With just two weeks to go until the Chancellor delivers the Spring 2021 Budget, Practical Law is planning its coverage of this annual event. Senior editors from Practical Law Tax, Share Schemes & Incentives and Private Client reflect on some of the key announcements that might be made on 3 March, along with the ramifications for taxpayers and their advisers. For full details of our planned coverage, visit Practical Law, Spring 2021 Budget (free access).
Q. Might the Chancellor use the Budget to announce further COVID support measures?
A. The self-employed income support scheme, which was first introduced in May 2020 to allow the self-employed to claim a grant for income lost as a result of COVID-19, has been extended twice already. The Chancellor has confirmed that a fourth grant covering the period from February to April 2021 will be available, with details set out on 3 March. An extension to the reduced rate of VAT for the hospitality sector (currently set to expire on 31 March) may also be on the cards; answers to recent parliamentary questions on this topic have stated that a decision will be taken at the Budget. In contrast, the government had stated categorically that the temporary increase in the threshold at which SDLT is payable on purchases of residential property in England and Northern Ireland from £125,000 to £500,000 (or SDLT ‘holiday’), which was also set to end on 31 March, will not be extended (although further speculation is that the Chancellor is considering a brief, 6-week, extension). Finally, it is also possible that the coronavirus job retention scheme (furlough pay) will be extended beyond April 2021 or extended to cover those excluded from the existing scheme; the latest speculation suggests the scheme will remain in place until the summer. Practical Law has more information on all these issues in:
- Practice note, COVID-19: business tax implications: Employment
- Practice note, COVID-19: Coronavirus Job Retention Scheme (furlough).
- Practice note, SDLT and stamp duty rates (for land).
Q. On the topic of paying for the pandemic, a rise in the rate of CGT is rumoured to be under consideration. Do you think this is likely to happen?
A. An increase to capital gains tax rates is certainly a possibility, especially given the Chancellor’s promise to honour the Tory manifesto tax pledge not to increase income tax, NICs or VAT rates, although the timing of any increase is far from certain. Gains are currently taxed at a top rate of 28 percent (for certain disposals, most commonly, of residential property) or 20 percent (for other disposals). Plus, those who qualify for business asset disposals relief (previously called entrepreneurs’ relief), available to business owners disposing of a business or shares in a company, may reduce their overall effective tax rate to 10 percent on gains up to a certain limit. These are considerably lower than the top rate of income tax at 45 percent. Although, arguably, more palatable to the general population (only those with capital gains pay it) than other revenue-raising measures, it is likely to meet resistance from within the conservative party and in reality will not make a significant difference to the Treasury’s coffers, representing only a very small percentage of the total tax take.
Equalising income and capital gains tax rates would remove a significant tax benefit of the three tax-advantaged employee share option plans: CSOP, SAYE and EMI. There may continue to be some form of de minimis relief for CGT, but otherwise CSOP and SAYE gains would be taxed at the same rate as gains on non-tax-advantaged options. The same is true of EMI gains, unless EMI option holders continue to be able to access business asset disposals relief, but as mentioned, that relief may itself be under threat.
An alternative (or additional) measure would be to abolish business asset disposals relief, and this is also possible. Indeed, some authorities consider that the relief has primarily benefited a small number of very affluent taxpayers and done little to generate additional entrepreneurial activity. However, recent noises from the government have been about delaying more structural changes to the tax system, given we are only just beginning to emerge from the pandemic, so this is possibly a measure that will be delayed until the Autumn.
For more on all these topics, see:
- Practice note, Tax on chargeable gains: scope, administration and payment
- Practice note, Entrepreneurs’ relief
- Practice note, EMI share option plans: overview
- Practice note, Company share option plans (CSOPs): overview
- Practice note, SAYE option schemes (sharesave): overview.
Q. What about increasing corporation tax, or a new tax on businesses that sell online?
A. A rise in corporation tax seems likely to be on the cards, although possibly not until later in the year. At 19 percent the UK has a relatively low rate of corporation tax compared with other major European economies, and this government cancelled the previously planned decrease (from 2020) to 17 percent. It’s not difficult to imagine that this could start to creep back up, and possibly by more than one or two percentage points, over time. For those with tax assets, such as losses, a rate increase might bring some financial reporting benefits (in the short term, at least). An online sales tax is also a possibility, given the massive increase in online shopping over the pandemic, and likely to tie in with the government’s review of the outdated business rates system; however, almost certainly, consultation may be the most we get immediately with detail unlikely before an Autumn Budget, by which time, one hopes we will be out of the pandemic and back to visiting the high street. The UK has already demonstrated its frustration with the progress in discussions among the international community about changing the rules for taxing multinational enterprises serving customers with limited physical presence in enacting its own digital services tax; in some ways, a tax on online sales of goods is a logical next step for a government in need of additional funding. For more information on the UK’s digital tax service, see Practice note, ‘Digital Services Tax’ (licence required).
Q. There have been rumblings about a possible wealth tax being deployed to help plug the COVID-sized hole in the public finances. Is this a realistic prospect?
A. In December, the independent Wealth Tax Commission (a high-profile panel of economists, lawyers, and accountants) provided the first in-depth analysis of proposals for a UK wealth tax in nearly 50 years. In its report, the Commission concluded that if the government chose to raise taxes in the aftermath of COVID-19, a well-designed one-off wealth tax would be a better way of raising significant revenue than increasing taxes on work or spending. However, the Chancellor has been reported on more than one occasion as having poured cold water on the idea. It is perhaps more likely, therefore, that the government will look to implement reforms to inheritance tax and capital gains tax, both of which have been the subject of recent review by the Office of Tax Simplification (OTS), see:
- Private client tax legislation tracker 2020-21: Inheritance tax: OTS review
- Capital gains tax: OTS call for evidence.
Q. Draft legislation has already been published for various new taxing regimes, such as the extension of the off-payroll working rules for the private sector and a two percent SDLT surcharge for non-residents purchasing UK property. Do you think the Chancellor might row back on any of these proposals, given the ongoing pandemic and the precarious state of the economy?
A. In a word, no. The government has shown itself willing (indeed, eager) to continue with the normal cycle of consultations and legislation throughout the pandemic. The extension of the off-payroll working rules has already been delayed by a year and the government is clearly keen to tackle perceived avoidance in this area. The two percent SDLT surcharge for non-residents purchasing UK property was first mooted nearly two and a half years ago; the measure has already been the subject of consultation, draft legislation, and transitional provisions; this one also seems unlikely to fall at the final hurdle.
For more information on these proposals, see:
- Practice note, Workers’ services provided through intermediaries: off-payroll working rules for private sector entities
- Practice note, SDLT: 2% surcharge for non-resident buyers of dwellings.
Q. And finally, what else should we expect in the Spring 2021 Budget?
A. Expected the unexpected! While it may be true that the only things in life that are certain are death and taxes, it is a tradition for the Chancellor to pull at least one white rabbit out of his hat (or briefcase), so it is never possible to be sure what will be announced on the day. That said, you can track individual measures through our tax legislation trackers, and for our best guess as to what the Chancellor will say on the day, read our Spring 2021 Budget: predictions tracker (free access). For our comprehensive, cross-sector coverage of the event, published on the day itself or shortly afterwards, visit Practical Law, Spring 2021 Budget (free access).
This article is co-authored by Senior Editors in Practical Law: