As ever, there is a great deal of speculation about what might be in the budget, but little substantive information that can help businesses plan.
In this article, Andrew Tall, Corporate Tax Partner at HW Fisher outlines what changes could be announced, the impact they would have, and how businesses can prepare.
Increased rate of Capital Gains Tax
There has been no formal announcement that the Capital Gains Tax (CGT) rate will be increased, but the announcement of a £22bn black hole in the finances and that “it will be painful” to get the economy back on track, coupled with the public statements that there will be no increase in the rates of tax for “workers”, Corporation Tax and VAT have led many to conclude that CGT rates are going to be substantially increased.
There is no direct impact on corporate businesses from an increase in the CGT rate as companies pay Corporation Tax, however many businesses are accelerating reorganisation and capital extraction plans to avoid expected hikes in the CGT rates for their owners – at the cost of accelerating a liability at the current rates if no such expected rise in fact occurs.
Pensions tax relief
One of the few mooted sources of tax that could make an appreciable dent in the “£22 billion black hole” would be a reduction in the estimated £50bn annual cost of pension tax relief, and suggestions such as restricting tax relief to the basic rate, restricting relief for employer’s contributions, or reducing the “tax-free lump sum” are accordingly being suggested by some observers.
To mitigate the disincentive to save, some relaxation of restrictions on investments to encourage investment in higher-yield equities as opposed to bonds may be announced.
Businesses already considering making significant pension contributions may wish to accelerate such contributions to before the budget.
National Minimum Wage (NMW)
The Labour manifesto pledged to increase the NMW to a “genuine living wage.” Businesses with significant direct or indirect spend on NMW-employees should consider “locking-in” existing rates with subcontractors before the budget, or delay agreeing major outsourcing agreements where the subcontractor would have the flexibility to pass on any potential uplifts until after the budget.
National Insurance (NI)
The Labour manifesto committed to not increasing NI rates, but the government has since clarified that this applied to worker’s rates only. An increase in employers National Insurance is now highly expected.
Furnished Holiday Lets (FHLs)
Draft legislation to abolish the FHL regime was published on 29 July, so abolition is expected in the budget. This will mean restrictions of interest relief on funding loans to the basic rate, and eligibility for capital allowances on qualifying assets ceasing to apply (although pools are expected to be grandfathered). Eligibility for Business Asset Disposal relief on capital gains on the disposal of the business will also be withdrawn.
Businesses that currently own FHL’s therefore need to consider whether or not they are trading, which is likely to drive some towards offering additional services (bed and breakfast, laundry service, concierge services, etc) such that the whole activity amounts to a trade.
The ban on sale of combustion vehicles
Assuming that the Government intends to go ahead with the expected 2030 ban, it is likely that Benefit In Kind (BIK) rates will be increased to encourage the shift towards all-electric. However, it is argued that wide swathes of the public are simply not interested in buying electric vehicles due to concerns over charging. If, as some hope, the ban is softened to exclude hybrid vehicles, then these may receive favourable BIK or capital allowance treatment.
Businesses intending to invest in vehicles for employees may wish to defer acquisition of non-electric vehicles to after the budget when the BIK position will be clearer.
If you are concerned about how the changes in this week’s budget will impact your business, you can get in touch with Andrew for professional advice here.
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