Recently, the MGI Midgley Snelling LLP team has been deliberating on the impact that the upcoming Budget will have on corporate tax.
The core question remains: will businesses face an increase (or less likely, a decrease) in their tax rates in the near future?
Corporation Tax
As you’re likely aware, no changes were made to Corporation Tax in the Spring Budget by the former Chancellor, Jeremy Hunt.
Since April 2023, the main Corporation Tax rate has remained at 25 per cent for businesses with profits exceeding £250,000, with a marginal rate applying to those earning between £50,000 and £250,000.
Our Tax Partner, James Clerkin remarks: “While we have seen stability in Corporation Tax over the past year, the upcoming Autumn Budget may introduce changes that could impact businesses, especially if other tax areas are also reconsidered.”
Business Asset Disposal Relief
Another ‘what if’ scenario revolves around the potential abolition of Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief.
This relief currently allows a reduced rate of 10 per cent on qualifying business asset disposals, up to a lifetime limit of £1 million.
“If the Chancellor were to remove this relief, the tax liabilities on business disposals could potentially double, making it less attractive for business owners to sell their enterprises,” notes James Clerkin.
“This increased tax burden could diminish the net proceeds from a business sale, which is a concern for those who have spent years building their businesses.”
For many, selling a business represents the culmination of years of hard work and a primary source of retirement funds.
A higher tax rate could reduce the financial security anticipated from the sale, forcing business owners to reconsider their timing or even the feasibility of selling at all.
“The absence of Business Asset Disposal Relief might reduce reinvestment into new ventures or other sectors of the economy, as business owners become more cautious under poorer tax conditions,” James Clerkin points out.
Inheritance Tax
Inheritance Tax (IHT) looks likely to be impacted by the upcoming Budget. For more information on what might change and how this will impact you, please read our guide to the Budget and personal tax.
Inflation
If the Chancellor opts to raise taxes and cut spending to address the so-called ‘black hole’ in public finances, we could see inflationary pressures ease slightly as these measures reduce overall demand.
“The challenge is balancing these actions without stalling economic growth, which could inadvertently lead to inflation persisting even as growth slows,” mentions Tracey Wickens.
The Bank of England has forecast that inflation might rise to 2.75 per cent in the coming months before potentially dropping below two per cent next year.
But with the latest figures showing a reversal of the downward trend, the Budget’s approach will be crucial in determining whether this prediction holds.
“Higher taxes could dampen spending and investment, which might help control inflation but could also slow the economy,” says Tracey Wickens.
Dividend taxation
Dividends have become an increasingly important part of income for many investors, business owners, and retirees alike.
With the Treasury’s finances under significant pressure, there’s speculation that dividends could be targeted in the upcoming Budget.
Increasing dividend rates could make dividends less attractive as a source of income, particularly for those who rely on them heavily, such as business owners and investors.
“The Government will likely tread carefully here, as taking more of investors’ returns as tax could discourage investment in the UK stock market, which Labour is keen to bolster,” says James Clerkin.
Another potential change could involve the dividend allowance, which has already been cut down drastically by the previous Government, going from £5,000 to the current £500. While these are all speculative scenarios, they illustrate the changes that the Autumn Budget could bring.
Businesses and individuals alike need to stay informed and consider how these potential changes could impact their financial planning strategies.
As more news comes to light regarding October’s Budget, we will be here to provide you with the necessary information and advice.
For assistance and guidance on managing your tax obligations in light of the upcoming Budget, contact us today.
