What options does the chancellor have for the 2021 budget? With the Autumn 2021 Budget fast approaching, we share our thoughts on some of the options open to the Chancellor as he navigates the economic recovery, tax changes, and the future.
As mentioned during the Conservative Party Conference, the Chancellor would cut taxes, but given the Pandemic and the great need to raise revenues, it is not currently viewed as "fiscally" responsible. Therefore, we can expect to see a budget that seeks to help with reviving the economy, focuses on sustainability, and more support for public services such as the already announced Dividend Tax rate and Health & Social Care Levy.
IR35 has again become a headline topic since it was extended to the private sector in April 2021. However, we have seen increased uncertainty in employment status decisions from the courts/tribunals. This could lead to the Chancellor launching a consultation for a more specific tax definition of employment status, which may help alleviate uncertainty when businesses engage off-payroll workers.
Alongside increases to the Dividend Tax rate and the introduction of the Health & Social Care Levy, employers should be prepared for HMRC to be much more active in reviewing Employment Tax, Employment Status/IR35, CJRS, and National Minimum Wage compliance.
Targeted sector support
The Trade Associations representing the hospitality and tourism sector have called for the Chancellor to keep the 12.5% VAT rate on hospitality beyond 1 April 2022, when it is due to revert to the standard rate of 20%. Previous VAT initiatives have been provided to help jump-start the hospitality and tourism sector, which suffered a considerable downturn during the coronavirus pandemic.
Sustainability and the climate crisis
COP26 starts four days after the budget. The Government should be brave and back green by announcing an extension of tax/NIC reliefs and advantageous benefit in kind tax treatment beyond electric vehicles to other initiatives including energy-efficient home improvements (e.g., solar panels) and EV Charging Units, whether provided under salary sacrifice arrangements or by an uplift to the £10,000 beneficial loan threshold.
This would potentially help businesses manage rising employment costs while enhancing employee reward and demonstrate that the Government is serious about backing "Green."
We hope that the Chancellor's budget reflects the stated ambition of his Government to raise total investment in research and development from 1.7% to 2.4% of UK GDP by 2027 and ensure that R&D reliefs remain up-to-date, competitive, and well-targeted.
Reducing the effective cost of innovation in the UK helps businesses deliver solutions to tomorrow's challenges. This budget could support time-critical solutions to societal and environmental issues such as carbon neutrality, greener technologies and encourage businesses to locate themselves and their employees in the UK.
We would like to see rates of relief increased for both regimes. We welcomed last year's "RDEC" credit increase from 12% to 13% from April 2020, but Corporate Tax rate rises will dilute these increases. We would also like to see the SME R&D tax credit "super-deduction" rate increased from its current 130% level set back in 2015.
We would also welcome targeted changes to software costs that can be claimed by companies undertaking qualifying activity. The current rules were set out 20 years ago and do not reflect current technology usage and the inherent and necessary costs incurred through cloud-based computing and data streaming as part of development activities.
It will be interesting to see if there is any change to the ability of singleton companies to obtain substantial shareholdings exemption from CGT, following the FTT decision in M Group Holdings Ltd.
There may be some announcement on increases in national minimum wage rates as the Government seeks to move the economy to a high wage high skill economy.
While we do not expect any significant reforms to pension tax relief rules, there may be some refinements planned to smooth the transition for medical practitioners due to future basis period reform.
Private residence relief is often considered an expensive relief. With the increased level of working from home, this may be another area which the Government decides to consult on possible future changes.
We will keep you updated on relevant coverage and our thoughts as we move closer to Budget day on 27 October. On Friday, 29 October, at 10 am, we will be hosting a webinar giving commentary and analysis in response to the announcements made at the UK Autumn Budget 2021. You can register here for this event.