What can we expect in next weeks budget?

What can we expect in next weeks budget?

The UK is gearing up for the Autumn Budget. It will take place on Wednesday 28 October and will be the first opportunity for Prime Minister Andy Burnham and Chancellor John Healey to set out their tax and spending plans in detail.

Not much has been confirmed about what the Budget will contain, but a handful of taxes are in the spotlight – and savers and investors are awaiting several changes to ISAs, pensions and the State Pension that have already been announced.

The bond market is adding to the pressure. UK borrowing costs hit their highest level since the 2008 financial crisis in early September amid fears about inflation and public spending. Higher borrowing costs mean more money must be spent servicing the national debt, leaving the Chancellor with less room for tax cuts or spending increases.

What we already know  

State Pension

The government intends to adjust the Triple Lock from April 2030 to fund a national care service. Rather than rising by the highest of wage growth, inflation or 2.5%, State Pension payments will rise in line with the highest of inflation or 2.5%, so from 2030 the average wage increase will be taken out of the decision. There will also be a mechanism to ensure the State Pension keeps up with earnings growth over time. The government has signalled that people who rely solely on the basic or new State Pension will not have to pay income tax this parliament, even though the State Pension is due to rise above the Personal Allowance.

Tax cut on electricity bills

In one of his first moves as PM, Mr Burnham pledged to remove VAT from domestic electricity bills from 1 October. This is expected to save households around £45 a year.

Cost of living support

1. VAT cuts?

The Government has already announced the removal of VAT from domestic electricity charges from 1 October, so an equivalent reduction of VAT on domestic gas would be a welcome and eye-catching measure. Another VAT reduction that would be popular with both families and businesses would be to introduce a lower rate of VAT (perhaps 10%) on all hospitality (except for alcohol) – following on from the Summer VAT savings scheme for children. This would echo the recent 9% rate created in Ireland and since the Budget is in late October, the change could be implemented before Christmas.

On a similar theme, the Chancellor might introduce a reduced rate of VAT on outdoor Electric Vehicle charging (again perhaps a 10% rate). However, while it is unlikely that other fuel duties will go up, a cut may not be affordable.

It is not likely that the main rate of VAT will be cut, but it is possible an increase in the VAT registration threshold from £90,000 to £100,000 might be included to help small businesses. O’Boyle Accounting think this would be good news for Small Business in N.Ireland

2. Changes to income tax?

The Prime Minister has previously floated the idea of increasing the income tax personal allowance, which has been frozen for many years to collect more tax through fiscal drag. However, even a modest £500 increase in the allowance is estimated to cost £5bn a year, which is probably why this idea seems to have been sidelined.

Specific measures targeting young taxpayers, like cutting income tax or employee NIC for three years for those entering work for the first time would prove popular and give a clear incentive to young people not in employment, education or training ( ‘NEETs’) to take up employment. Such changes may give employers a larger pool of young job applicants to choose from, so could increase employment and be seen as pro-growth, but it would be unlikely to solve the UK’s ‘low productivity’ issues.

Some areas to watch

The government has not published its Budget plans and no further tax changes have been confirmed. However, several areas have featured in speeches and wider policy discussions.

• CGT changes. Capital gains tax (CGT), which is charged on gains from selling assets such as shares and second homes, is a possible candidate for reform. There has been speculation that CGT rates could be brought in line with income tax. However, according to the Financial Times, the Chancellor has ruled out an increase of this scale. A smaller rise could still be on the cards. O’Boyle Accounting think a CGT increase might put off some people selling property and so HMRC would lose out.

• Inheritance tax. Mr Burnham has previously spoken about reforming inheritance tax, (IHT) including replacing the current system with a broader levy on estates. He has also spoken of the need to fix adult social care, setting out a vision of an NHS-style system. However, the PM said he will put the plan to the public at a general election, which suggests social care reform might not appear in the upcoming Autumn Budget.

• Land and property tax. Mr Burnham has previously argued that the UK’s property tax system is outdated and has expressed support for a land value tax. Unlike council tax or stamp duty, this tax would be levied on the value of the land itself, rather than the buildings standing on it. In late July, however, Mr Burnham said there were no immediate plans to abolish stamp duty or council tax.

• Income tax, VAT and National Insurance. The government has indicated it does not intend to increase the main rates of income tax, VAT or National Insurance, although – as with all Budget measures – no announcements have yet been made. O’Boyle Accounting agree that there are unlikely to be any tax increases in this budget.

Gerry O’Boyle and associates are Accountants from Bangor and Newtownards forming O’Boyle Accounting & Taxation, specialising in saving tax and other costs for small businesses. They also prepare Accounts and Tax returns for small companies and offers practical advice in running a business.