With restrictions set to ease over the coming weeks and months, many businesses will be looking at getting back on track, but until they realistically can, they’ll still need financial support to weather the end of the storm.
All eyes are on the Budget and it is hoped a new phase of funding will be announced. It has been reported that the Chancellor is preparing to offer self-employed workers grants of up to £2,500 a month until the end of April, meanwhile, Boris Johnson has signalled that the furlough scheme will continue beyond April, with reports suggesting it could support workers until July.
The support provided to businesses and individuals has come at a huge cost and the Government will need to fill this deficit at some point.
The Chancellor has made mention of National Insurance contributions increasing, but will he announce this in the Budget? Time will tell. It is perhaps too early for announcements relating to increases on income tax for the wider population and these decisions could be delayed until the Autumn, following a period of recovery over the summer. At that time, my prediction is that we will see increases in National Insurance across the board for employees, employers and self-employed people, perhaps by a couple of percentage points.
There are rumours of increases in Corporation Tax on the horizon too. However, any announcement will almost certainly take effect from 1 April 2021 and only apply to profits generated after this date. This would bring in funds on the profits generated as the economy bounces back out of this crisis, although many businesses will have losses arising during the past year which they can carry forward and reduce their tax exposure. Although there is speculation of an increase from 19% to 25% tax rates, I expect any increase to be more modest and also for a limited period of time.
The Government has already expressed some interest in adjusting Capital Taxes (Capital Gains Taxes and Inheritance Taxes) and we could expect some announcement on this in the Budget. These taxes affect a smaller proportion of the population and have the potential to generate additional revenue. Changes were made to Capital Gains Tax in the last Budget to reduce the amount of Entrepreneurs’ Relief available (and to rename it to Business Asset Disposal Relief). I wouldn’t be surprised if we saw this relief removed so that Capital Gains were subject to 20% rates for business assets. Similarly, an increase to Inheritance Tax could be on the cards.
I expect further reliefs to be announced on a sector basis according to how the lifting of restrictions will limit their ability to trade. The Chancellor may even reduce the VAT rate across the board. The rationale behind this is to encourage everyone to spend money because the price of goods reduces. However, it might be a bit premature to take this action and could be something he will keep in his back pocket for the Autumn.
Savers are suffering due to low-interest rates and the prospect of negative interest rates is still a real possibility. It’s estimated that £100bn of excess savings has accumulated throughout lockdown periods across the UK. When we’re able to, the Government will want us to spend that money and restart the economy. The reality is that many people will retain some of their savings for their longer term plans. Labour has suggested the possibility of Covid recovery bonds to provide a safe location for savings which people aren’t going to spend and provide a preferential interest rate. The Government would make money on the funds invested and these would be earmarked for Covid recovery actions. It’s unusual for an opposition party to share a good idea like this prior to a Budget announcement, so we’ll see whether the Chancellor incorporates this into his plans.
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