A&M Tax Advisor Update
Back in December, The Chancellor of the Exchequer, Rishi Sunak, commissioned the Office for Budget Responsibility (OBR) to produce an economic and fiscal forecast for Wednesday 23 March 2022.
At the time of writing, it is not clear whether this is in preparation for either a Spring Statement or a mini-Budget on that date. Prior to the disruption caused by the pandemic, the established timetable was to have one fiscal event per year – the Autumn Budget. But the last two years have seen major tax changes unveiled at both the Spring and Autumn announcements.
As we return to normality following the pandemic, it feels that the Chancellor would probably prefer to return to the regular annual cycle and as such we are not expecting significant tax announcements this March.
Let’s not forget though that one of the most significant revenue raising measures of recent times is yet to kick in. The ‘Health and Social Care Levy’ – announced by Prime Minister Boris Johnson last September in a bid to tackle the NHS backlog and reform social care — will see an additional 1.25 per cent added to both employers’ and employees’ national insurance (NI) costs with effect from 6 April 2022.
Yet the timing of the hike could not be worse given spiralling cost of living crisis in the UK and the increase in the energy price cap coming into effect from 1 April for over 22 million people. The situation in Ukraine will only exacerbate things with the price of filling up on the forecourt also set to soar in line with surging oil prices.
As a result, the government is facing growing pressure from business leaders and opposition parties to postpone or scrap the rise. And while they have publicly stated that it will go ahead as planned, ministers must surely be evaluating whether they can plug the gap that a deferral would cause by some other means. Possibly something that has less of a direct impact on society’s lowest earners?
As ever there have been rumours in some quarters about aligning the rates of capital gains tax (CGT) with income tax as this would be relatively low hanging fruit for policy makers. However, monies raised from CGT are trivial compared with NI contributions and any such move would be seen as an anti-entrepreneurial by a Conservative government that is already getting a reputation for high taxes. We see changes to capital gains tax as highly unlikely at this point in time.
The Spring statement will probably come too soon for an update on the business rates review considering that the technical consultation on the reform only closed on 22 February. In any case, the proposed review only encompassed relatively minor tweaks to the current system. The need for wholesale reform and in particular the thorny issue of aligning the overall taxation of online retail with bricks-and-mortar are yet to be addressed. It is a key area that high-street businesses will be monitoring as things progress.
On 31 March, hospitality and hotel businesses will see the removal of the temporary 12.5% rate of VAT, a relief measure introduced during the Covid-19 pandemic. This seems premature. When the expiry date was determined almost 12 months ago, no one could have predicted the lasting impact of the pandemic. While the easing of Covid has boosted confidence recently, companies in the sector will still have to deal with headwinds such as rising inflation and the cost of living crisis hitting consumer spending. An extension of the reduced rate until at least the end of the year would be one way of giving the industry a much needed fillip.