As the next Budget draws near, we have been carefully assessing its potential implications, especially concerning corporate tax.
It remains to be seen if the Budget will bring an increase in corporate tax burdens, but in the meantime, we can look at the potential impact that corporate tax changes could have on businesses.
Corporation Tax
Currently, the Corporation Tax rate has remained steady. Following the Spring Budget, Chancellor Jeremy Hunt did not announce any changes to the tax.
Since April 2023, businesses making profits over £250,000 have continued to face a 25 per cent Corporation Tax rate, with a tapered rate applied to profits between £50,000 and £250,000.
Our Director, Matt Warwick, comments: “While there’s been consistency in Corporation Tax this year, the Autumn Budget may introduce adjustments, particularly if broader tax reforms are put forward.”
Business Asset Disposal Relief
Another area of speculation surrounds the possible removal of Business Asset Disposal Relief.
This relief currently offers a 10 per cent tax rate on eligible business asset disposals, capped at a £1 million lifetime limit.
“If the Chancellor chooses to eliminate this relief, the tax on business disposals could effectively double, potentially putting off owners from selling their businesses,” Matt notes.
For many entrepreneurs, selling their business represents the culmination of years of hard work and a key source of retirement funding. A substantial tax increase could reduce the financial benefits of a sale, forcing owners to rethink when or even whether to sell.
“The absence of this relief could also stifle reinvestment into new ventures, as the additional tax burden might make business owners less open to taking risks.” adds Matt.
Inheritance Tax
Inheritance Tax (IHT) is another area likely to be touched on in the upcoming Budget. To understand how these changes could affect you, refer to our guide on Budget impacts and personal taxation.
Inflation
Should the Chancellor decide to address the financial deficit by raising taxes and cutting expenditure, it could have a cooling effect on inflation by dampening demand.
“What will be interesting to see is if these measures will slow inflation without stifling growth,” says Matt. “Missteps could result in inflation remaining high even as the economy slows.”
The Bank of England has projected inflation could rise to 2.75 per cent before potentially falling below two per cent next year. However, recent inflation trends suggest uncertainty, making the Budget’s approach key to determining the outcome.
Dividend taxation
Dividends have grown to be a vital income stream for many investors, business owners, and retirees. With the Treasury under financial strain, there is talk that dividends could face scrutiny in the upcoming Budget.
Raising dividend tax rates could make this income stream less appealing, especially to those who rely heavily on it.
“The Government must exercise caution here, “Matt advises. “Overtaxing dividends could discourage investment, something Labour wants so it can revitalise the UK stock market.”
Additionally, the dividend allowance, which was slashed from £5,000 to £500 by the previous Government, could face further cuts.
“The key question is how much more Labour is willing to reduce the allowance,” adds Matt.
While much of this remains speculative, these possible changes highlight the need for businesses and individuals to be prepared for potential changes.
“Staying updated on the Budget’s developments will help businesses prepare for whatever may come and give them time to implement a strategy that will guide them through any challenges that lie ahead,” comments Matt.
“The team here at MJ Bushell will also have a big part to play in helping businesses make the best decisions and leading them down a successful path.”
As further details emerge, we’ll provide expert insight and guidance to help you deal with any new tax challenges.
Contact us today to ensure your tax strategy is well-prepared for the upcoming Budget.