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Chancellor targets FHL, VAT and HICBC in Budget

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Chancellor Jeremy Hunt today abolished the furnished holiday lettings regime and the non-dom tax status in his Spring Budget speech, allowing him to fund another 2% cut in national insurance and increase the VAT threshold.  He also announced plans to reform the high income child benefit charge. 

6th Mar 2024
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The Chancellor managed to find enough wiggle room in the deteriorating economic forecasts to announce a further 2% cut to national insurance as the government gears up for a general election later this year. 

Jeremy Hunt was able to scrape together the money to make the national insurance (NI) cuts by announcing revenue-raising initiatives such as abolishing the non-dom tax status, abolishing the furnished holiday lettings regime (FHL), abolished multiple dwellings relief on SDLT, introducing a duty on vapes and extending the windfall levy on oil and gas companies. 

While a lot of the contents of the Budget were leaked ahead of the speech, the one rabbit that the Chancellor saved to pull out of the hat in the House of Commons was his plans to reform the high-income child benefit charge (HICBC). 

And in the first increase in seven years, Hunt also increased the VAT threshold from £85,000 to £90,000 from 1 April. “That will bring tens of thousands of businesses out of paying VAT altogether, encouraging people to invest in growth.”

With the general election looming, the personal tax cuts will give the Conservative backbenchers something to take door-to-door, while abolishing the non-dom tax status pulls the rug out from underneath the Labour Party, who had planned on removing the tax status to fund public sector reforms.  

Tax measures

Among the tax measures announced in the Spring Budget were: 

  • 2% cut to the main rate of employee national insurance from 10% to 8%
  • Self-employed NI cut from 8% to 6%
  • Abolished multiple dwellings relief on SDLT
  • Reduced the higher rate of capital gains tax (CGT) on property sales from 28 to 24% 
  • VAT threshold increased to £90,000
  • Reformed the high-income child benefit charge
  • Introduced brand-new ISA which allows an additional £5,000 annual investment
  • Abolished furnished holiday lettings regime
  • Abolished the non-dom status
  • Introduced duty on vaping products from October 2026 plus one-off 
  • Frozen the fuel duty for the 14th year in a row for another 12 months, maintaining the 5p cut
  • Extended the alcohol duty freeze until February 2025
  • Made tax reliefs for orchestral productions permanent
  • £1bn in additional tax relief for creative industries over the next five years 
  • Extended the windfall tax on oil and gas.

Personal tax cuts

The 2% cut to the main rate of NI comes after rumours that, confronted with scarce resources, the Chancellor and the prime minister were deliberating whether to cut NI again or income tax.

The prime minister’s preferred option was to cut income tax, after pledging in his last Budget that he was going to cut the basic rate from 20% to 19% by 2024. However, they opted to repeat the same 2% NI cut that was announced in the Autumn Statement. 

The decision to go with national insurance rather than income tax may just come down to cost. A 1% cut in income tax comes at the price of £7bn while the same cut in national insurance is £4.5bn. 

The national insurance cut in the Autumn Statement came into force in January and going by today, Hunt wants more cuts to come. “Our long-term ambition [with national insurance] is to end this unfairness when it is responsible when it can be achieved without increasing worry when it can be delivered without compromising high-quality public services. We will continue to cut national insurance as we have done today.”

Hunt was able to afford this NI tax giveaway through a number of revenue-raising announcements, such as targeting short-term holiday lets and the non-dom tax status.

Furnished holiday lettings and property

The FHL announcement came as a shock when it was leaked over the weekend and also poses significant change for accountants to grapple with. As raised by Caroline Miskin from the Institute of Chartered Accountants in England and Wales (ICAEW) tax faculty, the change would make Making Tax Digital for income tax self assessment (MTD ITSA) easier to design but could lead to disputes over whether there is a property trade. 

Hunt reasoned this change, arguing that it would help alleviate the strain of housing in coastal areas where landlords are snapping up properties and converting them to holiday lets. 

“This tax regime is creating a distortion, meaning there are not enough properties available for long-term rental. So to make the tax system work better for local communities, I have abolished the relief.” 

