Tax Talk: Boris’ end of year report
Subject: Income TaxScore: 1/5
During the Conservative party leadership contest last summer, Boris Johnson pledged to cut income tax for higher earners by raising the 40% band to £80,000. This policy did not make it into the Conservative’s General Election manifesto later in the year, with the party instead promising that there would be no increases in income tax.
A leaked Treasury document suggested that this commitment may no longer be feasible and that income tax would need to rise to plug the rapidly growing budget deficit. If this does happen, how far will rates or thresholds go? Or could the proposed reform of Capital Gains Tax (CGT) negate the need for income tax rises? Either way, this is likely to be a challenging issue for a party that has been historically associated with lowering rather than raising taxes.
Subject: National Insurance
Ahead of the launch of the General Election manifesto, the Prime Minister announced plans to raise the National Insurance threshold to £9,500.
It was claimed that this would make everyone £500 better off – which was subsequently reduced to £100 in the manifesto (it transpired that the £500 amount is based on an increase in the threshold to £12,500, which is the government’s longer term target).
The government has pledged not to raise National Insurance during the current parliament. However, like with the promise of not to increase income tax, this may need to be reconsidered as the government looks to plug the huge deficit.
Subject: Stamp duty surcharge on non-UK resident buyersScore: 2/5
The Conservative party manifesto set out plans to introduce a Stamp Duty Land Tax (SDLT) surcharge on non-UK resident buyers to finance a commitment to the Affordable Homes Programme and other housing initiatives.
In keeping with these ambitions, Chancellor Rishi Sunak announced in the Spring Budget in March that a 2% SDLT surcharge will apply to non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021. This is on top of the existing 3% SDLT surcharge for owning more than one residential property.
However, an SDLT holiday was announced as part of the Summer Statement to stimulate the housing market in England and Northern Ireland, which ground to a halt during lockdown.
The SDLT holiday is anticipated to cost £3.8 billion in lost tax revenues – dwarfing the £140 million that was expected to be generated from the 2% SDLT surcharge. This leaves a large gap for the government to fill in this area…
Subject: Review and reform Entrepreneurs’ ReliefScore: 3/5
There was widespread speculation that Entrepreneurs’ Relief would be abolished in the Spring Budget.
This turned out to be inaccurate – although the changes that were ultimately announced by the Chancellor in March have led many business owners to question if the regime has been abolished in all but name.
The recently announced consultation on the reform of CGT adds another dimension to this debate. Options being discussed include an alignment to income tax rates, changes to Main Residence Relief and uplifts for Inheritance Tax.
Subject: Corporation TaxScore: 3/5
Despite speculation that the UK may set Corporation Tax at 17% from April 2020, the Spring Budget confirmed that the rate would stay at 19% – which is still one of the most attractive rates in the G20.
With talks on post-Brexit trade deals showing little tangible progress at the moment, future reductions in Corporation Tax to attract overseas businesses and support domestic companies may return to the political agenda.
Subject: Employment allowance for small businessesScore: 4/5
As anticipated, the Employment Allowance increased from £3,000 to £4,000 from April 2020.
It is estimated that this will reduce the Secondary National Insurance Contributions to nil for around an additional 65,000 businesses.
In the current climate, it is questionable whether this is enough to help businesses.
As part of a ‘tax guarantee’ to protect the incomes of families across the next parliament, the government committed not to increase income tax, national insurance or VAT.
In line with this pledge, the rate of VAT remained at 20% in the March Budget, and a temporary cut in VAT to 5% until 12 January 2021 was announced for the hospitality sector in the Summer Statement.
Subject: Increase in R&D Tax Credit Rate
The Research and Development Expenditure Credit (RDEC) increased in the Budget from 12% to 13% from April 2020. The cost is being met by the savings made on Entrepreneurs’ Relief.
While this is undoubtedly welcome news for businesses claiming the RDEC, its benefit to the wider economy is more limited.
Subject: Deferral of Tax Payments and Time to Pay
VAT Payments due between 20 March 2020 and 30 June 2020 were automatically deferred and will now be payable on 31 March 2021. No interest or penalties will arise on the late payment.
Income Tax Self-Assessment payments that are due on 31 July 2020 will not be collected until 31 January 2021.
Time to Pay requests can be made to HMRC to defer tax payments which are due (or overdue) for payment to HMRC.
Whilst these measures are welcomed, it should be noted that they are only deferrals – they may ease cash flow pressures in the short term, but individuals and businesses will still need to find the funds to repay the tax they owe in the future.
Subject: Coronavirus Job Retention Scheme
The unprecedented support package for employers is now extended to 31 October.
The Scheme was rolled out quickly and the online claims portal coped well with the demand and ensuring that claims were processed quickly. We were pleasantly surprised with how the claims process worked.
It is clear from talking to our clients, that the Scheme has been instrumental in keeping many businesses (and their employees) afloat.
The Summer Statement then went one step further and introduced the Job Retention Scheme Bonus of £1,000 per furloughed employee that is employed until 31 January 2021. Although a number of large employers have already publicly stated that they will not accept the funding, this extra boost could make a significant difference to smaller businesses.
Subject: Self-Employed Income Support Scheme
The support package for self-employed individuals was finally announced towards the end of March, with the claims process starting at the end of May.
When the scheme did get up and running, many individuals were initially rejected, despite believing that they met the required conditions.
Many self-employed individuals feel that they have been poorly supported when compared to their employed counterparts – we find it hard to argue against this view, given the available evidence.
It has unquestionably been a challenging year for the Johnson administration. While it is not unreasonable to ‘blame Covid’ for some of the difficult decisions that the government has had to make, we believe that there is still room for some improvement on the tax front. In our view, the Prime Minister’s job will become more difficult in the coming months. Balancing the twin objectives of reviving the economy and stabilising public finances will not be easy, and we wait to see what emerges from the Chancellor’s red box during the Autumn Statement later this year. Next year’s report card will make for interesting reading.