What tax announcements to look out for in the Budget

ICAEW members continue to feel the increasing burden of the administration of the tax system. Most of the Tax Faculty’s recent responses to consultations have reiterated that tax change carries an administrative burden and cost, regardless of the subject matter.

There is a desperate need to simplify the UK’s tax system in advance of the digitalisation of tax which lies ahead, yet only last month saw a new tax created to join the two that already exist on employment income.

On the eve of the Chancellor’s second Budget this year, and as the COVID pandemic continues to prove challenging for the UK’s finances, the ICAEW tax team has been reviewing and considering some of the speculation from the tax profession around what changes we might see tomorrow.

Business rates reform

Following the review announced by the Chancellor at last year’s Budget, the subsequent call for evidence, and the interim report published in March this year, we can expect the government to publish its final report on the fundamental review of business rates. Perhaps this might be accompanied by a consultation on suggestions for change?

Online sales tax

There is considerable speculation about a possible 2% online sales tax. The financial plight of the high street is clear as is the growth in online sales, but many are noting that simply adding a further tax to the mix is adding to the administrative burden of the tax system rather than actually targeting the problem it is meant to address.

Green energy

As the COP26 climate summit in Glasgow grows nearer, calls increase for the UK to address climate change through the tax system. In this week’s Budget and Autumn Spending Review, the green economy is hoping for funding and tax changes to help support the government's Net Zero Strategy, published last week.

While there are rumours of possible grants to encourage overseas investment to manufacture electric vehicles in the UK, others suggest the Chancellor may go further with more encouragement for investment in green energy. A “carrot and stick” approach is favoured, so imposing a greater burden on the use of carbon-intensive energy, while giving tax relief for investment in greener sources of power.

Corporation tax

Few expect much change to corporation tax in the Budget, given that the increase in rate to 25% has already been announced. It is possible that more relief for losses announced.

Some suggest the Chancellor should extend the qualifying period for the three-year loss carry back. Currently, companies with an accounting year end starting from 1 April 2021 will not be eligible for extended relief for any losses incurred in that period. However, faculty members are confirming  that the main problem they have at the moment is getting the cash back from claims already submitted to HMRC.

Capital gains tax

There seems to be speculation on a possible capital gain tax (CGT) rate increase. Many pundits observe the differential tax rates applied to earned income and capital gains, leading to speculation that CGT rates might once again be realigned.

ICAEW's Budget analysis

You can keep up to date with the latest ICAEW insights on the Budget announcements on the day at icaew.com/budget.

Register now to attend the Tax Faculty’s post-Budget webinar on 2 November, which will provide answers from practitioners on what the announcements mean in the real world. The webinar will be live from 11:00 and is open to all. Register to attend for free and submit your Budget question in advance to taxfac@icaew.com.

Don’t forget that the Tax Faculty will be publishing its comprehensive summary of all of the tax announcements in the Budget on Tuesday 2 November. Broken down by tax area, such as business tax, personal taxes and tax administration, this valuable resource will be freely available.