9th March 2023Spring Statement: 5 things the Chancellor should prioritise

The Chancellor, Jeremy Hunt, is preparing to deliver his spring budget next week, his second statement since taking the job. While few significant tax changes are expected following the turbulent flurry of updates from the Autumn Budget, HW Fisher outlines 5 areas that the Chancellor should be prioritising.

1. Extend Corporation Tax bands to give UK businesses a fighting chance
   Toby Ryland, Corporate Tax Partner
   “It’s unlikely that the Chancellor will scrap the planned increase to Corporation Tax rates, but he could ease the pain that’s in store for UK businesses from April 1^st.”

   “This could mean extending the Corporation Tax band for small companies. Under the current proposals, companies with profits up to £50k will continue to pay tax at 19% rather than the new 25% rate. In the past, this “small companies’ rate” was on profits up to £250k. We’d urge the Chancellor to give UK businesses a fighting chance by increasing the band to £250k rather than the proposed £50k.”

2. Fuel duty: Minimise sneaky tax rises – don’t forget that VAT is added at the pump
   Gerry Myton, Head of Indirect Tax
   
   “The Chancellor must extend the temporary 5p fuel duty cut that is due to expire this month and cancel the annual RPI increase. Fuel duties should only be revisited once inflation is closer to the Bank of England’s target. Don’t forget VAT – this is often forgotten as part of fuel duty changes. If both are applied at the pumps, the cost of fuel will rise by 14.4p per litre once VAT has been added which will fuel inflation further. This would be at odds with the Prime Minister’s five key pledges.”

3. The Chancellor must prioritise tax simplification when it comes to Inheritance Tax
   Stevie Heafford, Tax Partner
   “The Inheritance Tax nil rate band and Residence nil rate band have been frozen until 2028. As a result, more people are finding themselves caught in the Inheritance Tax trap. Changes next week seem unlikely – Inheritance Tax is a cash cow for HMRC and it is unlikely that the Chancellor will give up this extra income.”
   
   “At HW Fisher we are calling on the Chancellor to think about how these taxes can be simplified. It is a complicated tax that everyday people simply cannot understand or process, particularly when going through a difficult time. The complex rules around lifetime gifts and the different exemptions mean that many don’t take advantage of gifting throughout their lifetimes.”

4. Pensions: It’s time to end automatic transfers back into auto-enrolment
   Tim Walford-Fitzgerald, Private Client Partner

   “I would like to see an end to automatic transfers back into auto-enrolment. As it stands, employers automatically enrol everyone in qualifying employment into a pension scheme. Employees can choose to opt out, either because they’d prefer the cash in their payslip or because they’ve reached their lifetime allowance and would like to avoid nasty tax charges when they finally retire.”

   “However, the rules require the opt out to be renewed every three years which can result in people who had previously chosen to protect their pension savings against the cuts in the Lifetime Allowance, losing that protection from a very modest administrative oversight.”

   “Regular reminders are fine, but the nanny state pension regime can lead to expensive mistakes and encouraging saving by those with maximised pensions is not the objective of auto-enrolment. A “protected pot” election should prevent a return to auto-enrolment permanently.”

   “Whatever the Chancellor announces next week, it’s important that all the legislation is well thought through, properly drafted, and considered. Politicians will always be looking to the next election but reactionary, badly thought-out decisions could have catastrophic impacts for the UK far beyond the ballot box.”

   Commenting on pension allowances, Stevie Heafford, Tax Partner adds:

   “The Lifetime Allowance for Pensions has so far escaped the government’s threshold freezes, but this could all change next week as part of the government’s drive to encourage over 50s back into work”.

   “This is a change that could be seen as benefiting high earners. Increasing or disapplying the annual allowance, which is currently set at £40k but tapers down to £4k for higher earners, or the money purchase annual allowance for those who have already started their pension drawdown but then return to work would be a relatively cheap way to help to even up the balance.”

5. If the UK is serious about reducing plastic pollution, Plastic Packaging Tax must be increased
   Gerry Myton, Head of Indirect Tax

   “We are coming up to the one-year anniversary of the UK’s Plastic Packaging Tax. This ecotax of £200 per tonne applies if you manufacture or import plastic packaging components that contain less than 30% recycled plastic. If the UK is serious about reducing plastic pollution and minimising its impact on the environment, the Chancellor should increase the threshold and enforce it on a wider range of products to encourage more businesses to use green materials.”