The Spring Budget will take place next Wednesday, 23 March 2022, against a backdrop of inflation at 5.5%, fiscal drag from frozen tax allowances and National Insurance and Dividend Tax increases from April.

Bank of England base rate has risen and is predicted to rise further. Fuel and energy prices are going through the roof and now with the situation with Russia and Ukraine, this will be exacerbated.

The Chancellor might have thought he was coming out of the other side as the UK emerges from the pandemic, but it seems he still has a lot of work to do to satisfy UK individuals and businesses.

Lisa Wilson, Partner, and Head of Tax, asked some clients what their hopes and expectations are for the budget next week and gives her thoughts.

What might be on the Chancellor’s mind?

Individuals and families

Individuals and families will feel the impact of the 1.25% NIC rise from 6 April, frozen income tax thresholds, higher fuel bills, and maybe a further rise in interest rates. It will therefore be interesting to see if the Chancellor seeks to reduce the impact of these costs on families and businesses.

Fiscal drag

In March 2021, the Chancellor announced that personal allowances and income tax thresholds would be frozen until 2026.

This creates fiscal drag – caused by the tax allowances and thresholds remaining frozen alongside incomes increasing. This results in more income being brought into higher rates of tax – a stealth tax increase.

This stealth taxation has been the subject of much debate in the media, and it will be interesting to see if there are any announcements next week which might address this.

Government borrowing

It’s no secret that the UK government borrowed record amounts during the pandemic and this all needs to be repaid. But a recent ONS report showed that the public sector is currently borrowing less than forecast, causing some to argue that the Chancellor has c.£13bn to play with.

This is almost the same amount that is expected to be raised by the new Health & Social Care Levy and some argue that it could be used to defer the NIC rise.

Health & Social Care Levy

From April 2022 there will be an increase in taxes on dividends of 1.25% as well as an increase in the rate of NICs by 1.25% for employers and workers to help raise money for social care reform.

There is significant pressure on the Chancellor to delay the introduction of the levy to help alleviate other rising costs.

Whilst the government has said that it will not be backing down on the planned rise … they have been known to change their minds before, so watch this space.

Other taxes

• The new 4% Residential Developer Tax will kick in from 1 April 2022
• The current 5% rate of VAT on hospitality and tourism is about to revert to 20% from 1 April 2022 which will be a significant increase for the sector
• Plus, VAT-registered businesses must spend money on software and training to join MTD for VAT from 1 April 2022
• There’s also the new Plastic Packaging Tax from 1 April 2022
• From April 2023, there is the rise in Corporation Tax

Capital Gains Tax

There has been speculation for years that the Chancellor will increase CGT. Landlords would be among the biggest losers from a hike in CGT because second properties are subject to CGT when they are sold.

Inflation

Inflation is expected to rise above 7% in 2022, making goods and services more expensive for both businesses and individuals.

This means that the planned increase in state pensions of 3.1% and the rise in the National Minimum Wage in April this year will actually fall in real terms.

Energy bills

With rocketing petrol and energy bills for individuals and businesses, the Chancellor could look to temporarily reduce the 20% green fuel levy and 5% VAT. Alternatively, he could choose to remove these levies from fuel bills altogether and include them in general taxation.

For now, the Chancellor is offering £350 per household to help with rising energy costs. All domestic electricity customers will get £200 off their energy bills from October, with 80% of households receiving a £150 Council Tax rebate from April.

The government will also provide billions of pounds in state-backed loans to energy companies, who will in turn pass this on to every household. The companies will then recover the rebate from consumers in later years to pay back the government loans as energy prices fall – if they fall.

The Federation of Small Businesses has called on the Chancellor to match the rebate for households by an equivalent business rates rebate to help firms.

Losses on COVID loans

It’s been widely reported that over £4bn is being written off by the Treasury due to Covid loans fraud, particularly the Bounce Back loans.

The government’s handling of the issue led to the resignation of Lord Agnew, Minister for Efficiency and Transformation in the Treasury and Cabinet Office who cited the government’s “lamentable track record” in combatting fraud in the Covid business support loan scheme.

It will be interesting to see what the Chancellor proposes to do about this.

What are our clients’ concerns?

We’ve asked client’s what they are interested in hearing about next week and some of the things they have brought up in addition to what we’ve already mentioned are:

• Tax relief being available for investments into all technology based start-ups including those providing credit
• Crypto currencies and when this will appear on the government’s horizon
• R&D tax credits cap removal
• Certainty around CGT, BPR, and IHT to enable long term planning

As always, we will be kept waiting until the Spring Budget 2022 officially takes place on 23 March to find out any changes, and as such we will be updating clients as and when information is released.