On Wednesday 8 March, Chancellor Phillip Hammond will be announcing details of the Spring Budget. So, what can we expect this time around? With a lot of talk around the self-employed, making tax digital and the costs of social care, we have pulled together an outline summary of what’s expected below.
Economists at Deloitte are predicting good economic growth and strong tax receipts, with “better-than-expected tax revenues”, although public spending will still feel the squeeze, as continuing austerity measures are expected. The Institute for Fiscal Studies (IFS) warns of “sharp public sector cuts and taxes reaching their highest level in 30 years”, which may lead to a 4% reduction in public spending over the next three years. The Resolution Foundation think tank believes the Chancellor will announce lower borrowing – the first time a Chancellor has announced this since 2014 – and suggests Phillip Hammond should be looking for ways to reduce “the UK’s reliance on debt-fuelled household spending”. The UK has a long way to go to achieve a balancing of the books when it comes to public finances, with annual borrowing still at 3.5% of UK GDP. What’s more, average household finances are expected to take a further hit while the economic outlook remains uncertain.
Corporate Tax and Employment Tax
No big changes are expected for corporation tax other than the limit on tax relief and how tax losses are used, which was announced in last year’s Budget. Losses arising before 1 April 2017 will be restricted to 50% of profits and the amount of profit that banks can off-set with pre-2015 losses will reduce from 50% to 25%. It is hoped this measure could bring an additional £1.8 billion into the economy. On the other hand, there could be complex changes ahead for employment tax, which may impact the public sector. Assessments may be introduced for personal service companies and any salary sacrifice arrangements that may cease to offer tax and NIC savings. It is thought the forthcoming Budget may start the ball rolling for a high-level consultation, with a view that eventually private sector companies will follow suit.
Making Tax Digital
Currently planned for April 2018, all self-employed persons with a turnover of over £10,000 per year will need to submit their tax return on a quarterly basis, rather than at year-end using a digital method, e.g. a cloud-based accounting system. This measure is aimed at reducing tax avoidance by cash-based businesses. Some tax professionals have suggested the VAT threshold would be a more appropriate level to begin digital tax reporting, but this will become clearer after next week’s announcements.
Social Care and Council Tax
With increased pressure on the NHS, social care budgets are currently being stretched to exhaustion. It is hoped that the Budget will include a cash injection to invest in technologies and systems to aid people before they require hospital or social care. Others are hoping that controversial cuts to Universal Credits will be reviewed due to serious concerns over living standards. Recent research by the House of Commons library revealed the need to increase Council Tax by £6 billion a year by 2020 to off-set rising social care costs. Many experts estimate this could see some household council tax bills rise by 4.99%, which would be considered a very unpopular measure by many.
The Spring Budget will be announced on Wednesday 8 March – if you need any advice, then please get in touch to speak to one of our financial planners.