Each year the Government has taken two opportunities (the Budget and the Autumn Statement) to look at tax policy and make changes to align this to their policy objectives and each year we look to try and second guess what might come out of both of these events. However, after Brexit and now the American presidential elections who would want to try and second guess anything.
Add to this mix of uncertainty, a new Chancellor and, what looks like a very definite shift in policy by the Government and you can easily imagine that many things could change, although in my view that’s unlikely. The reason I don’t think the Government will seek to change very much is because businesses are still trying to decide what the Brexit vote will mean for them and the instability in the global markets and the foreign exchanges probably means that Philip Hammond will want to encourage economic growth through some large Government backed building projects. He has also signalled that he may seek to scale back austerity measures as the Government accepts that they will not be running a surplus by the end of the parliament, although the Chancellor will want to ensure that he has some wiggle room in case the economy needs a kick start as we progress through Brexit.
So, in this climate my predictions would be:
A further shift in the restriction on pension tax relief by bringing the level at which the current restriction begins (£150,000) back further, to perhaps £130,000. Or to perhaps align this with the loss of personal allowances, currently at £122,000 and for the restriction to kick in £60,000 higher than that which would still allow a £10,000 pension contribution. This would reduce the number of higher rate tax payers who could put funds into their pension but from the Government’s point of view it would reduce the tax loss from this relief.
I know that the previous Chancellor suggested that the rate for annual investment allowance would remain at £200,000, for the life of the parliament, but given the current uncertainty the Chancellor may look to get businesses trying to make investment decisions during the transitional period, by increasing the allowance. This would benefit businesses by giving 100% tax relief for expenditure on capital assets against their profits.
We already know that, for the self-employed, Class 2 National insurance Contributions (NICs) will cease from April 2018 so why not start to bring the rate of Class 4 into alignment with current rates for employees. The rate of Class 4 is set at 9% but this is substantially lower than the 12% NICs for employees and given that they will both count towards the same entitlement for state pension, there is no reason for the difference. I would expect to see an increase here as the Government works towards parity across NICs; this would increase the amount of tax bill the self employed currently pay in January and July.
There was some talk before the Brexit vote of a 15% Corporate Tax rate but Mr Hammond seems to have indicated that he would not implement this suggestion from Mr Osborne. I think that rates for Corporate Tax will stay the same, for now, especially as we proceed through the negotiations but I would not be surprised if, after March 19, lower rates were announced to ensure a competitive edge.
Finally I do think the Chancellor will want to stick with the pledge to increase both the personal allowance to £12,500 and the higher rate band to £50,000 and that in this Autumn Statement he will signal, that from next April, he will speed up the increases to give people more money in their pockets during this transitional period.
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