Speculation is rife and Budget 2021 predictions abound. Most commentators are torn between the Chancellor’s need to begin to recover the £400 billion cost of pandemic support, and the need to revive the economy, support consumer demand and drive business investment.
Our tax team have been giving the matter some thought. Craig Simpson , tax partner at Bates Weston comments:
“The Chancellor Rishi Sunak faces difficult decisions in the upcoming Budget. On the one hand there are strong arguments to raise taxes to start the process of paying for the pandemic, but there is a balance as the country cannot afford to stifle economic activity and investment. It is possible that Rishi Sunak takes an unexpected approach and does not raise taxes this Budget, waiting to assess the impact of the economic bounce back that should happen when the restrictions are eased.”
Bates Weston’s tax team’s Budget 2021 predictions are:-
- Covid relief measures – a pathway on winding down the financial support.
- CGT – Major structural changes are unlikely to made, but an increase in the main rate of CGT to 30% could be an interim measure to move gains towards income tax rates. Business Asset Disposal Relief to remain unchanged for now. More reform in the Autumn in response to the OTS review.
- Freezing of income tax personal allowances to £12,500 and the income tax thresholds. This will create fiscal drag and could see a substantial increase in tax revenues.
- Increase in the main rate of Corporation Tax to 23% or the reintroduction of different rates depending on profits.
- Abolish higher rate income tax relief on pension contributions, limiting relief to 20%.
- Extension of the reduced rate of VAT for the hospitality sector.
- Stamp Duty – no extension to the SDLT holiday, but measures to protect those who have exchanged contracts before but not completed until soon after 31 March 2021.
As the Prime Minister announces the government’s roadmap to easing the pandemic restrictions today (22 February), and the Treasury prepares for Budget Day on 3 March, we will not have to wait long for some much needed clarity.
