UK businesses on tenterhooks ahead of UK Spring Budget 2024

Since 2021, the personal allowance threshold for income tax has remained frozen, with plans to continue this freeze until 2028. This strategy has led to a phenomenon known as ‘fiscal drag,’ where rising salaries push more people into the taxable income bracket, thereby contributing to an elevated tax burden. The Resolution Foundation estimates that ending this freeze in 2024/25 would incur a cost of approximately £7 billion.

In an effort to alleviate some financial pressures, the Autumn Statement saw  Hunt announce measures aimed at reducing National Insurance Contributions (NIC), with speculation around a possible 2% cut for employees. However, due to concerns about affordability, a more modest 1% reduction seems likely. Treasury analysis suggests that a 2% cut in the basic rate of income tax would result in a £13 billion loss, whereas a similar cut in employees’ NICs would cost £9 billion.

Another area of tax policy under review involves VAT-free shopping for tourists, which is currently available to visitors who ship their UK purchases directly overseas. Chancellor Rishi Sunak had previously restricted this benefit to combat fraudulent claims, sparking a debate over the potential economic benefits of reinstating the pre-2020 regulations. Critics argue that the UK is missing out on tourist spending as a result, with the Office for Budget Responsibility (OBR) set to publish findings that could influence future policy changes.

“The Chancellor needs to take bold action in the upcoming Spring Statement by reinstating VAT-free shopping for overseas visitors. With high streets across the UK grappling with challenges, including decreased footfall and increased operating costs, this review is long overdue,” says Gerry Myton, Head of Indirect Tax at HW Fischer.

Discussions are also ongoing about the introduction of a new tax on vaping products as a measure to address the UK’s vaping epidemic and offset revenue losses from other tax cuts. Should this new tax come into effect, it’s expected that tobacco duty would also increase to ensure that smoking remains a costlier habit.

Environmental taxes represent another lever for the government to address climate change, with potential increases in taxes on polluting activities or enhancements to environmentally-friendly incentives. Additionally, the government’s consultation last April on the taxation of cryptoasset loans and staking within decentralised finance indicates a possible new taxation framework, though the government’s response remains pending.

Finally, the issue of stamp duty land tax reflects broader concerns about housing market inequalities, particularly the challenges faced by younger generations in purchasing homes and the difficulties older generations encounter when downsizing. A targeted reduction in stamp duty could provide much-needed assistance to first-time buyers and those looking to downsize, reflecting the government’s ongoing efforts to address fiscal policies amidst evolving economic and societal challenges.

“While most businesses will be hoping for a reduction in Corporation Tax, the chances of that happening are slim. It’s been less than a year since the Chancellor went forward with the move to increase the rate to 25%, and so businesses should pin their hopes on other changes that will help boost growth,” says Toby Ryland, Corporate Tax Partner at HW Fischer,

“This could include the extension of Business Asset Disposal Relief, which reduces the Capital Gains Tax rate on the sale of a trading company to 10%. As it stands, this only applies to the first £1m of capital gains, and it represents a lifetime limit rather than a per transaction limit. Before March 2020, the limit was £10m. If the Chancellor were to increase the limit back to this number, it could become more attractive for owners to sell their business and pass it onto the next generation.

OBR Forecasts and Fiscal Implications