In the last few weeks there have been quite a number of HMRC press releases and briefings concerning various aspects of our ‘wonderful’ tax system. Most have been technical updates, but many others will have a direct impact on taxpayers, both individuals and those running small to medium sized businesses.
So, today I will give you a briefing of the most important, that could have a direct impact on you personally or on your business, if you run one.
MTD for corporation tax (CT)
Two of my recent Blogs concerned Making Tax Digital for individuals, which I have now covered in depth. At the time, there was very little news on MTD for corporation tax (CT), due to be introduced in the 2026/27 tax year. This has now changed, with HMRC’s announcement that this particular bouncing ball has now been kicked so far into the long grass, it has now disappeared for good.
HMRC have been very quiet on the MTD for CT front for some time now, with the delays having been exacerbated by the regular delays to MTD for Income Tax. The news that it was being scrapped was tucked away in the recent publication of ‘HMRC’s Transformation Roadmap’. HMRC have now said that it is “developing an approach to the future administration of CT that is suited to the varying needs of the diverse CT population”, whatever the hell that means!
Business Rates
Most politicians agree that business rates are both grossly unfair and outdated, however the problems begin with getting a consensus in Parliament to agree on a fair and acceptable alternative. This issue came to a head recently, when a joint approach by businesses in the hospitality sector made a direct submission to Rachel Reeves, requesting a level playing field on taxes.
Their main arguments were:
- The recent hikes in business rates and employers’ NIC have resulted in many businesses going purely online and thus reducing both the number of employees and eliminating business rates.
- Hospitality businesses require physical premises and are labour intensive
- They cannot significantly reduce staffing numbers and are therefore at a tax disadvantage as opposed to those concerns that can easily switch to an online model
The Chancellor was sympathetic to their arguments and said that her direction of travel was to scrap business rates and replace it with either a local version of Corporation Tax or a form of local tax, based on profit not premises. So, watch this space.
Wealth Tax
A large number of Labour Party MPs are lobbying for an annual wealth tax to plug Rachel Reeves’ famous black hole. Their submissions to the Chancellor propose an annual wealth tax of 1% on wealth chargeable on individuals who have personal assets exceeding £10m, rising to 2% on wealth above £1bn.
The main stumbling block is just how do you value wealth? One presumes that HMRC would obtain the taxable wealth of a person from a combination of the individual’s tax return and national registers, such as Companies House and Land Registry. There are precedents in other countries, such as Spain, Norway and Switzerland with the tax level in these countries, varying between 1 and 2%, with the pill sweetened by the abolition of Inheritance Tax.
Will it happen? Possibly, as Dear Rachel admitted during a recent interview with BBC’s Economic Editor Faisal Islam, she has a team working on such a tax with a potential introduction before the next election.
VAT
Whilst the deadly duo of Kier & Rachel has promised not to raise the standard rate of VAT above 20%, that doesn’t mean that they won’t tinker around the edges, especially as there’s been a blurring of the lines over the years, especially with regard to clothing, transport and some foodstuffs (E.g. Jaffa Cakes). Here’s a few examples:
- Why should transport in a mini-bus carrying 12 passengers be zero rated, whilst a 10-seater is standard rated
- Why are cyclists’ high-viz tabards and sailors’ life jackets considered to be items of clothing and standard rated, despite their primary use being safety aids which are zero-rated
- Why should mars bars be standard rated, when Jaffa cakes are zero-rated
- Children’s clothing, with the exception of very young kids, is designed to be similar to adult clothing, with the only differential being size (under 15 Zero, 15+ 20%). However, children are by and large physically bigger than their parents, with many adults, especially women, very comfortable fitting into children’s sized clothes
Most tax officials and all accountants agree that VAT is a mess and reform is long overdue. Simplifying the tax and cutting down on the exemptions, would not only raise more revenue, but also HMRC would not be spending millions every year on unnecessary court cases. It will therefore not surprise you that reforming VAT is now a priority for Ms Reeves.
Capital Gains Tax (CGT)
This is the tax which is the bookies’ favourite to be changed. Put simply, basic rate taxpayers pay 18% on all chargeable gains, with higher rate taxpayers paying 24%. There is also an annual exemption of no tax on the first £3,000 of gain.
In recent briefings by Darren Jones, Chief Secretary to the Treasury and the Chancellor’s No2, he indicated that they were actively considering a number of changes to CGT, the main ones being:
- Reducing the annual exemption amount from the current £3,000 to £1,000
- Increasing the rate for basic rate taxpayers from 18% to 20%
- Increasing the rate for higher rate taxpayers from 24% to 40%
The Chief Secretary hinted that the changes 1. & 2. Were likely to be implemented no later than 6th April 2027 and possibly earlier, but that the rise for higher rate taxpayers was likely to be introduced gradually over a number of years. He would not however be drawn on any possible changes to Inheritance Tax.
Accountant’s view
Everyone agrees that with a flatlining economy, higher interest on Government debt, the NHS etcetera, etcetera, etcetera, Rachel Reeves will have to raise taxes and she can’t wait much longer. As she’s promised not to raise VAT, NIC or income tax, perhaps she might consider introducing charges for NHS services, such as fees for visiting the doctor or charging for the so-called ‘hotel costs’ of hospital inpatients.
So, with most of the recent tax news suggesting some form of tax rises are coming soon, I will be studying all tax office briefings and immediately update readers of this Blog as and when there’s any news.