In other property tax announcements, Hunt abolished the multiple dwellings relief on SDLT and in a swipe at Labour’s deputy leader, he reduced the higher rate of CGT on property sales from 28 to 24%. 

Non-dom status

The other revenue raiser was abolishing the non-dom tax regime. This had long been one of the Labour Party’s Ace cards. 

“After looking at the issue for many months, I can introduce a system that is fairer and competitive with other countries. The government will abolished the current system for non-doms and we will replace the non-regime with a modern, simpler and fairer residency.

New arrivals from April will not be required to pay tax on foreign income and gains for their first four years. Those that continue to live in the UK will pay the same tax.

The non-dom tax regime has long been a thorn in the side of the prime minister after it emerged in April 2022 that his wife, Akshata Murty, had this status. She has since relinquished this status, but for a while, Rishi Sunak was accused of having a conflict of interest as this particular tax regime remained untouched. 

High-income child benefit charge

The Chancellor has come under pressure from all directions to address some of the more unfair aspects of the charge, which has now become a regular feature in the first tier tax tribunals

Hunt said he was going to “end that unfairness” of the HICBC but warned that it requires “significant reforms to the tax system, including allowing HMRC to collect household-level information”.

He said the government will consult on moving the HICBC to a household-based system by April 2026. Because that is not quick enough, from April the HICBC will be raised from £50,000 to £60,000. Hunt said this will take 170,000 families out of the regime. 

Business investment

The Spring Budget didn’t have a tentpole announcement for businesses like the Autumn Statement had in making full expensing capital allowance scheme permanent. 

However, Hunt did extend the recovery loan scheme and renamed it as the growth guarantee scheme, which he said would help 11,000 small or medium-sized enterprises (SMEs) to access funding. 

“Small businesses being able to access the finance they need to grow and invest is crucial if we’re to grow our economy.”

Hunt also announced that he was going to “reduce the administrative and financial impact” for small businesses and increase the VAT threshold to £90,000. The VAT threshold had been frozen to April 2026.

As has been the case in the past fiscal statements, investment zones made an appearance. This time Hunt revealed that the first investment zones in the North of England and the Midlands will be launched in April. 

Economy

The Chancellor started his speech by focusing on the economy. “When the PM and I came to office inflation was 11%, but the latest figures now show it as 4%,” he said. 

He said the latest figures from the Office of Budget Responsibility (OBR) show inflation falling below the 2% target “in just a few months’ time – nearly a whole year earlier than forecast”. 

Hunt said the OBR expects the UK economy to grow by 0.8% this year, then 1.9% next year, which is 0.5% higher than the autumn forecasts. The OBR also forecasts debt to fall to 94.3% of GDP by 2028/29. 

“Growth has been higher than every European economy, unemployment has halved and there are 800 more people in jobs for every single day we’ve been in office. 

“Because we are delivering the prime minister’s economic priorities, we can now help families not just with temporary costs of living but with permanent cuts in taxation.” 

Pre-election Budget

After a more eventful Autumn Statement than expected, the Spring Budget was expected to be when the Chancellor was going to pull the rabbits from his hat that didn’t make it into his November speech.

However, the Chancellor’s plans for a pre-election Budget tax giveaway didn’t exactly go to plan. Scuppered by a limited fiscal headroom from the OBR, the Chancellor managed to squeeze personal tax cuts, but in the end, the speech was more restrained than expected.

There were a few surprises such as the changes to the HICBC, increasing the VAT threshold and a further 2% cut in national insurance. 

This may not have ended up being the pre-election Budget that the Chancellor and the prime minister had in mind, but the government may still be able to squeeze another fiscal event before the general election. So maybe, the rabbits may not have come out of hibernation just yet. But with increasing noises that a general election might be in May, today’s announcement could be one of the government’s last rolls of the dice. So did they do enough to win around the electorate at the ballot box? Time will tell.   

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Replies (70)

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By DavidWinter
06th Mar 2024 13:50

It must be cheaper to stay self employed now with another NI cut? One day the government will do something to help small companies instead of the constant squeezing they've done over the last 14 years while giving their pals in big companies tax cuts.

And of all the things we need with the country crumbling, 4% off selling second homes? Give me a break.

