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What accountants should expect from the Budget

5th Mar 2024
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Suzanne Gallagher, Head of UK Payroll for Employment Hero

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Chancellor Jeremy Hunt gave accountants plenty to chew over at his last Budget, with a rapid reduction in NICs, full expensing made permanent, and several decisions on business rates.

His next Budget, due tomorrrow (March 6), will be hotly-watched by the business community and accountants as they press for a wishlist of policies: from the return of tax-free shopping to the lifting of the VAT threshold and Employment Allowance.

But Hunt is operating within tight parameters both fiscally and politically. Like every Budget there will be some surprises – but perhaps not as many as some are hoping for. Here’s what accountants should be looking out for next week.

The context

This is quite possibly Hunt’s last budget before this year’s election. That places serious political pressure on Hunt to deliver readily understandable goodies for voters that will show an impact right away – things like cuts to National Insurance Charges or other personal taxes.

It doesn’t rule out changes that are more favourable to businesses too – the Conservatives will want this core voter base to stay onside – but it does make changes that impact individuals more likely.

The handbrake on big ambitions however is the fiscal position – not just the first order constraint of how much money the Government could spend but also the potential for the Bank of England to respond by raising interest rates. The Office for Budget Responsibility most recently said he had about £13bn of “headroom”, but other reports have suggested that figure could slim to £7b. That’s a lot of money to most, but it’s not a huge amount for an election-year budget – a 1p cut to income tax would take up that entire figure, for example.

What is likely: Some kind of personal tax cut

Given the approaching election and rumblings in Parliament, some type of cut to personal income taxes is the most likely “big bang” from the Budget.

This could take several forms: A cut to National Insurance Contributions (NICs) like that seen last Autumn, a cut to the “basic rate” of income tax, or an enlarging of the tax-free threshold. These moves would be expensive but also deliver cost of living help to a wide range of people fairly efficiently.

Given that, accountants who are anywhere near payroll should be ready to implement these changes, and communicate to staff what they might mean for them. A 1p cut might seem simple, but the moment it is combined with various salary sacrifice schemes things can get complex fast – so make sure you have good cloud software that can make sure your clients are compliant immediately. Being able to communicate what these changes mean to those clients and their employees is also crucial.

Possibilities for business-targeted help

The Budget will not be just one thing, and it is likely that the Chancellor will look to deliver some relief for small businesses at the budget – alongside some potential new taxes on things like vapes.

The Federation of Small Businesses has been arguing persuasively for some movement on the “employment allowance,” which allows businesses to reduce their National Insurance contributions by up to £5000. Uprating this to £6500 to keep up with changes to the National Living Wage would make some sense and deliver help for small firms looking to hire, without costing a huge amount.

Other moves like changes to VAT are possible. The VAT threshold currently sits at £85,000 of annual turnover, and a move in line with inflation would make some sense. The fierce campaign to end the so-called “tourist tax” and re-introduce VAT refunds for foreign tourists seems a bit less likely any time soon – if only because a whole new scheme would need to be designed if the Government did bring one in.

The Budget could also see the Government announce further tax simplification measures – ideas that might be fiscally neutral but deliver considerable time savings for SMEs and their accountants. There could be some more news on the mandatory “payrolling” of benefits in kind and even on that tough nut of IR35 – although I wouldn’t rely on it.

As with the payroll changes, the best thing an accountant can be on Budget day is informed, ready to deliver expert advice on what this all means for their clients. Familiarise yourself with the potential changes ahead of the big day so you can easily understand whatever the Chancellor says from the dispatch box.