The Chancellor has pledged to reduce the basic rate of income tax by the next legislative elections in 2024. This announcement had not been anticipated. Tax and estate planning partner James Austen comments on this and the so-called “tax plan” describes:
“In my opinion, the potentially most important announcement was that of the so-called “Tax Plan*”: tax experts have been asking the Treasury for this for years. Unfortunately, rather in common with the rushed “income tax cut” announcement, the tax plan actually released today is really nothing like that: apart from the sections on today’s announcements today it is mostly a loose wish list of broadly outlined aspirations, without the intellectual or fiscal clarity one hopes to see. This is a real missed opportunity.
It is possible that the Chancellor made this announcement before the document itself was ready for publication. In which case, the Treasury will hopefully be working on a new version of the tax plan by the autumn budget statement, and that the document published then will better reflect what the Chancellor announced today. In particular, the tax plan should include clear and specific statements about the government’s plans for the future trajectory of tax policy, with appropriate consultation periods before changes are implemented.
More importantly, there should be no more unwanted and disruptive tax law changes without notice.
* Tax Plan policies outlined by the Chancellor include:
- A 5p per liter reduction in fuel tax for at least next year. Fuel tax will drop from 57.95p per liter to 52.95p, resulting in an annual saving of £200 for the average van driver, according to Treasury estimates.
- A time-limited VAT reduction on the cost of home insulation, solar panels and heat pumps to encourage the installation of home energy improvements. VAT will fall to zero from April 2022, after reaching up to 20% in some cases.
- A £3,000 increase in the National Insurance threshold to £12,570 from July 2022. This will result in a tax cut of £330 a year for the average worker, according to the Treasury.
- An increase in Employment Benefit, the relief small businesses get on their National Insurance bill. The allowance will increase from £1,000 to £5,000 from April 2022. The tax reduction is £1,000 per employee.
- A reform of corporate tax rebates, allowing companies to claim rebates on mathematical R&D expenditure.
- A promise of new reforms of tax rules to encourage companies to invest.
- A promise to review the operation of the apprenticeship tax to see if it can be improved to better encourage spending on employee training.