They'll be gone soon, and good riddance.

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Replying to DavidWinter:
Intercity
By Mr Hankey
06th Mar 2024 13:56

Yes I was thinking the same thing.

26% self employed (20% income tax + 6% NI)
27.75 ltd co (19% CT + 8.75% dividend tax)

Only very rough basic rate calc ignoring other benefits of ltd.

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Replying to Mr Hankey:
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By Beef curtains
06th Mar 2024 14:14

Not so. the outrageous 8.75% divi tax applies to the 81% left after CT. That's just about 7% so a total of 26%, the same tax rate as self employment.

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Replying to Beef curtains:
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By norstar
06th Mar 2024 14:58

And then you go into the higher rate with disproportionately high dividend tax...

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Replying to Beef curtains:
Intercity
By Mr Hankey
06th Mar 2024 15:26

Beef curtains wrote:

Not so. the outrageous 8.75% divi tax applies to the 81% left after CT. That's just about 7% so a total of 26%, the same tax rate as self employment.

Ah yes sorry about that, you're quite right.

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Replying to Mr Hankey:
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By Self-Employed and Happy
06th Mar 2024 14:17

One benefit still is having the choice to only go up to £50,270 whereas Sole Trade you have less say on slipping into higher rate, but completely agree the last few years the financial benefit gap has closed significantly which doesn't compensate for the extra risk of someone maybe moving from PAYE to set up a new company and in my view doesn't encourage entrepreneurship and therefore growth.

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Replying to Mr Hankey:
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By philaccountant
06th Mar 2024 14:19

Not quite as simple as that as dividends are paid net of corporation tax.

£1,000 of profit leaves £810 to pay as a dividend, to be taxed at 8.75%, so leaving £739.13. Effective tax rate of 26.087%.

So it's a bit of a wash. You do get the dividend allowance, but it shrinks every year it seems.

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Replying to DavidWinter:
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By PK Busness Services
06th Mar 2024 13:58

yes thats what they want you to think so that you de-incorporate and pay CGT if you are liable to do so then go back to self employed regime so that they can hammer you for quarterly payments under MTD

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Replying to DavidWinter:
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By C Graham
06th Mar 2024 13:59

It was such a rubbish budget wasn't it.

If they think voters will be seduced to vote Tory after this they are way more removed from reality than ever before. Awaiting that council tax bill for 2024/5 to see how much of that '£900' will be swept up.

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Replying to DavidWinter:
Should Be Working ... not playing with the car
By should_be_working
06th Mar 2024 14:07

DavidWinter wrote:

It must be cheaper to stay self employed now with another NI cut? One day the government will do something to help small companies instead of the constant squeezing they've done over the last 14 years while giving their pals in big companies tax cuts.

And of all the things we need with the country crumbling, 4% off selling second homes? Give me a break.

They'll be gone soon, and good riddance.

Quite - we're already at the stage where it's not worth incorporating a sole trader, but wasn't necessarily worth the faff of disincorporating either - this will push more in that direction though, especially with public filing of P&Ls in the pipeline.

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By Tony1958
06th Mar 2024 13:55

I have paid fairly high rates of NI all my working life. Next week I turn 66 and no longer need to pay NI. In the last three months the chancellor has reduced Ni from 12% to 8%. Why is it I feel somewhat miffed, to put it lightly?

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By Tony1958
06th Mar 2024 13:55

I have paid fairly high rates of NI all my working life. Next week I turn 66 and no longer need to pay NI. In the last three months the chancellor has reduced Ni from 12% to 8%. Why is it I feel somewhat miffed, to put it lightly?

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Replying to Tony1958:
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By Beef curtains
06th Mar 2024 14:15

Not as miffed as me. I'm 77.

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By Paul Crowley
06th Mar 2024 13:58

'2% cut to the main rate of income tax from 10% to 8%'

Best to amend this quickly

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Replying to Paul Crowley:
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By C Graham
06th Mar 2024 14:01

yes - first bullet point!!

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Replying to Paul Crowley:
Should Be Working ... not playing with the car
By should_be_working
06th Mar 2024 14:10

I expect Richard's taking a late lunch.

