After one of the most volatile periods in UK political history, the country has ended up with a new Prime Minister. Elected by less than 0.13% of the population and crowned by Conservative Party Members with over a three quarters majority of votes, Boris Johnson is now the Head of the UK Government.
In amongst the turbulence, there’s a tax storm brewing.
Rumours are rife about what exactly the Government will do next. Assuming it lasts past the Halloween deadline and survives the Brexit nightmare.
Boris Johnson has already heralded a swathe of public spending. Cynics would suggest that the announcements encourage UKIP voting defectors to return to the Conservative Party. The spending is also likely to counteract dissent from the 'remain' lobby within his Government. One thing is for sure it seems. Austerity is over, once and for all and Boris intends to spend his way out of current political climate.
So, has the Prime Minister found the elusive money tree? Theresa May famously said that there isn’t one, so the question is about how the Government will pay for everything that it is planning. Especially since the Prime Minister has promised to cut taxes.
In the meantime, he has simultaneously promised to spend money on key public projects and priorities.
Some say that the sums don’t add up. How can you reduce taxes and still increase Government spending? What can Boris do that is different to generations of politicians before him to make the sums work ? Is Boris a bumbling clown, or is he an economic genius? We will have to see what happens over the next few months.
So, what can we look forward to in Boris’s new tax plans?
There is nothing official yet. If rumours and hints are true, we can expect to see a number of different policies announced in the Chancellor’s Autumn Budget Statement.
Raising the Tax Band Threshold for Higher Income Earners
One of the most anticipated highlights is that the higher rate tax band threshold could rise to £80,000. As things currently stand, anyone who earns over £50,000 per annum moves immediately into the 40% tax band rather than paying it at the basic 20% level. If the tax threshold does increase, then that will mean fewer people will be paying the higher rate. This will immediately reduce the amount of tax revenue going into treasury coffers.
We should note at this point that only 10% of the UK population actually earn enough to pay the higher-level tax anyway so the impact is likely to be minimal. This change (if it happens) will go down well with middle class voters.
Rise in the National Insurance Personal Allowance
National Insurance is extra tax that you pay to the Government. The revenues support essential services such as the NHS, the benefits system, and state pensions. Every individual in the UK has a personal allowance for both taxation and National Insurance contributions. Thresholds for each are at different levels which doesn't make much sense.
The Prime Minister is hinting that he could bring the two in line so that personal allowances are the same for both kinds of taxation. The Government hasn’t long increased the personal tax threshold to £12,500. It is unlikely that they will reduce this soon. What is more likely is that NI thresholds will increase to the same level as the personal tax allowance. Resulting in less money paid into the system.
All economic forecasting suggests that the cost of balancing out the two allowances would be substantial. If the PM plans to honour his recent commitments and promises to public services, social care and the NHS, he will have to work out a way of addressing the shortfall.
One way of doing this would be to increase employer’s contributions. The UK Government may be reluctant to do this because of the increased pressure on SMEs, who are already hit by the uncertainty of Brexit.
Milkshake and Sin Taxes
Before leaving office, Theresa May rushed through a green paper. It proposed an extension to the existing ‘sugar tax’ to cover other products such as milkshakes. The proposal was likely to put her at loggerheads with Boris Johnson who strongly objects to this kind of taxation. The Prime Minister has made his feelings quite clear. He sees ‘sin taxes’ as a manifestation of the ‘nanny state’ – something to which he has frequently expressed opposition.
Originally the sugar tax aimed to combat obesity but has more recently faced criticism as a ‘poor tax’. The people it affects the most are likely to be those in the lowest income brackets.
And it isn’t just sugar, that Boris has a problem with. He has also expressed concern at taxes placed on other ‘sins’ such as tobacco and alcohol, so it will be interesting to see where he goes from here. Will we see a significant reduction in duty on both? If the Prime Minister thinks it will earn him votes in the next general election, then it is certainly something that is likely to be on the radar.
If the Government decides to reduce duty on tobacco and alcohol, then they will have to look at alternative ways of raising tax revenue. We have absolutely no idea what Boris is planning but announcing cuts to taxes on the ‘simple pleasures’ is likely to be a vote winner. Especially with the people in lower income brackets.
Only time will tell.
Increasing Stamp Duty Land Tax Threshold
Another idea hinted at is an increase the threshold on Stamp Duty Land Tax. This will appeal to the middle classes who will live in high value properties. Stamp Duty applies at different levels depending on where you live in the UK. The Prime Minister has already suggested that that the Government will increase the threshold from £125,000 to £500,000 in England. Policy that the other 3 nations in the UK may well emulate.
This is a huge increase. The reduction is likely to fuel a housing market boom. This will particularly affect communities in commutable areas outside of London as well as other major cities. Especially those where average house prices fall below the SDLT threshold.
There is also talk of reducing the higher level of Stamp Duty from 12% to around 7% (the highest rate is for properties above £1.5million).
It will be interesting to see how the Prime Minister balances these changes with the economic realities of Brexit.
Reduction in Corporation Tax and increase in AIA Thresholds
Potentially there are massive changes ahead for Small the Medium Businesses (SMEs). Many Ltd companies already take advantage of “tax loopholes” such as the Annual Investment Allowances. The rules allow them to offset major capital investments against their tax burden. The Prime Minister has hinted at an increase in the threshold which may help businesses with large turnovers.
The policy is unlikely to affect SMEs. Here we find that revenues are already tight. Small companies don’t have access to tax expertise, unlike major international conglomerates. They also have lower turnovers so less money to spend on non-essentials.
Boris Johnson has already stated that he wants to oversee a reduction in the amount of Corporation Tax that companies pay. This makes for a great headline that will appeal to many small business owners. However, the UK Government has yet to release any actual figures, so it would be impossible to anticipate the impact of such a change.
So, is Boris is really playing a blinder?
Tax proposals and spending announcements will certainly appeal to middle class voters. They may also pull some previously hardcore Conservatives back to the party.
The NI threshold rise would leave the working classes better off. This will appeal to disillusioned Brexit supporters in the Labour heartlands.
Many traditional Labour supporters will applaud the Prime Minister on his approach to ‘sin taxes'.
This all bodes well for the Prime Minister were he to call a snap election.
It all comes down to what you mean by playing a ‘blinder’. Maybe the biggest blinder that Boris played was back in 2016 when he decided to join the 'leave' campaign. 'Boris's promises' have become synonymous with the UK Public's distrust of politicians. It seems like the Prime Minister was pretty good at 'blinding' the British public after all.
What’s the verdict
The economy was already in good shape before Boris took over the reins and the much anticipated tax breaks aimed at boosting the economy for the post Brexit era should maintain it as such.
But, only time will tell.
Whatever happens, the team here at TFMC will be ready willing and able to assist you with all tax and accountancy matters. Why not contact us on 0800 470 4820 or email [email protected] to find out more.