What is the Chancellor, Jeremy Hunt, planning for his announcements this Autumn?
Can the UK's finances provide him with any room for manoeuvre in terms of taxation and spending?
Rumours are already abound in the media as to what is likely to be announced in the upcoming Autumn Statement. Given the UK tax take stands at a post war high, there has been pressure on the Chancellor, within his own party, to look at tax cutting initiatives. However, that's dependent on the state of the government's post COVID finances, can he really afford such measures!?
In this blog post we explore what the speculation is, how likely it is to happen, and what the potential impact could be on your business and personal finances.
Read on to find out more about:
|What is the Autumn Statement?||State pension triple lock|
Income Tax, National Insurance, full expensing & Stamp Duty Land Tax
|Living wage increase|
|Research & development tax relief||Help for first-time buyers|
|Real Time Information and pay advances||Tax advantaged schemes|
|Customs duties||A rise in fuel duty|
|Abolish Inheritance Tax?||Pre-populating tax returns|
The Autumn Statement is the second set of financial announcements that is delivered by the Chancellor of the Exchequer to the House of Commons.
This year the Autumn Statement will take place on Wednesday 22 November 2023, from approximately 12.30pm, just after Prime Minister's questions.
The Institute for Fiscal Studies published economic findings recently that made for stark reading. Its Green Budget report observed that the UK was suffering from persistent inflation, a tax burden at a postwar high, low growth levels, and rising interest payments on the government's debt.
Furthermore the report suggested there would be more spending pressures in the future due to demand in the National Health Service (NHS) and public sector pensions. This hardly looks like the recipe for making tax cuts.
The issue the Chancellor faces is that rising interest rates and inflation have made the country's debt interest payments more expensive. According to Kate Andrews in the Spectator, these interest payments are now £30bn above the levels to which we have become accustomed in recent years. The result is potentially high budget deficits that mean Jeremy Hunt has very little in the way of fiscal options.
However, the prospect of a reduction in the basic rate of Income Tax or National Insurance has emerged in the days leading up to the statement. This could be in response to the need to shore up votes in the lead up to going to the polls in 2024.
The question is whether the Chancellor can actually afford this? Will it be funded by reforms to the Welfare system which could prove potentially very unpopular, or because the country now has a slightly smaller budget deficit than was originally forecast at the start of the year? It's a potentially fine balancing act he faces, given the government's own pledges to reduce inflation, and the national debt, in order to lower the tax burden!
According to a report in the Financial Times, there have been discussions within the government about prolonging the full expensing policy beyond its current end date of 31 March 2026. This particular capital allowance tax scheme, which was implemented on 1 April 2023, permits UK companies to deduct the entire cost of their capital equipment from their profits in the year of purchase.
The range of capital equipment eligible includes plant machinery, lorries, tractors, technology, and furniture, among other items. An extension to the scheme is seen as a favourable option by the Treasury, as it is not considered to have an inflationary impact on the economy.
There may also be changes to Stamp Duty Land Tax (SDLT). Currently, if purchasing a property, you pay stamp duty at a rate of:
Other sources say the rebate idea has been ruled out. Given an election is due next year, a potential cut to what is in effect a property transaction tax could be a welcome boost to a stagnant property market, given interest rate rises of late.
Research & development (R&D) tax relief is designed to encourage companies to invest in innovation. It does this by rewarding those that undertake qualifying R&D projects with either a reduction in their Corporation Tax liability if they're profitable, or a cash payment in the case of loss making firms.
Last year, the government announced plans to merge both R&D tax relief schemes, SME and RDEC, into one. The thinking is this will simplify the rules, whilst also reducing the cost of administering it. The aim being to make the UK more internationally competitive in innovative industries and sectors.
Legislation has been drafted but remains in consultation on how best to simplify the process for organisations of all sizes. Will there be more announcements in the Autumn Statement? If so, and the new scheme is launched then keep an eye on timelines if your business makes use of this tax break. It may be worth doing some planning with your accountant to ensure you're maximising the benefits you receive.
Inflationary pressures and the cost of living mean some employers have been providing their staff with monthly pay advances. Unfortunately RTI payroll reporting means if you do this as an employer, then you have to report it either before, or when, the payment is made.
Consultations are taking place on relaxing these rules so that the monthly RTI report can be generated to include any pay advances and cut down on the additional reporting and admin. We await the details of any potential reforms.
There may be updates to Custom Duty procedures to help businesses with tariffs imposed on exports. Can the government deliver better IT systems for processing these duties as it develops these systems following Brexit?
Will, for example, the exemption on the 10% import duty for electric car batteries, due to expire on 31 December 2023, be extended despite the recent relaxation of some other green policy initiatives?
Reports were abound in October that the government were looking at the idea of potentially scrapping Inheritance Tax (IHT)!
IHT is charged at a rate of 40% on the value of your estate above £325,000 when you pass away. If you're married, you can combine the allowance with your partner upon your passing meaning no tax is likely to be payable unless the estate is worth more than £650,000.
It's a complicated tax as there are various reliefs you can make use of such as passing on the family home, as well as gifting, which means you may be able to pass on an estate to the value of £1m without incurring IHT. However, the tax often has to be paid before probate is granted meaning people who inherit can struggle to come up with the money for what is owed.
