The Government will read the Spring Budget on 6 March this year.
Jeremy Hunt will set out his legislative and tax agenda for the next six months – some of which could directly affect you and your business.
Within the team, we have been discussing our predictions for the Budget and wanted to share some of them with you.
I’ll also give you some tips, strategies, and suggested preparations for protecting your personal and business finances.
Prediction one – There’s going to be tax cuts… but probably not for businesses
There’s been some debate about potential tax cuts within the Conservative Party, but analysts and economists claim that they don’t quite have the wiggle room to pull it off.
High-ranking Conservative MPs and Peers have hinted at the possibility of tax reductions multiple times.
In fact, the Prime Minister himself has said there’s “more to come” in terms of tax cuts.
(The more cynical amongst us might see this as a pre-election bid to win votes as we’ll likely be heading for the polling stations this year).
So, if they do cut taxes, what does this mean for you?
In the last Budget, there was little good news for businesses – no reductions in Corporation Tax nor a reduction in Dividend Tax.
While National Insurance Contributions (NICs) were reduced for individuals, this left much to be desired for businesses whose rate remained the same (13.8 per cent in most cases).
If the Government reduces Income Tax or NICs again, that’s great for individuals but not so useful for your business.
And chances are, this will probably be the case.
(For our Scottish clients: Your Income Tax is a responsibility of the devolved Scottish Government, so you’re unlikely to feel the effects of an Income Tax change in Whitehall).
In this instance, we recommend you look into some of the pre-existing tax reliefs and exemptions available.
Things like the Capital and Enhanced Capital Allowances which can help you offset the costs of the expansion and growth of your business.
Alternatively, you could explore Research & Development (R&D) tax credits for innovation and technology work.
Prediction two – An end to Inheritance Tax?
This one has been thrown around a lot during the build-up to the last three or four Budgets.
Inheritance Tax (IHT) – also known as the Death Tax – has steadily become a more and more unpopular policy and, if the Conservatives are looking for a vote sweetener, this could be it.
For those that don’t know, it’s a 40 per cent tax on your estate when you pass it down after your death.
It affects estates worth more than the £325,000 threshold so it’s generally applicable to middle-to-higher wealth individuals.
In case it isn’t abolished, and you’re worried about its effects, there are a few things you can do to mitigate IHT.
For example, you can utilise both the IHT allowance (£325,000) and your Residence Nil-Rate Band (RNRB) (£175,000) to reduce your liabilities to only the part of the estate above £500,000.
You can also transfer your IHT allowance and your RNRB to your spouse, adding together both yours and theirs, to increase their allowance to £1 million.
(Your IHT allowance + RNRB) + (your spouse’s IHT allowance + RNRB) = £1 million.
If your estate is still likely to exceed this amount, you can also utilise trusts to move some of your assets into a tax-efficient vehicle that remains in your control but is no longer considered IHT applicable.
We are able to help you with both of these options.
Prediction three – Possible Capital Gains Tax and Dividend Allowance reductions?
There’s some debate amongst the Scholes CA team as to whether the Government will make a sudden change to the allowances that are currently in place for Capital Gains Tax and the Dividend Allowance.
Currently, the tax-free allowances for dividends and Capital Gains are due to be reduced by half from April to £500 and £3,000 respectively.
However, there's speculation about a potential pre-election reprieve.
The theory is that slowing the reduction of these allowances could ease the burden on investors and entrepreneurs, who have already seen their allowances slashed for the past few years.
This move would also align with the Government's stated objective to foster growth and encourage investment in UK companies.
It might also be a prudent move considering the London Stock Exchange has progressively slipped in value, recently falling behind the Paris Stock Exchange for the first time in history.
(Even as I write, I note that the airline company, TUI, has voted to leave the London Stock Exchange for Germany).
A pause or, even better, an increase in the Dividend Allowance would give UK business owners a much greater incentive to distribute earnings via dividends over income.
Dividends are, after all, taxed at between 8.75 and 39.35 per cent while income is taxed at between 20 or 45 per cent in England and 19 to 47 per cent in Scotland – both depend on your Income Tax band.
We often advise our clients on utilising dividends to mitigate the Income Tax liabilities so please don’t hesitate to reach out to one of our team if you require advice on this matter.
What should you do next?
Whatever the Government announcement on 6 March, you should be looking to mitigate your liabilities through proper tax planning.
This is best done with the help of a qualified and experienced accountant who can advise you on your current obligations and provide strategies for reducing them.
At Scholes CA, we are always available to discuss this issue and will be around to help you whatever the Spring Budget holds.
Please don’t hesitate to contact one of our team via email: enquiries@scholesca.co.uk or call your nearest branch.
