With the Labour government preparing to deliver its first Budget on October 30th, many business owners are wondering what changes might be on the horizon. Chancellor Rachel Reeves has indicated that the focus will be on achieving economic stability and growth while avoiding tax increases for working people. However, to address the substantial public finance deficit, Labour is said to be considering a mix of tax changes and spending cuts, with potential implications for various aspects of tax policy and business finances.
Here’s a look at what we can expect, and how it may affect businesses (although we won’t know anything for certain until The Budget takes place next week!):
Key Budget Predictions
No Increases to VAT, Income Tax, or National Insurance
The government has pledged not to increase the basic, higher, or additional rates of income tax, National Insurance, or VAT. That said, the freeze on income tax thresholds, currently extended until 2028, could lead to more individuals paying tax or being pushed into higher tax brackets. Additionally, the Government has recently clarified that the promise not to raise National Insurance applies to employee contributions, leaving the door open for potential increases in employer contributions.
Capital Gains Tax (CGT) Changes Likely
Capital Gains Tax is one of the most likely areas to see significant changes. Possible measures include raising the CGT rate to align with income tax rates, reducing the annual tax-free CGT allowance, or even scrapping Business Asset Disposal Relief (BADR), which currently offers a reduced CGT rate for business owners selling assets. Businesses considering asset sales may want to act before the Budget to lock in current CGT rates.
Potential Inheritance Tax (IHT) Reforms
The government may lower the Inheritance Tax threshold or reduce existing reliefs, such as Business Relief. IHT restructuring is a possibility, making it advisable for individuals already planning significant gifts to consider accelerating their plans to mitigate potential impacts.
Pension Tax Relief Adjustments
While Labour has committed to maintaining the state pension triple lock, changes to pension tax reliefs or tax-free lump sums may still occur. High earners might benefit from maximising their pension contributions before the Budget to secure current tax reliefs.
Labour’s Business Tax Roadmap
Labour has introduced the concept of a business tax roadmap, aiming to provide businesses with a clearer understanding of future tax policy. While specific details may emerge in the Budget, it’s known that the government plans to maintain the Corporation Tax cap at 25% for this parliament, with the possibility of lowering it in future, if competitiveness becomes a concern.
Other Possible Announcements
- Dividend Tax Adjustments
Labour could consider increasing dividend tax rates to match income tax rates, a move that could simplify the tax system and raise additional revenue. This would particularly affect business owners who pay themselves through dividends. - Fuel Duty Revisions
Although Labour has not confirmed any changes, there is speculation about potential fuel duty increases, which would impact businesses reliant on vehicles. - VAT and Business Rates for Private Schools
Labour intends to continue with plans to remove charitable Business Rates relief for private schools and introduce VAT on private school fees, changes that are expected to raise significant funds over the next few years.
Preparing for the Budget
While these predictions remain speculative, business owners should prepare for potential changes. For example, accelerating planned asset sales or pension contributions before the Budget could help secure current tax rates and reliefs. The team at DVM is here to support you through these changes. If you have concerns about how the Budget may affect your business or personal finances, we encourage existing clients to contact their Client Manager or email Jennifer at jennifer@dvm.co.uk for more information without delay.
If you aren’t yet a client, contact us today to discuss how we can support you through any such future changes. Book a discovery call with us and become one of our extended (client) family!
