With less than two weeks to go until the Chancellor delivers the Spring Statement, the team at HW Fisher share their thoughts on what the Government should be prioritising when it comes to UK tax policy.
Make a difference – Changes to Income Tax
Sam Dewes, Tax Partner says: “The Chancellor does not have a huge amount of headroom for giveaways, so may be restricted to one big ticket item, or a number of smaller changes. Either way he will be looking for the right kind of headlines with an election campaign on the horizon. Rumours continue that we’ll see a 1% reduction in the basic rate of Income Tax. While it would be an expensive move, it stands to benefit a large amount of the working population – and potential voters. Inheritance Tax cuts have also been on the Chancellor’s radar.
“The Chancellor should also consider increasing the basic rate band, personal allowance, or personal savings allowance. More people are starting to understand fiscal drag and the impact it is having. For example, the number of taxpayers paying 40% income tax has increased by more than 40% in the past three years. This includes individuals working in professions where they would not expect to be subject to a higher rate of tax.
Increasing the allowances would ensure that fewer people are dragged into the requirement to submit tax returns at a time when HMRC are already struggling to deal with this administrative burden.”
Level the playing field for first time buyers
Sam Dewes, Tax Partner added: “Lifetime ISAs have successfully helped first-time buyers, but it’s time for the Chancellor to raise the purchase threshold. Set seven years ago in a different market, this adjustment will help the younger generation access these savings whilst striving to get on the ladder for the first time.”
Increase the nil rate band for Inheritance Tax
Stevie Heafford, Tax Partner says: “Inheritance Tax is one of Britain’s most unpopular taxes, and so there is no doubt that anything to ease the burden would be a highly welcomed move. However, we must not forget that if the Chancellor was to unfreeze the cap on the nil rate band, many people could avoid paying the tax altogether.
“As it stands, the nil rate band, which is the amount you can pass onto your loved ones without paying any Inheritance Tax, is £325,000. The decision by the government to freeze this figure until 2028, rather than increase it in line with inflation, means that many people have found themselves caught in the Inheritance Tax trap for the first time.
“As always, the devil will be in the detail. One of the only benefits of Inheritance Tax is the tax-free uplift on death for Capital Gains Tax, and so if the Chancellor does decide to make any radical changes to Inheritance Tax, we should keep a close eye on this.”
Help businesses to drive the economy
Toby Ryland, Corporate Tax Partner says: “While most businesses will be hoping for a reduction in Corporation Tax, the chances of that happening are slim. It’s been less than a year since the Chancellor went forward with the move to increase the rate to 25%, and so businesses should pin their hopes on other changes that will help boost growth.
“This could include the extension of Business Asset Disposal Relief, which reduces the Capital Gains Tax rate on the sale of a trading company to 10%. As it stands, this only applies to the first £1m of capital gains, and it represents a lifetime limit rather than a per transaction limit. Before March 2020, the limit was £10m. If the Chancellor were to increase the limit back to this number, it could become more attractive for owners to sell their business and pass it onto the next generation.
“The Chancellor should also look at simplifying the Enterprise Investment Scheme tax relief. Designed to encourage investors to purchase shares in smaller higher-risk trading companies, this relief is a cornerstone of the UK’s business tax landscape, yet it is incredibly complicated and restrictive. In order for it to work more successfully and attract new investors, the process needs to be made easier.”
Re-introduce VAT free shopping for tourists
Gerry Myton, Head of Indirect Tax says: “The Chancellor needs to take bold action in the upcoming Spring Statement by reinstating VAT-free shopping for overseas visitors. With high streets across the UK grappling with challenges, including decreased footfall and increased operating costs, this review is long overdue.
“Restoring tax-free shopping can unlock diverse revenue streams, from boosting hotel occupancy rates to increasing covers in restaurants and theatre ticket sales. The resulting turnover should translate to higher Corporation Tax and PAYE receipts, offsetting the loss of VAT and making it a strategic imperative for the Chancellor.”
A lifeline for hospitality: Reduce VAT and cut duties
Russell Nathan, Senior Partner says: “Hospitality businesses are running low on their cash reserves, urgent action is needed. Given the upcoming rise in National Insurance, we urge the Chancellor to consider a VAT reduction and duty cuts to bolster the industry. Without intervention, we risk a surge in unemployment and heightened prices, exacerbating the cost-of-living crisis for all. Additional measures to offset National Insurance costs could include extending the alcohol duty freeze.”
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