Fall 2021 budget: forecasts for entrepreneurs

The fall 2021 budget is due next week, Wednesday, October 27, and as the country’s finances have taken a hard hit since March 2020 – due to government support for workers and businesses during the coronavirus pandemic, it is expected that there will be changes to the tax system to help restore the balance.

But many tax changes have already been announced, and two of the most important changes to come will have a direct impact on the UK contract industry, writes contract accountant Patrick Gribben, head of client services at Intouch Accounting.

In particular, corporate tax rates (corporate tax) are expected to increase from 2023, and rates of national insurance contributions and dividend income are expected to increase by 1.25% from April. 2022.

But what else could Chancellor Rishi Sunak have up his sleeve, in terms of changes in the fiscal landscape and what the impact might be on entrepreneurs?

Modification of the assessment period for self-employed workers

Aimed at independent traders, partnerships, and other unincorporated businesses (so not subcontractor limited liability companies), this potential change in Mr. Sunak’s red book would not, on its own, generate more taxes.

But because it focuses on taxing corporate trading profits in the tax year in which they arise (instead of the accounting period ending the tax year), it would offer potentially an increase in cash flow to HMRC. Given the high cost of covid, imposing some taxes in the treasury earlier than expected will be a hard outcome for the Chancellor to refuse.

Capital gains tax

There have already been some changes in the CGT tax in recent years, including restrictions on taking income in the form of a distribution of capital for those seeking to carry on a “trade or similar activity” within 24 months of dissolution. of a business, and the lifetime allowance cap for BADR (formerly Entrepreneurs’ Relief) of £ 10million to £ 1million.

But the Office for Tax Simplification has explored other ways to simplify the tax system in various areas, and one of the suggestions is that the capital gains tax rates be aligned with those of the income tax. Income.

Thus, the maximum rates would drop from 18% for base rate taxpayers and 28% for higher rate taxpayers, to 20% and 40% respectively. Given the scale of the increase, this is certainly an issue to watch on Wednesday, especially for entrepreneurs who plan to sell assets, including investment property.

Inheritance tax

The IHT is a complex tax area and the OTS has looked into this area as well.

But IHT is also becoming an increasingly important source of income for HM Treasury and it is not impossible that there are “simplifications” that could generate additional income for HMRC.

Personal allowance

The personal allowance is expected to be maintained at current levels up to and including the 2025/26 tax years.

With inflation currently higher than expected, the real value of the personal allowance will be eroded over this period, which, added to the current upward pressure on wages, will mean more people will pay more. taxes.

But given that the tax-free abatement affects millions of people and its trajectory is currently already set, Mr Sunak tinkering around here seems unlikely.

Non-salary rules

Eagle-eyed ContractorUK readers will have noticed that I haven’t touched on IR35 yet.

Well, the changes to the no pay rules have been “interesting” to say the least.

Positively, we are starting to see evidence that some end lessors are working under reformed legislation (effective April 6, 2021) to engage with subcontractors on an external IR35 basis. However, there is still an element of confusion about the rules and their application. So there is still a long way to go before normalcy returns.

Due to this double confusion, one or two clarifications on IR35 from the Chancellor in Wednesday’s fall 2021 budget could be helpful. But in reality, Mr. Sunak is unlikely to feel the need to be too bold – in the entrepreneurial sector or elsewhere, given these large tax hikes already pending. Who knows; in pursuit of the status quo we all want after the pandemic, don’t be surprised if Mr Sunak uses the budget to sort out the small details, like closing some of the active consultations in areas like the R&D regime and changing the end of the tax year.

But finally, beware of the horrors hidden on the eve of Halloween

All in all, I don’t expect any nasty surprises that directly affect LLC entrepreneurs again, but with this year’s budget so close to Halloween, the devil will really be in the details.

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About Natalee Broderick

Natalee Broderick

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