tax in 2021

1 February 2021

If 2020’s reminded us of anything, it’s that change is the only certainty. Whatever your political persuasion, I think we’ll all agree Rishi Sunak’s faced with some exceptional challenges for his Budget on Wednesday 3rd March.

The government’s provided unprecedented levels of support for UK businesses during 2020 and frankly, we all know we need to pay for it somehow and at some point. But is now the right time to raise taxes? Or will we see an economic stimulus package to incentivise investment in people, ideas and infrastructure? Is the UK really open for business, or, have geopolitical dynamics as a result of Covid, Brexit and recent events in the US, taken us into new territory in terms of socio-economic policy?

What’s next?

It seems to me that self-reliance will likely be a central focus in the government’s policy direction in the medium term. The question is the extent to which this will influence the short term narrative and most importantly, how business owners and individuals react in terms of our own strategic decision making.

In their report published in November, the Office of Tax Simplification (OTS) made a number of suggestions around Capital Gains Tax reform (click here to read more). The rumored alignment of Capital Gains Tax and Income Tax rates are a concern for many and we’ve seen a number of transactions brought forward in an effort to ‘beat the Budget’.

With the recent reduction in the lifetime allowance for Business Asset Disposal Relief (the new Entrepreneurs relief) from £10m to £1m, would now really be the right time for the government to raise Capital Gains Tax for business owners? ‘Simplicity’ will, on the face of it, be welcomed by many, but as with everything, there will be winners and losers. Perhaps the Chancellor will need to maintain more than one rate of Capital Gains Tax to distinguish between active business ventures and more passive investment activity?

Other tax changes due to occur in 2021:

  • The onus of responsibility for applying the off-payroll working rules in the private sector being aligned with the public sector.
  • The introduction of the VAT reverse charge rules for the construction sector.
  • The end of the Stamp Duty Land Tax (SDLT) holiday.

The SDLT holiday’s provided a real boost to the property, and in turn the construction sectors, but the government has, so far, maintained this will end on 31st March 2021. The off-payroll working rules and the introduction of the VAT reverse charge rules have already been deferred a number of times, but we recommend businesses actively plan where these changes will affect them.

2021’s unlikely to be a year where we can rely on familiarity

The government’s also considering introducing a controversial ‘wealth tax’. This wouldn’t be triggered by an event such as the receipt of income or disposal of assets as most taxes are, but it would be, as we understand it, a ‘one off’ tax based on the value of an individual’s net assets. There are different opinions on the threshold for the level of assets where a wealth tax should apply. It would be politically risky for Rishi to introduce any asset based tax which targeted people’s main residence or pensions. Another challenge is the question of liquidity where value’s tied up in non-cash assets and whether HMRC could practically administer this type of tax. The government will need to weigh up whether the tax revenue raised would be worth the practical complexity and political risk.

The UK has a legal obligation to achieve a 100% net reduction in its carbon levels by 2050. Having left the EU, the expectation’s that the UK will introduce its own scheme to replace our participation in the EU’s Emissions Trading Scheme. The UK government’s never committed to a ‘carbon tax’ but we’ve seen this in other European countries. A more likely scenario for example is that now we’re able to determine our own VAT policy, the government introduces some environmentally beneficial incentives to encourage us to invest in the likes of clean fuel.

This year’s Budget has the potential to be a ‘something’ or ‘nothing’ event and a lot could change in the short space between now and then. Regardless, it’ll be an event we all eagerly await.

As usual, when we have more information on the proposed updates, we’ll ensure you’re the first to know, in order to keep you at the forefront of any changes.