Potential Changes to the UK Tax Regime in the Upcoming Budget

The UK Government is gearing up for the Autumn Budget on Wednesday 30^th October 2024, which always brings potential changes to the tax landscape. With a change in Government and a change in ideas, changes in the UK tax system seem inevitable. As a forward-thinking accountancy firm, we know that staying informed and proactive is crucial for businesses and individuals alike. Here’s a rundown of some of the potential changes we might see in the upcoming Budget and how they could affect you.

1. Income Tax Adjustments

One area that’s consistently under review in every Budget is personal income tax. Although the Chancellor has previously committed to maintaining the current rates until at least 2026, there is always a possibility that changes could be introduced, especially in light of recent economic challenges. Possible changes could include:

• Adjustment of Income Tax Bands: There might be a review of the income tax bands, potentially freezing personal allowances, or adjusting the higher-rate threshold. If thresholds are frozen, more individuals could find themselves in higher tax brackets due to wage inflation.
• National Insurance Contributions (NICs): We could see changes to NICs, possibly increasing rates for higher earners or tweaking the thresholds to ensure a more progressive system.

What This Means for You: Keeping an eye on these potential changes is essential for budgeting and financial planning, especially if you are self-employed or running a business where income fluctuates.

2. Capital Gains Tax (CGT) Overhaul

The government has been hinting at potential reforms to Capital Gains Tax (CGT) for some time now. In the previous Budget announcements, CGT remained largely untouched, but this could change. The following modifications are possible:

• Harmonising CGT with Income Tax Rates: One of the proposals on the table is to align CGT rates more closely with income tax rates, which could lead to higher CGT liabilities for individuals disposing of assets, including property and investments.
• Reduction of the Annual Exemption: The annual CGT exemption may be reduced, which means more individuals would face a CGT bill when selling assets.

What This Means for You: If you are considering disposing of assets, it may be worth revisiting your plans with an accountant to potentially optimise your CGT position before any changes come into effect.

3. Corporation Tax Changes

Corporation Tax has been a focal point for the government, especially following the economic effects of the pandemic. While rates rose to up to 25% for businesses with profits over £250,000 from April 2024, there could be further changes in the Budget, such as:

• Incentives for Small Businesses: To support small businesses, the Chancellor might introduce new reliefs or incentives, such as enhanced allowances for capital investments.
• Reassessment of R&D Tax Credits: The government has been reviewing R&D tax credits, which could result in changes to the rates or qualifying expenditure criteria.

What This Means for You: If you run a small business, it’s vital to stay updated on these changes, as they could significantly affect your tax planning and overall profitability.

4. VAT Reforms

The Value Added Tax (VAT) system is another area that could see reforms in the upcoming Budget. Although changes to VAT rates have a broader impact on the economy, there is speculation around:

• Changes to VAT Registration Threshold: The current threshold of £85,000 could be altered, potentially bringing more small businesses into the VAT system.
• Sector-Specific VAT Adjustments: The government might introduce reduced VAT rates for specific sectors, such as hospitality, to continue supporting industries hit hardest by the pandemic. A 20% VAT rate is planned to be introduced on private school fees from 1 January 2025 and it appears unlikely that this will be delayed.

What This Means for You: VAT changes can affect pricing, cash flow, and accounting processes, so staying informed is key, especially if your business is close to the registration threshold or operates in a potentially affected sector.

5. Inheritance Tax (IHT) Updates

Inheritance Tax (IHT) has long been a contentious topic, and there have been ongoing calls for reform. Potential changes could include:

• Threshold Freezing: The IHT nil-rate band may be frozen further, bringing more estates into the tax bracket over time.
• Changes to Reliefs: Business Property Relief (BPR) and Agricultural Property Relief (APR) could see adjustments to limit the scope of their application.

What This Means for You: If you have an estate or are involved in estate planning, it’s wise to keep an eye on these potential changes and plan accordingly to optimise your position.

How Can You Prepare?

With potential changes on the horizon, it’s essential to be proactive. Here’s how we can help:

• Review Your Finances: We can work with you to review your current financial and tax situation, ensuring you are in the best possible position to adapt to any changes.
• Strategic Planning: By keeping informed about the potential changes, we can help you develop a strategic plan, whether you’re an individual, a small business owner, or an investor.
• Ongoing Support: Our team will continue to monitor the Budget announcements and keep you updated on any changes that may impact your finances.

Get In Touch today!

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