13 January 2020
On 11 March 2020, Rishi Sunak will present his first Budget as Chancellor of the Exchequer, which will also be the first Budget in nearly a year and a half, and the first Budget presented by a government with a sizeable, unfettered majority in Parliament for a decade or so.
But what can we expect?
Post-election Budgets tend to be both more and less predictable than routine ones, with a need to come good on certain election promises on the one hand, but the ‘new broom’ effect on the other. We don’t yet know what sort of Chancellor Mr Sunak will be; more like George Osborne who liked to pull rabbits from hats, or more like Philip Hammond who adopted a cautious approach of announcing, investigating, and only then implementing changes.
It is reasonable to expect the fruition of some manifesto pledges. Public spending, especially in the Police and NHS, being a must and, from a tax perspective, increases in National Insurance thresholds are also likely to feature.
As well as these more matter of fact announcements (most employees will welcome an NI reduction, but there is not much they can do to plan for it), there could well be announcements which some groups of taxpayers might plan for.
Capital Gains Tax and Entrepreneurs’ Relief
Capital Gains Tax (CGT) seems a likely candidate, with a review of Entrepreneurs’ Relief (ER) having featured, albeit in the smaller print, in the pre-election material of the Tory party, with an increasing amount of speculation that ER might be reformed or even abolished at the Budget. Beyond ER itself, there has been a backdrop of ongoing changes to CGT, with more non-resident disposals having been brought within the scope of UK CGT and with a significant shortening of the deadline for reporting the gains on property sales (to 30 days post-sale) anticipated to take effect from April 2020.
CGT is also perceived as a tax on the wealthy, and increases in CGT rates may well be popular amongst the newly converted Conservative voters in former Labour strongholds. At 20%, the headline rate of Capital Gains Tax is fairly low, although the 28% headline for residential property is more significant.
Some taxpayers may be considering triggering gains, looking to lock in to current regimes ahead of the Budget announcements, or otherwise ahead of the tax year-end and, Budget aside, it is solid planning to consider use of annual exemptions before any given tax year-end.
Off-Payroll Workers
Another area in which change is rife is off-payroll working – freelancers and the so-called gig economy. There have been changes upon changes to the IR35 rules governing those working through personal service companies and the latest planned changes (extending to the private sector the rules introduced for public sector workers a couple of years ago) are subject to a recently announced review. The review is due to be finished by mid-February and any changes arising are likely to feature in the Budget in time to be implemented by the scheduled change date of April 2020. Those working on a non-employed basis certainly need to keep appraised of developments and the likely changes they are going to face in the new tax year, although current thinking is that the scheduled changes will not be altered significantly and contractors will need to prepare for the brave new world of off-payroll working.
Tax Avoidance
This has been a recurrent topic in recent Budgets, with the screw turning on those who seek to avoid tax. Immediately after the election, we saw the publication of the loan charge review and HMRC’s surprisingly swift response to it – it was as though they had seen an advance copy! Most of the changes recommended will need to be legislated, so are likely to feature in the Finance Bill. Many Conservative backbenchers have been harangued by disgruntled constituents on the subject of the loan charge and, whilst going easier on tax avoiders may not play well in former Labour-voting constituencies and in the popular press, there is a long time until the next election. An easing of the terms under which tax avoiders can settle could encourage a lot more rapid settlement, bringing a welcome boost to government coffers and, to coin a slogan, ‘Get Settlement Done!’
VAT
It’s always good to have a wildcard when predicting a Budget announcement, and mine (and I’ve got a poor track record of correct predictions!) is the rate of VAT.
Not based on anything said or published by the Government on the topic, but given the association of the tax with our membership of the EU, pledges about costs of living and the potential appeal to wide sections of the population, I wonder if a statement about reducing VAT off the back of ‘Getting Brexit Done’ might be something the Chancellor’s got up his sleeve.
Should you like to discuss any of the matters highlighted in this blog, please contact John Sheehan, Graham Boar, or your local UHY tax specialist.
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