We have summarised some of the rumoured changes and speculation ahead of the Budget 2021, which is set to take place on Wednesday 3 March 2021. However, these are clearly not set in stone and we will find out soon which direction the Chancellor chooses to take.
- COVID-19 support schemes – Further details about the 4th grant under the Self-employment Income Support Scheme are expected to be announced, including who can claim, how much help they will get and whether further rounds of grants will be launched. For businesses there are also several other deadlines looming, including the end of applications for CBILS and Bounce Back Loans, and the end of the Coronavirus Job Retention Scheme. The Chancellor may be keen to reign in government spending, but hesitant to act to soon as to risk a business, employment and economic catastrophe. Therefore, extensions to these schemes could be on the agenda, or at least at a reduced level. Also, an incentive to keep staff on, such as the previously dropped £1,000 bonus for employees kept on after the Job Retention Scheme closes, may be announced.
- Corporation tax – There have been rumours that the Chancellor is considering an increase in corporate tax rates. Corporation tax is currently at historically low levels, having fallen from 28% in 2010 to 19% now. The Chancellor scrapped a further reduction of the corporation tax rate from 19% to 17% in the Finance Act 2020. He could go further this time around, but would likely need to weigh up the post-Brexit message this would send in attracting and retaining international business in the UK.
- VAT – VAT is the third biggest income generator for the government, but the likelihood of a further rise seems less likely, with the Government keen to encourage consumer spending and to protect businesses and jobs.
- Online sales – There has been much talk on abolishing business rates and replacing them with a new tax on online sales, particularly in light of bumper online sales this year, which may be on the Government’s agenda to address. This may include lowering the entry threshold for online businesses who pay Digital Services Taxes (DST) or increasing the DST rate, which is currently 2%.
- Hospitality sector – With the hospitality sector primed to reopen in the coming months, perhaps we see a resurrection or adaptation of the ‘Eat Out to Help Out’ scheme for this hard-hit sector. With local or national tiered closures still on the horizon it may also be that the business rates exemptions are extended. There have also been calls from the sector to extend the VAT cut from 20% to 5% on food and soft drink for another year.
- Capital Gains Tax (CGT) – There has been much speculation that the rate of CGT will rise. CGT rates are currently at a historic low and the Chancellor previously requested that the Office of Tax Simplification (OTS) review the CGT regime. It could be that CGT rates become more aligned with income tax bands. The Chancellor may elect to put these changes in place at a future date, which would likely encourage tax payers to act in advance, providing a short-term boost for Government tax receipts. With CGT subject to change, if you are thinking of selling assets that have made gains it could be worth acting quickly to benefit from higher annual allowances and/or lower rates of CGT ahead of any rises, but full advice should always be taken.
- Inheritance Tax (IHT) – There has been rumour that the IHT regime will be targeted, perhaps with the seven year IHT exemption for gifting (Potentially Exempt Transfers (PET)) replaced with an immediate lifetime inheritance tax charge upon making the gift. Therefore, those currently making lifetime gifts may wish to speed this along, but as always, full advice should taken.
- Income Tax and National Insurance Contributions (NICs) – In the Government’s 2019 manifesto it announced a “triple lock” to freeze Income Tax, National Insurance (NI) and VAT rates until 2024. This includes income tax allowances and thresholds and national insurance limits increasing from 6 April 2021 in line with the September CPI figure of 0.5%, which is the minimum increase as set in legislation. However, given that Income Tax is the single biggest source of tax revenue for the Government and NICs the second biggest source, there has been growing speculation that this could be reviewed.
- Pensions – Tax relief on pensions contributions is an area that is likely to be reduced, and therefore, you may wish to maximise your tax-efficient contributions ahead of the budget as a precaution but full advice should always be taken.
- Property tax – The Stamp Duty Land Tax (SDLT) cut for sales of residential property has been successful in boosting the property market and so there is much public pressure for it to be extended from its current expiration date of 31 March 2021. This would certainly been seen as a ‘positive measure’ for many property buyers, sellers and the property market.
- A new ‘Wealth Tax’? – The Chancellor rejected a proposal from the Wealth Tax Commission in December to levy a tax for those with assets over £500,000, describing it as “un-Conservative”. It is unlikely, but cannot be ruled out in these unprecedented times.
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