Individuals and businesses can expect further tax cuts in next month’s spring budget, according to one of the region’s leading tax advisors.
Tony Medcalf, tax partner at Kendal-based accountancy and advisory firm MHA Moore and Smalley, believes those cuts will likely be funded by adding to the tax burden elsewhere as chancellor Jeremy Hunt comes under pressure from leading economists to balance the public finances.
Mr Hunt is due to deliver his budget speech on 6th March and it’s widely expected to be the last major economic speech before a general election later in the year.
Tony, who has advised the region’s businesses and entrepreneurs on their tax affairs for over 30 years, said: “The chancellor is under real scrutiny, with organisations like the International Monetary Fund warning him against unfunded tax cuts, which is why he’s already acknowledged there isn’t the same scope for cutting taxes as in the autumn statement.
“However, this is the Conservative Party’s last big chance before the election to create an ideological difference between itself and the other parties on tax policy.
“Therefore, I think the chancellor is likely to keep his focus on reducing the headline personal tax rates, for example further cuts to national insurance rates or a reduction in income tax.
“While there are other areas of personal taxation where the chancellor is thought to be considering changes, a two-pence cut to the headline rate of income tax is easier for people, and voters, to understand which is why I think it more likely.
“However, as the IMF has warned, such cuts would need to be funded somehow. We’ll need to see the detail after the budget speech to understand how those costs would be met, for example if there would be any tax increases elsewhere or any resulting impact on spending on public services.”
Tony believes VAT is one area where the chancellor may have scope to act.
He added: “Following the decision in the autumn statement to make ‘full expensing’ on capital spending a permanent fixture, businesses will be watching closely to see what the chancellor does next. With the news that the UK went into recession at the end of last year, the government is under pressure to do more to support businesses and boost growth.
“We already know that a single research and development tax relief regime comes in from April 2024, so we’re unlikely to see further changes here. Corporation tax was raised to 25% last April for businesses with profits above £250,000 and I don’t foresee any changes here except potentially the introduction of some specific reliefs.
“One area where we may see action is on VAT where there continues to be more scope for changes following Brexit. For example, we could we see simplification and easing of some VAT restrictions for businesses in certain sectors.
“I think a raising of the VAT registration threshold from its current £85,000 is potentially an easy win for the chancellor as it will encourage small businesses not to put the brakes on growth to avoid registering for VAT.”
