The Government’s spending plans and changes to tax policy for the year ahead will soon be revealed in the Autumn Statement, and against a backdrop of weak economic growth, high inflation, high levels of public debt and the highest tax burden since World War Two (whilst we are also bordering on a recession), the Chancellor is in a difficult position.
Jeremy Hunt has come under increasing pressure to announce tax cuts, particularly after official figures showed borrowing in the financial year to September 2023 was almost £20bn lower than forecast by the Office for Budget Responsibility (OBR).
Becky Bowness, head of tax at Armstrong Watson said: “It may be that this additional fiscal headroom gives the Chancellor some options, however, his focus is still on tackling inflation, which is reducing but not at the rate it was expected to.
“For this reason, it is unlikely that the Chancellor will unfreeze income tax thresholds and allowances (currently frozen until April 2028) as, while this would help working families, it would lead to an increase in inflation, which has just fallen sharply to its lowest level in two years (4.6%). This “stealth tax” on household incomes drags more and more taxpayers into higher tax brackets.”
There has been much speculation about a shake-up of Inheritance Tax (IHT). Armstrong Watson financial planning and wealth management’s head of advice, Justin Rourke, doesn’t expect a change now, but rather some signposting of future change – either an IHT rate reduction or perhaps the planned abolishment of IHT altogether.
Meanwhile, a potential ISA reform is expected. “This would be a popular move with savers and investors as the ISA has been left behind in recent years and it would help to offset the more stringent Capital Gains Tax regime for personal investors,” said Justin.
The Chancellor has signposted that anything he does do is about generating growth in business. Among these measures might be an extension to full expensing tax relief for companies. When it was originally announced, the Chancellor did suggest he would like to make this relief for qualifying capital expenditure permanent, but at this point in time he is more likely just to extend this beyond the original date of March 2026.
An update on the consultation to merge the Research and Development (R&D) tax relief scheme for small and medium (SME) businesses with R&D expenditure credit (RDEC), may see the new scheme more aligned to the large company RDEC scheme, but could have a potentially significant impact on SME businesses currently claiming R&D.
Many businesses will be hoping for an extension to support measures for energy and business rates relief, as 2024, for business owners, could see even more pressure on costs given the energy support for non-domestic customers is set to end in March 2024 and the business rates relief for qualifying sectors is also set to end in April 2024.
Becky added: “We’re concerned in the absence of an extension to support measures we’ll see businesses in certain sectors having a really difficult time next year with more not being able to cope with the increased costs. Meanwhile, the National Minimum Wage will rise again in April (with the headline rate expected to increase to more than £11 per hour, up from £10.42), meaning employers could also see their wage bills rise too.
“While we are not expecting any significant tax announcements in the Autumn Statement, there are some potential announcements, or lack thereof, that could have a significant impact on particular businesses and individuals.”
