Looking ahead to the Autumn Budget
On 27th October, Chancellor Rishi Sunak will be unveiling his latest proposals in his autumn Budget. Nick Giles, Tax Consultant at Page Kirk, gives an assessment of what we're likely to hear.
In 2016, Philip Hammond decided that the UK should have one principal fiscal event a year and moved the Budget to Autumn. Events in the last 18 months have meant the Government has had to move fast and quickly adapt to the fall-out from the pandemic. This has meant a relative onslaught of fiscal measures, including, most recently, the announcement on 7 September 2021 of the Health and Social Care Levy, which proposes to increase the rates of national insurance by 1.25%, and add 1.25% to the rates of dividend tax.
When announcements as big as that have been falling outside of the traditional annual Budget, it can be difficult to imagine what could be left to announce later this week. Intuitively, one must feel that some pretty substantial changes must be coming, particularly given the need to balance the Government's books following the various pandemic response packages. But the economy is also looking precarious in places, inflation is starting to creep in, with increases in the prices of raw materials and wages, and many firms experiencing staff shortages and logistics problems. Any tax changes must therefore be balanced, or delayed, so as not further disrupt economic output.
So what sort of changes could we see?
Capital Gains Tax (CGT)
Changes to CGT have been noticeable by their absence in recent announcements. Cynics may say that the Conservatives are the party of wealth and such a policy is wholly in keeping with their ideology. Those of us who work in tax suspect it may be that the CGT legislation is no longer fit for purpose and requires a substantial overhaul rather than tinkering around the edges. The lack of announcements may therefore be the calm before the storm, with fundamental overhauls perhaps on the cards. Radical reform takes time and the circumstances we currently find ourselves in may not provide the ideal environment for making decisions with long-term consequences. It would, however, be unpalatable to many if national insurance was increased on people's earnings but no changes were made to the taxation of what can often be unearned wealth increases. Possibilities for the Budget may therefore include slight increases to the rates of CGT or a reduction in the annual exemption. The Office for Tax Simplification (OTS) have said that reducing the annual exemption from its current level of £12,300 to £6,000 could generate an additional £480m per year for the Government.
Inheritance Tax (IHT)
As with CGT, reform of IHT has been mooted for many years and the lack of progress hints to more substantial measures on the horizon. The OTS published a paper on reforming IHT in 2018 but, understandably given what has happened since then, none of those proposals have been acted on. Those who play a part in administering the IHT system will know that it is outdated and cumbersome. Many people who perhaps should be paying some sort of wealth tax are able to avoid it with planning and people who are not liable to pay it can still get caught up in the bureaucracy of the system, incurring unnecessary legal and accountancy fees to the benefit of no one. It is hard to see how anything other than fundamental reform could help, with any minor changes likely to only add to the complexity. IHT reform must undoubtably be on the cards, but that may perhaps be something for another Budget.
Enforcement
It may be that the Government need not make too many changes to the tax legislation to increase the tax take. A possible approach may simply be to provide more resources to HMRC and bring in tighter regulation and harsher penalties to enforce the legislation that is currently in place. With the speed of the roll out in the furlough scheme, SEISS grants and bounce back loans there will undoubtably have been errors, both innocent and intentional. Concerns have also been raised for a long time about the scrutiny that has been applied to some claims and reliefs, most notably R&D claims, with reports of many spurious claims being paid out by HMRC. Taxpayers must remember that when HMRC pays out on a claim, that does not mean it has accepted it. Under the self-assessment system, HMRC adopts a policy that initially accepts the taxpayer's claim at face value, but reserves the right to retrospectively go back and enquire into the claim if it feels it is appropriate. Taxpayers therefore may see an increased interest in their tax affairs from HMRC in the coming months and years.
If you're interested in discussing the implications of the Budget, simply email enquires@pagekirk.co.uk or call 0115 955 5500. Also check back on Wednesday for Nick's commentary and analysis in the light of the Chancellor's speech.