PKF Francis Clark’s Autumn Budget predictions

Featuring John Endacott | 9th November, 2017

Tax is very much in the news at the moment with the revelations contained in what the BBC have dubbed “The paradise Papers”. In addition we have the Chancellor Philip Hammond’s Budget on November 22. The further background to this is a government short of money, looking towards Brexit and seen as unstable and trying to balance competing agendas. So what might happen?

This will be the second Budget of the year, after the Chancellor announced he was moving the Budget from spring to autumn. Traditionally, the Budget was used to outline plans for taxation, and the Autumn Statement covered spending plans and financial forecasts. Now there will be just one big financial statement a year covering everything, although there will still be a Spring Statement, responding to the forecast from the Office of Budget Responsibility. As a result this Autumn Budget is a big political event at a time when the government probably doesn’t now want it.

Philip Hammond seems keen to build up something of a buffer in case the economy deteriorates with Brexit. The financial forecast is likely to show a worsening fiscal outlook for the country because of a lower productivity growth prediction and an easing up on austerity measures so some more tax revenue needs to be found. The growth in popularity of Jeremy Corbyn’s policies means that the government may look to tax wealth more and there are arguments in favour of that as a result of quantitative easing and to try and reduce generational inequality.

Whilst our clients are interested in what’s in the Budget, they’re more interested in the longer term outlook and what it means for their businesses and their personal wealth. Many major business owners are concerned about the political outlook and the currently favourable business taxation regime that may not survive a change in government.

Here are some points to look out for:

  • Self-employed & freelancers –Philip Hammond tried to increase the tax payable by the self-employed by increasing national insurance contributions in March but quickly had to back-track. However, self-employed individuals trading through companies didn’t get a reprieve as the dividend tax allowance was cut, favourable capital gains tax rules were restricted and those working for the public sector were subject to new restrictions. Such personal service companies are likely to come in for a further tax clampdown as part of measures to target tax avoidance. Dividend tax rates could be increased further – especially if targeted at only certain types of shareholders.
  • Retirement Saving– For several years, pension tax reliefs for high earners have been targeted. These are now very restricted for those earning over £150k and could be restricted further. Whilst the amount that can be contributed further could be cut, it’s also possible that the rate of relief could be targeted. The maximum rate of relief is currently 45% but this could be restricted to 40% or less. Whilst a change effective on 22 November is unlikely, it’s possible and so individuals, may wish to make contributions prior to the Budget.
  • Patient Capital Review- This may sound like something to do with the health service but is actually a major review of tax reliefs designed to encourage investment in high growth companies. Changes to tax reliefs for Venture Capital Trusts, Enterprise Investment Scheme, Seed Enterprise Investment Scheme and even Entrepreneurs’ Relief and Business Property Relief are possible. Immediate policy changes are probably unlikely but an announcement on re-targeting reliefs more narrowly with a view to boosting the economy after Brexit is possible. Tax reliefs on renewable energy schemes may well be hit.
  • Housing- Whilst there is likely to be a lot of noise in the speech on housing, any measures may not be that substantive. Residential property has been a cash cow for this government with a massive increase in the amount of Stamp Duty Land Tax (SDLT) being collected, big increase on landlords buying properties with buy to let mortgages and higher capital gains and inheritance taxes applying. Just like pensions, property letting is likely to look too tempting for the Chancellor to ignore and anti-avoidance rules targeting property business incorporations and further loan interest restrictions on companies involved in property rental remain possible. Indeed a higher corporation tax rate on property rental businesses is conceivable.

An SDLT relief for first time buyers or just increasing the threshold from which it starts to be paid is possible. Increasing the savings limits for those with Help to Buy ISAs is another idea that should get favourable headlines with costing that much.

John Endacott, Tax Accounting Partner at PKF- Francis Clark said:

“With only a few months having passed since the last budget, we are not expecting any big surprises from the new style Autumn Budget, more likely we will see more ‘meat on the bones’ from previous announcements.

“The Chancellor’s attention may well be aimed at appealing to young people, whose vote eluded them in June election with predicted announcements on Stamp Duty, Help to buy mortgages, National Insurance and a rise in the point at which student loans become repayable.

“Any measures granted to the young are likely to be at the expense of those older voters, high earners and the wealthy. Tax rises under the guise of targeting tax avoidance are also likely. The Chancellor has to try and balance the books somehow”.

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