Nimesh Shah, CEO said: “I expect Boris Johnson and his new Chancellor, Nadhim Zahawi to call an Emergency Budget before the summer recess to make a series of tax announcements.
”Rishi Sunak had already confirmed a 1% cut to the basic rate of Income Tax to 19% in April 2024. I believe the new Chancellor, Nadhim Zahawi, will bring forward the cut to April 2023 and increase it to 2%. The 1% cut was projected to cost the Government £11 billion.
“He may also introduce an additional 5p reduction in fuel duty. Rishi Sunak had cut fuel duty in his Spring Statement back in March, but that benefit has disappeared through increases in fuel costs. A further cut to help families with their fuel costs would therefore be an immediate win. “He should consider as well, the removal of the 1.25% National Insurance increase (Health and Social Care Levy) for basic rate taxpayers and backdate the cut to 6 April 2022. He could increase allowances and thresholds in line with inflation too. The stealth move by Rishi Sunak in March 2021 to freeze all tax allowances until April 2026 to raise a projected £21 billion was desperately flawed. Given rising inflation and the cost-of-living crisis, the new Chancellor would get a win over his predecessor by reversing this move and restoring the allowances to rise at the appropriate level.
“The planned increase to Corporation Tax should also be cancelled. This was another Rishi Sunak pre-announcement, to increase Corporation Tax to 25% from 1 April 2023. It was expected that the former Chancellor would not have gone ahead with the full increase and it’s more than likely now that Nadhim Zahawi will step in to peg-back the increase to 22%.
“A temporary reduction in VAT to 17.5% (or even 15%) would also be much welcomed by the public. But at a time of rising living costs, the cost to the Government would be eye-watering and economists will be rightly concerned the fiscal stimulus will only make inflation worse.”
Director, Robert Salter, said: “The Chancellor should be looking at changing the rules re IR35 – the rules around deemed employment for freelance contractors – so that the Government ceases to punish such freelancers, who have been a vital part of the dynamic and flexible UK economy for 30+ years.
“He should also be looking at making child benefit changes, so that the Higher Income Child Benefit Charge (HICBC) genuinely only impacts the wealthiest members of society. At the present time, the HICBC can impact any family in receipt of child benefit, with one parent or carer earning over £50,000 per annum, a sum which isn’t a sign of wealth or prosperity, and which because the base income level of £50,000 hasn’t changed since 2013, is impacting ever greater numbers of families on relatively moderate incomes.
“The Government should also consider providing more support to those people who are required by their employer to work from home, whether on a full-time or part-time basis. At present, the rules only allow such taxpayers to claim a tax deduction of £6 per week, where they work at home on a full-time basis (and where this is specifically required by the employer). However, with the cost of living – and fuel costs – having sky-rocketed over the past year, it would only be fair for the Government to increase this weekly allowance to at least £10 per week to recognise these additional costs and provide real help to workers during the present cost-of-living crisis.”
Partner Heather Self adds: “Alongside the rate of tax, the base is also important. There is currently a review under way into the capital allowances system so there is an opportunity to focus this on what would encourage more investment in new technology.
“In particular, allowances for green investment are currently low so more enticements here could help with climate change incentives. The capital allowances system has been subject to repeated tinkering over the years. What businesses need is stability and predictability so that they have the confidence to invest.
“For smaller businesses, the Annual Investment Allowance (AIA) has fluctuated almost every year. A simple allowance of £500k or even £1m, so that businesses know that investment up to that amount will get tax relief, would be a big step forward. Above all, we need a Chancellor who can set out a strategic vision for the tax system, rather than kneejerk responses to the latest crisis, welcome though some of those responses have been.”
Would you like to know more?
If you would like further information on this topic, please contact Nimesh Shah, Robert Salter or Heather Self using the details on this page.