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Replying to Paul Crowley:
By Husbandofstinky
06th Mar 2024 14:26

Surprised this post wasn't the first one in.

Thought I'd missed something big time.......

An 10% to 8% cut in income tax!

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Replying to Husbandofstinky:
Bee
By May bee
06th Mar 2024 15:23

Yes a quick correction needed on that and also it should refer to abolition of the FHL regime not relief.

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Replying to Paul Crowley:
Jake Smith, AccountingWEB
By Jake Smith
06th Mar 2024 17:05

Thanks for pointing out - we've amended now - sorry about that! 18 articles to sub and publish today our eyes are going...

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By norstar
06th Mar 2024 13:58

CT still far higher than before, dividend and income tax the same. Thanks for that.

Would have preferred to have seen removal of rebasing for IHT, reduction in CT.

The FHL rules were there to compensate the increased risk and hassle of renting out a holiday let. No doubt the local authorities will still inflict an additional rates levy in addition to the unwelcome scrapping of the FHL regime.

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By Homeworker
06th Mar 2024 13:59

Disappointed that there was nothing at all for pensioners but I suppose that is because we had the triple lock increase. It still means that more pensioners are going to be paying tax though and potentially trying (unsuccessfully?) to deal with HMRC!

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Replying to Homeworker:
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By petestar1969
06th Mar 2024 14:58

Pensioners got an 8.5% rise, for doing nothing....nothing to complain about.

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Replying to petestar1969:
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By Open all hours
06th Mar 2024 15:22

Reading comments on the Telegraph yesterday there is an awful lot of ungrateful ancient Brits. I’ll be one soon and will be very grateful.

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By listerramjet
06th Mar 2024 14:03

Perhaps the most politically inept budget speech ever. I seem to remember the Sun calling an unfortunate England Manager Turnip Head. What vegetable sums up Hunt?

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Replying to listerramjet:
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By Beef curtains
06th Mar 2024 14:17

Hunt? check spelling...Ed

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Replying to listerramjet:
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By johnjenkins
07th Mar 2024 09:35

Don't you mean vaginable.

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Should Be Working ... not playing with the car
By should_be_working
06th Mar 2024 14:03

HICBC (which his preamble almost made it sound like he was going to do the sensible thing and scrap) now tapering off at £60k will surely make little difference - people will just try to stay below £50,270 instead of £50k. And I'm sure HMRC will tackle the move to household assessment with the same famed level of efficiency and competence we know and love them for!

As for the NI cut - I'm not going to decry any tax cut, but funny how the 'dividend tax' goes up when NI does, but never comes down!

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By Self-Employed and Happy
06th Mar 2024 14:04

NI Cut, does nothing for those earning below £20k, moving the thresholds for Tax and NI to £15k would benefit those people proportionately more, which is surely should be our aim, help the lowest earners.

VAT threshold, needs to be £100k, people are squeezed into VAT because costs have risen so much they need to charge more and take less profit! Many register as a last resort.

Child Benefit, finally some sense to make it household basis.

Abolishing FHL, I'm personally all for that.

Non Doms, excellent BUT needs a rule that you only get a TOTAL of 4 years for your lifetime, you cant go and then come back and receive another 4 years.

CGT Cut, not fussed either way.

My biggest disappointment here is that he hasn't gone after Foreign Companies and Individuals paying no CGT at all when disposing of commercial property, estimates range from an annual windfall of £5-8b just based on what is sold currently by those groups, meaning there is still a huge inequality between those groups and UK companies / individuals.

My overall feeling for the last few years is Government don't want small companies, they'd rather everyone just be a Sole Trade or work for a huge employer, this budget for me does nothing to quell that.

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Replying to Self-Employed and Happy:
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By Justin Bryant
06th Mar 2024 14:30

Eh? Non-UK residents do pay CGT/CT when selling (directly/indirectly) any UK land & buildings.

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Richard Sergeant
By Richard Sergeant
06th Mar 2024 14:10

Lets not also forget two enormous public sector IT projects for NHS and police/justice system. What could possibly go wrong?

Also, a nice little rubbing of hands for Fujitsu maybe?

