John Healy will deliver his first Budget to Parliament next week as the Labour government grapples with rising inflation and cost-of-living pressures, reports BritPanorama.
The Chancellor has already dismissed calls from some ministers to hike Capital Gains Tax (CGT), highlighting in a speech last month the “importance” of business owners being able to make profits.
“I want to see this country as a country of wealth creation,” he said at the time. “I want our government decisions and policies to raise the levels of confidence, and investment, and profit in British business.”
He has also announced ambitious plans to reduce the burden of business regulation by a quarter by the end of the current Parliament.
But what else could businesses expect to see in the Budget on Wednesday, October 28?
Neil Brackstone, head of tax for Thames Valley and South West at business advice firm BDO, believes UK companies “will be spared” another round of hefty revenue raising, with the possible exception of the banking and energy industries, after recent national insurance and minimum wage hikes.
“Addressing the cost of living is understandably a major focus for the Government but businesses will want to see practical and meaningful support to help with the cost of doing business,” he said.
“One area of focus should be reducing tax complexity. This creates unnecessary administrative burdens, absorbs time, adds compliance costs and undermines the certainty that businesses need.”
“Anomalies in the tax system also create cliff edges which can distort investment, hiring and expansion decisions – removing these is a low-cost way for the Chancellor to make a real difference to businesses. In our view, simplifying the tax code would help support growth in every postcode.”
Here, Mr Brackstone sets out his predictions for businesses ahead of the upcoming Autumn Budget.
Business rates relief
“From 2027, business rates relief will be expanded to help reduce costs for small business, including a 20 per cent cut for hospitality businesses such as clubs, music venues, pubs. Whether he chooses to fund this by increasing the rates paid by large warehouses now looks more uncertain.
“There have also been demands from some business groups to increase the small business rates relief threshold from its current level of £12,000. This would have a beneficial impact on individual businesses, protect some employment and support local high streets.”
More local spending
“Almost 90 per cent of businesses BDO surveyed believe devolving spending decisions to local mayors will benefit their growth so we’ll be keen to see how the Prime Minister’s goal will be achieved in practice. Another decentralising measure would be to boost funding for local authorities to build council housing, although the economic impact may be relatively small before the next election.
“Practically, scaling up production may be difficult to achieve due to planning delays and materials shortages. Government efforts to speed up planning applications will themselves also take time to implement.
“We have already seen some investment announcements – in September this year, the Chancellor announced that £150m of British Business Bank funding will be used to support “innovative and fast-growing firms” in the north of England. We may expect further programmes to be announced at the Budget.”
Capital Gains Tax
“In a recent speech, the Prime Minister suggested the Government is looking at changes to tax rules to encourage entrepreneurs and it is rumoured that the Treasury is considering creating a new form of CGT relief for entrepreneurs who reinvest sale proceeds into a new UK business after an exit.
“This would be a welcome pro-growth move, but we might only see it alongside the Chancellor nudging up core CGT rates.”
VAT changes
“While a cut to the main rate of VAT is deemed unlikely, an increase in the VAT registration threshold from £90,000 to £100,000 might be included to help small businesses.
“A VAT cut for hospitality might alleviate some of the sector’s struggles even if it does little to tackle inflation pressures for households.”
Support for employers and NEETs
“The Government is committed to tackling the large number of young people not in employment, education or training (NEETs) and we might expect to see ‘pro-growth’ measures aimed at incentivising young taxpayers, such as cutting income tax or employee NIC for three years for those joining the workforce for the first time.
“The cost of such a move could be financed by imposing a new lower rate of NIC on those working beyond pension age. If such a measure were announced, the Chancellor, who turns 67 next February, would find himself among those affected.”
Soft targets for revenue raising
“There is a strong chance that we will see banks face significant tax increases, or even some form of windfall tax – the markets appear to be factoring this into banks’ share prices already.
“The current combined corporation tax rate for bank profits is 28 per cent but a return to 31 per cent (the high after the pandemic) is quite possible. Another suggested way to increase tax revenue from banks would to be block them from setting brought forward losses against current year earnings for corporation tax purposes for the next few tax years.
“It’s also possible that oil companies – against the backdrop of current high prices at the pumps – may face a specific windfall tax on their profits for the current year.”
Ongoing tax changes
“The Government is already consulting on a wide range of administrative and policy changes and although many of them will help to raise revenue or advance tax payments, this will only materialise over the longer term and the amounts raised may prove to be relatively small.
“For example, it might seem counter intuitive that making an exemption mandatory would raise tax revenue, but HMRC’s proposals to make the foreign permanent establishment exemption mandatory could reduce the use of overseas losses by UK groups and therefore increase the corporation tax take.
“Another HMRC consultation on creating an explicit ‘duty to correct’ errors in tax returns could offer its investigators a new tool to help bring down tax underpayments by small businesses.
“Similarly, modernising the reporting rules on loans to company participators should lead to more reporting and therefore higher tax revenues. This might help to close the tax gap but moves like these increase the risks for businesses of getting their tax reporting wrong. Therefore, they will have to spend more time and effort to get things right first time – adding to their administrative burden rather than cutting it as the Chancellor says he wants to.”
The upcoming Budget offers a pivotal opportunity for the government to align fiscal policy with the pressing needs of businesses amidst heightened economic challenges. As it stands, the emphasis on simplifying tax codes and reducing administrative burdens reflects a cautious but necessary balancing act aimed at fostering growth without overbearing constraints. The effectiveness of these measures will likely hinge on their implementation and the broader economic context leading into the next election.
