With the Autumn Statement announced back in November, which provided a plan to tackle the cost of living crisis and the rebuild of the UK economy, Hunt has already implied the announcement will be a thin, economic strategy.
With the update just over a week away, we will be running a mini budget series, where our Tax Director, Michael Burgess, will give his predictions, thoughts on the outcome and what the Spring Budget announcement really means.
So, let’s pass the mic over to Michael…
15th March marks an important day for the UK economy. Whilst nothing will be confirmed until then, guesstimates are circling about what the Chancellor has planned. Below I’ve outlined key actions that I think will be unveiled, despite the announcement being a “slimmed-down plan,” as stated by Hunt previously.
Tax cuts look doubtful:
Although the government has been pressurised to make tax cuts, it has forecast that this is unlikely. It follows measures that were announced in the Autumn Statement back in November, which highlighted that tax payers are expected to feel the pinch from April.
This includes a freeze on personal allowance and most income tax thresholds. Having thresholds that fail to rise alongside salary increases does mean that you’ll pay more tax on your income, especially if you end up in a higher tax band.
Last year, the Chancellor announced that the additional-rate threshold would be reduced from £150,000 to £125,140- a change that has been estimated to put around 250,000 more people into the highest band, meaning they will pay 45% income tax.
Tax payers who are eligible to pay dividends and capital gains tax will also be hit by major cuts to tax-free allowances over the next two financial years.
Corporate Tax hike could crumble businesses
Unfortunately, the UK’s business community will be put under pressure to find an extra £18 billion per year of Corporation Tax payments by 2025/26. This follows a significant increase in the Corporation Tax rate, which is due to take effect in April.
Corporation Tax, which currently stands at 19%, will rise to 25% on 1 April 2023. It’s expected that this will raise an estimated additional £12bn in the first year, increasing to £18bn by 2025/26. UK businesses presently contribute around £68bn in Corporation Tax per annum.
Regardless of spiralling prices and the challenging economic climate, the Government announced last October that it would stick with the baseline increase on profits of more than £250,000. This additional tax burden could lead to a significant reduction in investment, and it increases the risk of businesses closing.
This is a significant increase, and some businesses may not yet fully understand the implications.
The tax burden on business is the highest it’s been since I’ve been working in practice (20 years!) from National Insurance Contributions (NICs) to Corporation Tax.
Having said the above, I think that the reduction in the annual investment allowance to £200,000 will be cancelled and kept at £1,000,000, in order to help SME’s continue to invest which will help to reduce the problem of the increased tax rate.
Energy prices still set to increase:
Unfortunately, the energy price cap rise will still be implemented in April, despite households struggling to pay for rocketing gas and electricity bills.
The Energy Price Guarantee (EPG), which limited the average annual household bill to £2,500 was meant to end in April 2023, but in the Autumn Statement it was announced that an updated version will run for another 12 months. The cap increase will be limited to £3,000 per year, or £250 a month.
Cost of living payments have already been planned for the year and the beginning of 2024. £900 will be given to those on mean-tested benefits, £300 for pensioners, and £150 for individuals who are on a disability benefit.
In spite of the government being urged to offer extra support, Hunt has advised that there isn’t headroom to make a new initiative in order to help those who are struggling.
Extension of the fuel duty cut:
Due to surging fuel prices, last spring the cost for petrol and diesel was cut by 5p a litre. This relief was meant to end in March 2023, but there are reports speculating that it could be extended for another year.
Pension lifetime allowance could increase:
Due to encouraging those over 50 to go back into work, there is the possibility that the lifetime allowance (LTA) for pensions will be increased.
The LTA is a limit on how much you can save in your pension pot, before being hit with a tax charge. In 2022-2023, the lifetime allowance remained at £1.073m, and this will currently be frozen until 2026.
Potential state pension age rise:
The Chancellor is encouraging those who took early retirement to go back to work to be able to move forward with the confirmed increase to the state pension age.
66 is currently the age that you can access your state pension, but it is due to gradually increase to 67 by 2028, before slowly rising to 68 between 2044 and 2046.
There are reports that a review on the state pension age will recommend the increase to 68 to be delayed, and will be implemented in the mid-2030’s, and this could be announced on 15th March.
It is a government requirement to regularly review the state pension age, so a second review will likely be published later in the year.
What’s next?
So, that’s our Tax Director’s predictions! Although as previously stated, the outcome from Hunt’s Spring Budget is expected to be thin, but we’ll be keeping a close eye on the day, and will keep you updated with a mini round-up.
We will then hear again from Michael for a more detailed report of what the result of the Spring Budget really means.
In the meantime, if you would like some guidance in putting plans in place to prepare your business for what may lie ahead, or if you want to simply chat through any concerns you may have, you can get in touch with our specialist team by emailing [email protected].
