What a conundrum Rishi Sunak faced as he stood before Parliament 12 days ago to deliver his eagerly anticipated plans to pay for Covid.
The intense scrutiny always comes as soon as the speech starts and is unrelenting over the following days. The Institute of Fiscal Studies said Mr Sunak had turned from Santa to Scrooge. What made them say that?
I suspect the headline-grabbing five-year freeze on income tax thresholds, expected to generate around £19 billion for the Treasury, was the big-ticket item but there was more to it than that.
The question many had before the event was whether people with wealth would be under attack with the Chancellor turning into a Robin Hood character, an unusual scenario for a Conservative Government.
Sliding in behind the income tax news was the five-year freeze on Inheritance Tax (IHT) and CGT thresholds, so perhaps he is contemplating moving from Number 11 to Sherwood Forest. Those two measures are set to raise just under £500 million by the end of this parliament. Add in the five-year freeze to the Pension Lifetime allowance and it might feel there is a wealth tax after all – just not in name. Mr Sunak has been accused of introducing stealth taxes, but claims he was hiding nothing.
The increase in Corporation Tax from 19% to 25% from 1 April 2023 is also no joke. At first glance, individuals might not appreciate its impact, but they need to think of their share portfolio. Dividends are paid from post-tax profits and a Corporation Tax increase could hit investment income.
Following the budget, those looking to be more aggressive in their tax planning need to heed the warnings coming out of HMRC. Enforcement is down to resource and in last year’s budget the organisation got the nod for 1,000 extra staff. Admittedly this was to tackle tax evasion, but it does set the mood music.
We are certainly advising clients to be very wary of new and spectacular avoidance schemes as technology and sophisticated software make it easier for HMRC to collect intelligence. Failure to follow the rules around the Disclosure of Tax Avoidance Schemes will result in fines and alarm bells should certainly ring, as HMRC wins eight out of ten court cases it pursues against such schemes.
There must be a commercial reason for you to set up a scheme to avoid tax. Even the simple act of passing on your home to your children to try and avoid IHT comes with complications. It is something we are often asked about but, if you still live in the property, it becomes difficult to justify.
We will get further clarity around tax planning on 23 March, ‘tax day’. A number of consultations on tax policies are set to be published, to provide a better understanding on the direction of policy going forward.
One reason these consultations weren’t part of the budget is to allow for greater visibility and scrutiny. After surviving budget day, the Chancellor must be a glutton for punishment.
Peter Shand is a Partner, Murray Beith Murray