Apparently a cut to the 40% rate has been discussed with a view to eventually scrapping IHT altogether. Another option that has been mooted is a simplifying of the system to allow families to pass on £1m tax-free. Can the government meet the expense of such a move!? It looks unlikely given the UK's financial position.
The £325,000 nil rate band, or allowance, has been frozen since the 2009/10 tax year. It is set to remain at this level until April 2028, and HMRC forecasts suggest an additional 49,400 estates will be liable for this duty over a 7 year projected timeframe.
Forecasts from last November predicted that inheritance tax receipts would rise from £7.1bn in 2022 to £8.4bn by 2028, but this could end up much higher now. That's a significant amount of money generated through wealth that the government can ill afford to do without.
Individual Savings Accounts (ISAs) are a tax wrapper for savings whereby you can set aside up to £20,000 per year and the returns generated from that money are tax exempt. It has been suggested that Hunt is considering introducing an additional allowance for people who invest in UK companies through their ISA.
Cash, and stocks and shares ISAs are currently held separately. There are rumours that they could be combined into one. Might the annual allowance also be increased? After all the £20,000 saving limit hasn't increased since 2017.
The number of different types of ISAs could be subject to review as well. Many people find this confusing and there are also complicated rules around not being able to pay into 2 of the same type of ISA, such as cash ISAs, in a tax year.
The pension triple lock ensures pensioners receive an increase in their pension payments each year based on whichever of the following 3 figures is highest:
The lock was designed to prevent the state pension from being overtaken by increases in the cost of living, or the UK population's income. MoneyWeek states that wage growth was the highest of the 3 measures, standing at 8.5%. This means pensioners are due a considerable hike in their income.
Given the government's finances, there are questions as to if the triple lock can be sustained in its current form. This could potentially mean any future increase is based on a lower wage growth calculation. The reason being the 8.5% increase includes some one-off payments in the public sector for those in the NHS and civil service.
However with an ageing population and a general election on the horizon, will this be palatable for the Chancellor and the Prime Minister!?
It has already been confirmed that there will be an increase to the National Living Wage (NLW) in April 2024. The NLW will rise to £11 per hour which may put cost pressures on some SME business payrolls. It also places the NLW in line with recommendations from the Low Pay Commission that it should be worth two thirds of median earnings.
It is said that further support is being considered by the Treasury to help first-time buyers with getting into home ownership. This may include:
The current mortgage guarantee scheme assists in the supply of 5% deposit mortgages. It offers lenders of these products (to credit worthy purchasers) a guarantee on the mortgage whereby the provider will be compensated a portion of any losses incurred in the event of a repossession.
The scheme was introduced in March 2021 and was extended by 12 months at the end of last year. It's due to come to a close in December 2023 but may now be extended for another year.
The idea for a first-time buyer ISA may also see the Lifetime ISA benefit from an increase to the £450,000 limit on house purchases using this savings wrapper.
Given the UK is no longer subject to EU state aid restrictions, there may be an opportunity to make some share schemes more generous. The effect of such measures could help boost investment in UK SME businesses as well as employee retention through participation.
Reports of record absence in the workforce due to sickness in 2022, means the government's focus has been on public health to help improve productivity. Consultations have taken place on incentives that can be made available for employers to provide their staff in terms of occupational health provision. Employer led health benefits can help prevent illness and in turn relive stress on the NHS.
Currently there are also consultations taking place on potential reforms to improve employee participation in the the Save-As-You-Earn (SAYE) and Share Incentive Plan (SIO) schemes.
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are designed to encourage investors to finance start-ups and small businesses by providing various tax breaks for funding projects that are considered high risk.
Currently there is an end date for EIS of 5 April 2025. This is known as the sunset clause which was a condition of EU regulations. Now the UK is freed from them, the Chancellor has power to extend this and earlier in 2023 suggested this would happen at a 'future fiscal event'. Could that be the Autumn Statement?
Might the government also look to make SEIS and EIS available to more early stage businesses? This could potentially be achieved if the age limits are increased, for example with EIS at present, qualifying enterprises need to have been trading for less than 7 years.
It's reported that the Chancellor is considering a rise in fuel duty for the first time in 13 years. An increase of 2 pence in the pound has been mooted because this is what's needed, according to the Treasury, to make up for the 5 pence cut made in light of the COVID pandemic back in March 2022.
It's argued this is needed to make back the £5bn apparently lost each year since it was reduced. This would still leave the duty lower than when it was last raised in 2011. VAT is also levied on fuel duty which means this will compound any rise. Given how politically sensitive this tax can be, and given there is an election on the horizon, don't be surprised if it remains frozen or any rise is delayed until next year.
HMRC is considering using third-party data to pre-populate people's self assessment tax returns. The idea is this is part of simplifying what can be a very complicated process for some. When completing a tax return, you as the user wouldn't have to fill in every number, rather you would be asked to check the data in a pre-filled return and make amendments where you observed anomalies.
However, it raises concerns around the capture, sharing, and usage of people's potentially sensitive financial information. Look out for announcements on this topic.
The content of this post was created on 09/11/2023 and updated on 21/11/2023.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.