The Chancellor has set out his plans in the Spending Review announced last Wednesday. His aim was to protect “lives and livelihoods” as the current pandemic shows no signs of abating quickly. The UK economy is set to shrink by over 11% (the largest fall in output for 300 years) because of the lockdown measures taken to protect our health during the Coronavirus outbreak.
To help us get back on track as part of the Spending Review, Rishi Sunak has committed £100 billion on infrastructure which will help the recovery by creating jobs. A new infrastructure bank with headquarters in the north of England will be working with the private sector to finance new investment projects.
Other key areas the Chancellor covered:
Public Services – an extra £6.3bn for the NHS and an extra £2.2bn for schools
Local Authorities – an increase of 4.5% in cash terms plus support for Covid-19 and tacking homelessness
Jobs – an additional £3.6bn to help with the Plan for Jobs commitment already made.
This however was not a Budget and therefore as expected no announcements on the future tax strategy. There is an acceptance overall from the pundits that tax will have to increase but it is the timing and which taxes will increase that no one is sure of.
Many experts believe that Rishi Sunak will target Capital Gains Tax, Corporation Tax and National Insurance so let us look at these very briefly:
Capital Gains Tax (CGT)
The latest statistics from HMRC says CGT generated £9.5bn in 2018/2019 from this tax and there is speculation to align the rates of CGT to income tax rates, so up to 45% depending on the level of your income. There is therefore potentially some planning to do or look to bring forward any decision you are thinking of making in respect of selling investments, including properties.
Corporation Tax (CT)
There is speculation around CT that the rate may increase from 19% to as much as 24%. The government is not keen to introduce different rates for small and large companies because post Brexit we will need to still welcome the bigger corporations to join our shores. From your point of view what this means is that the tax savings many look to when incorporating from self-employed / partnership to a limited company will quickly evaporate.
National Insurance (NIC)
There is an overall expectation that there may be an increase in the rate of Class 4 NIC for the self-employed which is based on profits. Many feel that the lower level of support that is offered during the pandemic to the self-employed compared to those that are employed is due to fact that they share a smaller amount of the tax burden. This on its own will increase the temptation to run as a limited company but things in tax are never simple and it is unlikely that one tax is going to be increased in isolation. So seek advice if you are tempted.
As we enter the winter trading period businesses will be looking over their shoulders as the various government help schemes come to an end. Currently though all existing government support continues to help business even where they are open so can we remind you of the following important dates:
The 3rd SEISS claim for the self-employed opens on 1st December. You do not necessarily have to have used the scheme before, however you still need to have submitted a Self-Assessment tax return for 2018-19.
Any furlough claims outstanding for periods to 31st October 2020 must be claimed by 30th November 2020 because you will not be able to go back and there is no appeal process.
The applications for Coronavirus Business Loan (CBIL) and the Bounce Back Loans must be completed by 31st January 2021.
There is a continued call to add something for those that have fallen through the cracks when it comes to the government support. The “newly” self-employed and owner/director of companies have had very little or no support from the Government but there was no development in this area in the Spending Review.
As we said last week it is not all gloom and doom, there is not one but three vaccines on the horizon and we must take away the positivity that offers and carry on. We as a business community need to put in the small steps to ensure not only do we survive through all the chaos, but we rejuvenate too.
We are here by your side and as your sounding board. We love to share our views and expertise with you to ensure you get what you need to carry on so whether it is looking at your cashflow, discussing the government helps, any ideas to diversify and expand or just some one to talk to, our team is here for you.