On Thursday 17 November 2022, the duo will deliver their inaugural fiscal statement and are predicted to reveal monumental plans for both spending cuts and tax rises to fill a short fall of £50billion in public finances and reduce inflation.
As businesses, we should be aware of what’s on the horizon so we can start to seek advice on how to prepare. Ahead of the Statement, Scott Heath, our CEO, shares his predictions of what’s to come…
So, Scott, what should we expect?
I’m expecting both tax rises and spending cuts bigger than we’ve seen in our lifetime. There’s a £50bn hole to fill in public finances and that money has got to come from somewhere.
I think the Government will aim for a balance, and we could see over £30 billion cut from public spending over the next 5 years and an eye-watering tax raid of £21 billion.
What Tax rises do you think we’ll see?
Corporation Tax
It has already been announced in Hunt’s emergency statement that Corporation Tax will rise from 19% to 25% from April 2023, so I can’t see there being any further announcements around this as it is already a significant increase.
Income Tax
In a stealth tax move, Hunt could extend the four-year freeze on income tax thresholds and allowances which was put in place until 2027-28 financial year. This would raise billions with millions of individuals pulled in to paying higher rate income tax.
Dividends
A big hit to business owners and shareholders would be a change to dividends. There’s talk that the tax-free allowance could be reduced from £2,000 to £1,000. This 50% cut could raise £455 million bringing dividends allowances in-line with National Insurance updates. I just hope it doesn’t get cut altogether. In addition to this, there could be a further 1.25% increase to the rate of income tax on dividends.
Inheritance Tax
I expect Hunt to also extend the freeze on the inheritance tax (IHT) threshold. Currently the standard rate tax is 40% on an estate that’s over the threshold of £325,000. This has already been frozen until 2026, but if it were to be extended by another two years it would see thousands more paying IHT as more estates will be dragged above the threshold.
Capital Gains Tax
There’s been loads of speculation about Capital Gains Tax (CGT). I think it will be on Hunt’s hit list, but in the current political climate I don’t think it will be to the headline tax rate which is currently 10%-28%. It’s more likely that the individuals’ Annual Exemption for gains could be cut from £12,300 to £5,000. I’d also note that whilst this may take place, as it’s an easy tax to increase politically, any revenue generated from CGT is very low compared to the other taxes I’ve mentioned and the efficacy of this would be limited.
Pensions
The pensions tax relief is costly to the Government, so there could be changes here. This is likely to be a freeze to the lifetime allowance, which will hit millions of people saving for retirement.
Another stealth move, this will help avoid the Government back tracking on the Prime Ministers commitment to the triple lock on State Pensions.
Where will the government cut spending?
The cuts to government spending are likely to impact large infrastructure projects across the UK, whether these are new developments or existing ones already well underway. The Business Secretary, Grant Shapps, has already suggested that the Northern Powerhouse Rail, which some have called HS3, could be scaled back, as could the next phase of HS2, between Birmingham and Manchester, with the new Transport Secretary commenting only last week that the government were looking at ‘all of the options’.
It won’t be strictly limited to large transport projects and I recently read that the government has had to quell rumours that the cancellation of Sizewell C, a new nuclear power plant based in Suffolk, was being considered. I’d be surprised if this was axed completely or even delayed as the energy crisis is already weighing heavily on minds and budgets and the majority of UK nuclear power stations will be closed by 2030, creating further supply difficulties for the country in the near future.
So that’s the bad news, but is there a chance of good news?
It’s already been confirmed that the capital allowances 100% annual investment allowance will continue at £1million per year.
An overhaul of the Apprenticeship Levy has been promised in the past, which if it’s simplified, would be welcomed by many businesses up and down the country.
Lots could change, so what’s your advice Scott?
We’re heading in to a recession, so there’s no getting away from the fact that we are facing challenging times. But with the right advice there are defensive strategies that can be put in place to make sure you come out of it the other side.
You should prepare your business by staying on top of your numbers, accurate forecasting, budget controls, debt management, restructuring of finance and keeping your stock lean. You may need to make a few tough decisions along the way, so having a clear plan and support from a trusted advisor will make it easier to act. It has never been more important to tax plan, so you don’t pay more than your fair share.
Here for you every step of the way
We’ll be watching the Chancellor’s statement on 17 November 2022, so will keep you updated with a mini round-up on the day. Once we’ve had chance to digest the detail, we’ll also publish a more detailed report from our Tax Director, Michael Burgess.
If you’d like a little help putting plans in place to prepare your business or just to chat through any concerns you may have, get in touch with us here at DJH Mitten Clarke and we’ll hold your hand every step of the way.
