There has been the usual speculation that taxes will be increased in the forthcoming budget to pay for COVID grants and support. Leaving aside the economic arguments for and against, what planning adjustments can we make now?
- Corporation tax. It has been rumoured that corporation tax will be increased from the present 19% to 24%. If implemented this will be a significant increase.
- Income tax. No reported changes to income tax but be watchful for regional variations as Scotland and Wales now set their own income tax rates and tax bandings.
- Capital Gains Tax. There is a rumour that the Chancellor is considering aligning CGT rates with income tax rates. If enacted, this could potentially double tax payable on capital gains.
- Pensions tax relief. Speculation that income tax relief – especially for higher rate income tax payers – will be reduced for pensions contributions has been rife for a number of years. Perhaps the imperative to pay for COVID largesse may see action in this area in the coming budget.
Strategies to beat the possible budget changes
The following strategies could be considered:
- Advance income streams. If you can organise work-flow to advance the billing and completion of billable projects and supplies before 31 March 2021 – assuming CT rates do not increase until 1 April 2021 – then any profits created by these supplies will be taxed at the lower rate.
- Defer revenue expenditure. If you can defer expenditure that you would normally treat as a business cost – without prejudicing your overall business plans – then it makes sense to incur these costs after 1 April 2021, if and when CT rates increase.
- Defer capital expenditure. As with the previous tactic, if you can defer capital expenditure on new plant, vehicles or other equipment then it makes sense to incur these costs after 1 April 2021, when you can write off up to 100% of allowable costs and reduce CT liabilities at the higher rate.
- Review pension contribution 2020-21. If tax relief is to be reduced following a budget announcement it may make sense to maximise relief for 2020-21. Speak to your financial adviser or pensions adviser to discuss your options.
Planning is imperative
Basing tax planning decisions on speculative announcements, especially as these may be motivated by political considerations, is clearly unwise unless there are compelling reasons for doing so.
Ideally, any changes you might consider should make commercial sense as well as hedging your bets on possible future tax increases.
We all have unique business and personal financial circumstances, and these must considered before undertaking any tax saving strategy. We therefore advise readers to call so we can consider your options. Do not act on any matters discussed in this article without calling for advice.