Budget 2021 – Predictions
What a year it has been since Rishi Sunak gave his first Budget speech as new Chancellor and I was asked for my thoughts on what may be announced, writes Katie Varney – Corporate & Business Tax Partner, Ensors Chartered Accountants.
Of course, I was also supposed to have written a pre-Budget prediction back in September last year, ahead of the scheduled Autumn Budget; but with the fight against COVID still being the Government’s top priority at that time, the Chancellor postponed his second speech until the Spring, no doubt hoping, as we all we were, that we would be out of the worst of it by now.
Sadly, we are very much still in the middle of it, and though there is a glimmer of light at the end of the tunnel, as infection rates start to drop and the vaccination programme is rolled out, I suspect that now may not be the time that the Chancellor decides to introduce drastic measures to reduce the ever-increasing Government Debt.
We have seen this rise over the last 12 months to its highest levels since wartime as a result of the financial support measures put in place in direct response to the Coronavirus pandemic.
Indeed, it has already been rumoured that many of the predicted tax increases that had previously been speculated to be introduced this Spring, such as an increase to the headline rates of Capital Gains Tax, will be delayed.
Of course, that’s not to say that a future increase to tax rates will not be announced in the March 3 Budget – it is a recognised tactic to pre-announce tax rises, as it encourages taxpayers to act before the increase in rate takes effect, thereby providing a boost to the coffers and the economy (at least in the short term).
One such increase that has been rumoured recently is to the headline rate of Corporation Tax, which at just 19 per cent, is currently one of the lowest in the G20.
This may seem like a kick in the teeth to businesses that are struggling to stay afloat during the crisis, but there are many larger companies that have seen their profits remain stable, or even increase, over the last year, a targeted rise in tax rates for which may not be out of the question.
Of course, there are other ways to increase tax revenues without needing to raise the headline rates of tax, such as reducing or abolishing reliefs and tightening qualifying criteria.
Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) came under fire in last year’s Budget following criticism that it was not meeting policy objectives whilst representing a significant cost to the Exchequer.
However, following the reduction in the lifetime limit from £10 million to just £1m, there were still calls that Rishi did not go far enough and rumours continue to circulate that we may see further restrictions to, or perhaps even the abolition of, this valuable relief.
On a more positive note, I suspect that encouraging investment by businesses is likely to be a top priority and I wonder whether, in a post-Brexit world, we may see changes to the UK’s R & D and Patent Box regimes, now that the Government’s generosity is no longer limited by EU State Aid rules.