Several experts across the finance industry have forecast a “quiet” Autumn Statement, but a drastic upheaval for family finances has presented itself in the not too distant future.
A freeze has been placed on major benefits which looks to remain in place until 2020, while inflation looks to increase, which will no doubt increase the cost of living. Changes to tax have also been planned, but are yet to be brought into effect. It’s down to chancellor Philip Hammond to bring some forward in his Autumn Statement, while others may need to be pushed back in their wake.
From April 2016, the main working age benefits and tax credits were frozen in cash terms for four years, including various entitlements including Jobseeker’s Allowance and income support. This freeze could tie in with an increase in inflation, adding pressure to those across the country on low income.
The Institute for Fiscal Studies reported that the falling value of the pound in the aftermath of Brexit will raise prices by approximately 2.6%, which is higher than it would’ve increased regardless. However, all is not lost – the government has made its intentions clear to raise the amount people can earn before having to pay income tax. This is known as “the personal allowance”, and currently sits at a sum of £11,000, with plans to increase it to £11,500 in April 2017. By 2020/2021, the Conservative Party expressed a desire to raise this to £12,500. On the 23rd November 2016, the Chancellor is expected to bring forward this new threshold. For those who are the least well off however, changes to National Insurance may be of greater use. There have been calls for the raise of the rate at which this threshold is paid, which sits at £8,600. Speaking to the BBC, Tom McPhail, the Head of Pensions Research at Hargreaves Lansdown, stated this would be “a more useful intervention.”
Households on a more comfortable pay grade are in line for a tax boost. By 2020/2021, Conservatives have expressed a desire to raise the threshold at which people pay the higher tax rate to £50,000. It currently sits at £43,000, raising to £45,000 in April 2017.
Further additions to be introduced in April include the introduction of a Lifetime Individual Savings Account, where in order to open one of these, investors must be between the ages of 18 and 40 and can save up to £4,000 a year, with the government adding a 25% bonus. Over the course of the lifetime, savers can receive a bonus of anywhere up to £32,000, plus any investment return on top.
Additionally, plans are in place to allow people to pass on property to descendants, free of a set amount of inheritance tax. This falls alongside plans to remove Child Tax Credit from families who have a third child born after April 2017. This will also be introduced to families claiming Universal Credit for the first time.
In 2018, those with a sweet tooth can expect to pay a little more for their daily fix, with a sugar tax to be introduced on all soft drinks. In addition, in September 2017, parents working over 16 hours a week and earning less than £100,000 on an annual basis will be able to claim 15 extra hours of childcare.
The future of pensions tax relief has been something which has garnered a considerate amount of debate. With this in mind, Philip Hammond would be wise to amend the annual or lifetime allowance of pension contributions free of income tax, which currently sit at £40,000 and £1m respectively. Given the significant changes made to taxes and benefits recently, accountants have expressed a need for stability in order to battle the financial workload that comes with leaving the EU. Within this comes a plea from small businesses to push back the change from annual tax returns to quarterly returns made online.
The Chancellor of the Exchequer is expected to give his Autumn Statement to Parliament on 23 November 2016.
Speaking to the BBC, Head of Taxation at the ACCA Accountancy Body, Chas Roy-Chowdhury, commented, “The new Making Tax Digital (MTD) reforms for SMEs should be deferred to relieve additional burdens on business while the economy fluctuates. “
National Tax Partner at Smith and Williamson, Tina Riches, added, “Individuals and businesses need a clear picture of where the tax system is going, not another period of jumping back and forth. Much complexity has arisen from governments making ad hoc changes, without adequate consultation, to try and deal with political whims. These changes have then, due to not being properly targeted or failing to receive adequate consultation, had unintended consequences and needed further alterations or have given rise to significant administrative burdens.”
UPDATE: The Chancellor has since released his Autumn Statement, the full speech and plans outlined within can be found here