Chancellor Rishi Sunak will deliver his second Budget later this week. He’s only been in the job for little over a year, in which time the Chancellor’s made 13 major fiscal announcements.
Of course, the last 12 months have been like no other. COVID-19 continues to wreak havoc with people’s lives, and Sunak needs to strike a balance between outlining the road to recovery and fixing public finances.
The Chancellor’s hands are somewhat tied by the Conservative election manifesto published in December 2019, enshrining the main rates of income tax, National Insurance contributions and VAT until 2024.
Those three taxes accounted for £473 billion of the Treasury’s total £828bn revenue for 2019/20, which leaves Sunak with little room for manoeuvre.
Corporation tax, capital gains tax and inheritance tax look likely targets for a tax grab in the near future. Whether or not the Chancellor goes after those taxes on 3 March 2021 remains to be seen.
The main rate of corporation tax in the UK is 19% and in 2019/20, this generated around £50bn for the Treasury. It’s a tax companies pay on any profits made during their financial year.
Reports are suggesting the main rate of UK corporation tax could rise to 23% from April 2021, raising an extra £12bn which will go towards paying for an extension to the furlough scheme.
For directors of limited companies, this would be like kicking a dog while it’s down, especially when you consider directors have been overlooked from the Government’s COVID-19 support in the last year.
Capital gains tax
Capital taxes fetched around £31bn for the Treasury in 2019/20 and the Chancellor is armed with recommendations from the Office for Tax Simplification (OTS) going into this week’s Spring Budget.
A report from the OTS published late last year called on Sunak to consider more closely aligning capital gains tax rates with income tax rates AND to slash the capital gains tax annual allowance.
If this alignment was to take place, basic-rate taxpayers would see their capital gains tax bills rise from 18% to 20%. But income tax rates can climb as high as 45% for those who pay the additional rate. The capital gains tax annual allowance is worth £12,300 in 2020/21, but could plummet to £2,000.
Council tax & stamp duty
You may or may not have taken advantage of a stamp duty holiday to move home in the last nine months. This is due to come to an end on 31 March 2021, although a three-month extension might also be revealed.
One alternative train of thought is that the Chancellor is considering merging council tax with stamp duty land tax to create a new proportional property tax.
This could arrive in the form of a new 0.68% levy applying on the values of all residential properties in England and Northern Ireland. It would be paid annually with the Treasury taking 0.22% of the proceeds and 0.44% going to local councils.
We will communicate any tax changes that come out of the Spring Budget on 3 March 2021 shortly after the Chancellor’s speech. If you wish to talk any of them through, contact us on firstname.lastname@example.org or call 01363 773191.