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Replying to rsergeant:
Profile
By indomitable
06th Mar 2024 15:09

NHS already wasted I think £10BN on an aborted IT transformation project I think back in 2012-2013

https://www.theguardian.com/society/2013/sep/18/nhs-records-system-10bn

The waste in government spending just makes me so mad!!!

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Replying to indomitable:
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By moneymanager
06th Mar 2024 20:31

In other times there would have been calls for the tumbrills which might be where we are being pushed.

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By johnjenkins
06th Mar 2024 14:12

Notice he slid in that he would make sure HMRC would get (more or less) whatever they wanted to collect tax. So no sign of AML, IR35 and MTD being given the elbow.

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By C Graham
06th Mar 2024 14:22

Instead of focus on Non Dom or change to NI why didn't they just scrap the IR35 b x.

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By petestar1969
06th Mar 2024 14:24

Given the upcoming likely change of government, how much of this (except the NI reductions in next month) do we believe will actually happen?

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Replying to petestar1969:
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By bendybod
07th Mar 2024 16:39

Well since most of it is from 1 April, probably the vast majority. How much stays is a different matter.

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By rmillaree
06th Mar 2024 14:25

sigh

Hunt said he was going to "end that unfairness" of the HICBC but warned that it requires "significant reforms to the tax system, including allowing HMRC to collect household level information".

so those that have been moaning means we will probably end up withn an even more complciated system where we need sumary income levels for both partners

arghhhhhhhhhhhhhhhhhhhhhhh

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Replying to rmillaree:
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By Open all hours
06th Mar 2024 15:27

The complication is one thing. The financial coercion of abused spouses and partners is another.

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By adjadj
06th Mar 2024 14:26

Mileage allowances remain unchanged again. 45p and 25p over 10,000 miles have been unchanged for a decade!

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By Software Seeker
06th Mar 2024 14:31

So, FHLs no longer being given favourable CGT treatment, nor being part of the VAT system?

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Replying to Software Seeker:
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By norstar
06th Mar 2024 15:01

Bet they didn't factor that into the tax gain. It's nonsense anyway. Surely anyone wanting an FHL will just buy property through a company in future, whilst debt laden existing landlords will incorporate the business. Can't see it making any difference at all.

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By PAULLEWISFCCA
06th Mar 2024 14:39

Sheriff of Nottingham tinkers with the extortion rates paid by the serfs

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By petestar1969
06th Mar 2024 14:42

"That will bring tens of thousands of businesses out of paying VAT altogether"...

Hmm, businesses don't pay VAT, they collect it from their customers....

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Replying to petestar1969:
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By johnjenkins
06th Mar 2024 15:21

Given that £90K is the lower end of the income bracket, more money for the coffers.

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Replying to petestar1969:
Should Be Working ... not playing with the car
By should_be_working
06th Mar 2024 15:23

Indeed. And I doubt a mere £5k uplift would equate to 'tens of thousands' of businesses anyway. It might put the registration date off by a few months max.

Thanks (4)
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By PAULLEWISFCCA
06th Mar 2024 14:43

Jeremy Hunt wanted to isolate people who tested positive for a cold. How much business was lost and how much money was splurged during that whole episode. I am from the government and I am here to help.....

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By indomitable
06th Mar 2024 14:54

Pretty pathetic in my view, pile of garbage - still have the highest tax burden for 70 years -35 - 37% of GDP overall (depending on which statistic you take)

I understand he has to balance the books but this is not a budget for growth.

As a start get rid of net Zero subsidies which as I recall were £20BN, overseas funding another £15BN that's £35 BN as a start to reduce corporation tax and income tax

And cut the wasteful civil service!!!!

Thanks (7)
the sea otter
By memyself-eye
06th Mar 2024 15:20

At least he hasn't taxed leisure use narrowboats!
Damn, I said that out loud.....

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By PAULLEWISFCCA
06th Mar 2024 15:26

did the inflation tax theft get a mention

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By Agutter Accounts
06th Mar 2024 15:28

The raising of the VAT, while small, is welcome. We knew from press reports that NI would be cut again which is a small saving to counter fiscal drag.

Otherwise "is that it?"

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