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What can we expect from the Autumn 2021 Budget?

Posted on 22nd October 2021 by Phil Ainley MCIM, CMktr, Dip DigM - Marketing Manager

Self employed budget 2021

The Autumn 2021 Budget will take place on Wednesday, October 27, when the Chancellor of the Exchequer, Rishi Sunak, will deliver what is expected to be a Budget of details(1) rather than one of wholesale changes and announcements of new initiatives.

With the UK slowly trying to recover from the fallout from the Coronavirus pandemic, and the government needing to reduce the massive deficit in the economy, the Budget will need to balance stability and recovery with rises in taxation.

This will be the second Budget of 2021 following the Spring Budget on March 3, in which the government announced a rise in Corporation tax to 25% effective from 1 April 2023.

This tax rise has been followed by a 1.25% increase in the national insurance contributions (NICs) rate for employers, employees and the self-employed for one year from April 2022, and the recent introduction of the new ringfenced Health and Social Care Levy of 1.25%.

 

Can we expect further taxation?

The national insurance contribution rate was increased despite the triple-lock promise (not to increase income tax, VAT or national insurance) of the Conservative Manifesto. However, obvious tax rises are predicted to be unlikely, with extra tax revenue expected to be generated through ‘stealth taxes’ instead.

For example, the freeze on personal tax allowances from April 2022 will increase revenue due to allowances not rising as wages and inflation go up, which in-turn means more tax is collected. The potential for freezing other allowances and thresholds could be an option the Chancellor takes to increase revenues over the next few years.

With HMRC  already focusing on tax errors and avoidance due to pandemic support, and on IR35 tax bills, it is unlikely in our opinion that there will be any further obvious tax introductions.

 

How will rising inflation affect the Budget?

With inflation in September hitting 3.1% (slightly down on August’s 3.2%), the Bank of England (BoE) will be keeping a close watch on developments. So far it has refrained from raising interest rates, but that might not be the case should inflation rise any further. However, BoE’s quantitative easing measures are due to finish at the end of 2021, which will help to ease some of the pressures of inflation.

Any rise in interest rates will make repaying the deficit more expensive and could take the country longer to balance the books.

 

VAT

Many experts online are not expecting VAT to be increased. The hospitality sector has lobbied for the temporary VAT rate of 12.5% for the hospitality sector to be extended beyond 31 March 2022, when it is due to end, to further assist the sector in its recovery(5).

 

Will there be any business incentives?

Job creation and skills shortages have already been partially addressed by the announcement of more job search support for individuals and extensions to the Kickstart scheme and apprenticeship grant scheme. The government has also announced visa schemes for EU workers to reduce obvious gaps in the short-term, such as increasing the number of HGV drivers.

According to Accountants and Business Advisers, BDO, venture capital tax reliefs for investors could be improved to boost business investment on the back of the UK not being restricted by EU laws anymore(5).

 

What about the self-employed?

Throughout the pandemic, the self-employed experienced extreme difficulties. From a lack of financial support, to being the first cost to be cut by many businesses during the same period which meant finding work was made more difficult.

The government were widely criticized for being slow to offer support to the self-employed, and then when it did launch its Self-Employment Income Support Scheme (SEISS), many self-employed professionals didn’t qualify to benefit from it.

The scheme was made up of five grants, but a sixth grant is not expected to be announced. One thing that could occur is HMRC looking to recover some of the SEISS grants that were paid to those who thought they were eligible, claimed for the grant, but that are viewed as not being eligible from HMRC’s point of view(6).

The rises to national insurance contributions and to inflation won’t help the self-employed either.

It is clear that for the economy to fully recover, the self-employed sector needs to be   just as much as every other sector does.

It’ll be interesting to see whether or not the Chancellor announces any further financial assistance for the self-employed sector on 27 October.

 

Can we expect any good news?

If the economy continues to recover at the rate it enjoyed throughout the summer, then the Chancellor may be able to deliver some good news in his Budget. However, the Furlough scheme ended in September, despite news of labour shortages, which means unemployment may begin to rise which could affect government spending on benefits and affect growth forecasts.

One thing is for certain. The UK needs to reduce its deficit as soon as possible, so this Budget promises to be a Budget which may not please too many people.

 

Look out for our Budget Round-up being published shortly after the Budget is announced.

 


Sources:

(1) https://www.bdo.co.uk/en-gb/budget-2021/predictions

(2) https://home.kpmg/uk/en/home/insights/2021/03/tmd-corporation-tax-rate-to-increase-to-25-percent.html#:~:text=The%20Chancellor%20has%20confirmed%20an%20increase%20in%20the,will%20remain%20the%20lowest%20rate%20in%20the%20G7.

(3) https://www.moneysavingexpert.com/news/2021/09/_–rise-in-national-insurance-contributions-will-come-into-force/#:~:text=Certain%20national%20insurance%20contributions%20%28NICs%29%20paid%20by%20both,to%20help%20fund%20health%20and%20social%20care%20costs.

(4) https://www.gov.uk/government/publications/health-and-social-care-levy/health-and-social-care-levy

(5) https://www.osborneclarke.com/insights/autumn-budget-2021-what-tax-measures-can-we-expect-see

(6) https://www.freelanceuk.com/news/16901-freelancers-not-waiting-seiss-revival-autumn-budget-2021.shtml


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