Spring Budget as well as another statement or budget in the autumn. Traditionally, the Autumn Statement outlined the government's economic plans and projections, whilst the Spring Budget dealt mainly with taxation issues. Chancellor Philip Hammond swapped this around for a few years, but Rishi Sunak returned things to a more traditional footing last year with a Budget in the spring and another planned for the autumn (although last year's planned Autumn Budget was eventually scrapped because of the coronavirus pandemic).
This Autumn Budget will be Rishi Sunak's third budget as chancellor.
So what can we expect from this year's Autumn Budget? Read on to find out.
No further income tax changes
I don't think we'll be seeing any personal tax cuts announced this autumn. We're also unlikely to see any further tax increases announced. The chancellor has already announced in March 2021 that personal allowances and the higher rate threshold will be frozen until April 2026. The Autumn Statement is not traditionally a place where we see significant tax changes announced, and following the pandemic, the government's finances are currently stretched to breaking point. The announcements this autumn are therefore likely to be more technical in nature.
We're also unlikely to see further personal tax rises so close to last month's announcement of a 1.25% increase on national insurance. That increase, known as the social care levy, comes in from April 2022. It will see national insurance rates for employees increasing from 12% to 13.25%, and the national insurance rate for self-employed people rising from 9% to 10.25%.
Again the cat is already out of the bag on this one, and I don't foresee any further changes to the dividend rate increases announced last month. These changes will see dividend tax rates changing from April 2022 as follows:
- The dividend basic rate will increase from 7.5% to 8.75%
- The dividend higher rate will increase from 32.5% to 33.75%
- The dividend additional rate will increase from 38.1% to 39.35%
Pension tax relief
In recent years, rumours about possible cuts to tax relief for private pension payments usually start to do the rounds as we approach budget season. However, having only recently had to "temporarily" ditch the triple lock on state pensions, I doubt that there would be much appetite within Treasury for further cuts that impact people's pensions. I therefore don't expect any significant announcements about cuts to private pension tax relief this autumn.
Research and Development (R&D) tax relief
The UK economy needs investment in our innovative firms in order to grow. The tax system can help support this growth, and we saw the introduction of the 'super deduction' earlier this year, along with investment in the 'Future Fund'. However, disappointingly, we've also seen restrictions capping the amount of R&D tax credits that small and medium-sized enterprises can receive in any one year to £20,000 (plus three times the company's total PAYE and NIC liability).
Thankfully, investment was a recurring theme in the Chancellor's Conservative party conference speech earlier this month. We're also currently awaiting publication of the outcome report for the R&D tax relief consultation that closed in June 2021. Hopefully, we'll see some significant news in this area in the Autumn Budget, such as about R&D tax relief enhancements and greater opportunities for investment in R&D by small and medium sized businesses. In addition, with the COP26 climate change summit just around the corner, I'd also expect to see something about new opportunities for businesses to invest in green technologies.
Help to grow
The Budget earlier this year also introduced the help to grow scheme, with the government supporting the costs of management upskilling and digital expenditure, including a voucher scheme covering up to half the costs of approved software up to a maximum of £5,000.
The software is only available to limited companies with five or more employees. We'd like to see this scheme extended to all businesses, including those run by solopreneurs. This will help them make the most of digital technologies, and reduce the time they spend on admin.
We'd also like to see a training course for all employees, not just the top management, and let's make this a national programme to upskill all employees, not just senior people. We'd also like to see investment in training students about financial literacy, as this is a poorly neglected area and financial illiteracy has repercussions for all.
Making Tax Digital
The government last month announced a delayed timetable for Making Tax Digital (MTD) and in particular, set out that the planned mandation of MTD for Income Tax was going to be postponed by 12 months, from April 2023 to April 2024. However, there was no update on any changes to the start date for MTD for Corporation Tax. This is currently due to be introduced for around three million UK companies after April 2026.
We're still awaiting the publication of the outcome report following the MTD for CT consultation that closed in March 2021. An update on revised timings for MTD for CT might therefore be made in the Autumn Budget.
The chancellor has already announced that corporation tax rates on company profits will be increasing to 25% in April 2023, from the current rate of 19%. This is well above the minimum 15% corporate tax rate agreed by 136 countries recently, and I don't foresee any further changes in this area.
Capital gains tax and inheritance tax
There have been rumours of impending changes to the capital gains tax (CGT) regime for some time now. Mooted changes include a potential alignment of CGT rates with income tax rates and a significant reduction in the CGT annual exempt amount (currently £12,300). There have also been suggestions of impending reform of the inheritance tax rules. However, to me, this autumn doesn't feel like the right time for announcing radical changes in either of these areas.
I'm not ruling out changes around Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief. This is a special CGT relief that reduces the tax charge on certain business assets to 10%. The Office of Tax Simplification has been calling for the replacement of this relief for some time now, as their reviews suggest it is not meeting its intended objectives. Withdrawal or reform of BADR could bring in extra cash for the government. It could potentially be replaced with a new, more focused relief, perhaps targeting individuals selling a business before retirement.
Tax simplification and outstanding consultations
There has been a plethora of tax consultations this year, looking in one way or another at simplifying the UK tax system. These consultations have included considering things such as: raising standards in the tax advice market; whether tax payments for the self-employed could be brought closer to the time that income is earned; accounting basis period reform; and wholesale reform of the UK tax administration framework.
As the Autumn Budget is largely a 'technical' budget, we will surely see some of the outcome reports for these consultations. The chancellor should be bold and use this budget to simplify the tax framework to make it easier for taxpayers to navigate the UK's complex tax structure. If the chancellor chooses to implement radical reforms and simplifications, we could start to see a fairer and simpler tax system evolving, which is fit for the 21st century.
Other possible opportunities for change
In his Conservative party conference speech, the chancellor said he'd like to make tax cuts, but before doing so, public finances needed to be put back on a sustainable footing.
Whilst recognising that the Chancellor doesn't currently have deep pockets, there are two further possible ways he could give something back and make the tax system fairer for many, without costing the government an arm and a leg:
- Increasing the amount of tax relief the government allows employees for washing uniforms and work clothing or buying small tools. These flat rate expenses have been static for many years, whilst other costs have increased. Bringing these tax expenses up to a more reasonable level could be a great way to put money back in the pockets of those who badly need this, and particularly help those working in our uniformed public services like the NHS, fire service and police.
- Increasing the threshold above which child benefit starts to be withdrawn from those who are classed as 'high earners'. This is known as the High-Income Child Benefit Charge (HICBC). This charge applies to anyone with income over £50,000 if they or their partner receive child benefit. However, this £50,000 threshold was introduced in January 2013, and it's never been increased. In 2013 average UK earnings were £27k, but these are now around £31.5k. This threshold is, therefore, long overdue an increase, and it unfairly penalises one-income families. Hopefully, the chancellor will look at this in his Autumn Budget.
For further information:
Chantal Heckford firstname.lastname@example.org