By Neil Armstrong, Tax Director
Chancellor of the Exchequer Rachel Reeves MP has previously indicated that she would only make major changes once a year “to give families and businesses stability and certainty”. Given the significant policies last year coming into effect next week, it is no surprise that this Spring Statement has been markedly low key in comparison.
With Reeves stating that this would not be a ‘tax and spend’ event, changes to taxes were always going to be minimal, especially given the fact that the changes announced last year to Employer National Insurance contributions, inheritance tax, and a raft of other changes to tax do not come into effect until next week. With tax increases off the table, Reeves has instead turned to tightening tax processes.
From the 2025/26 tax year onwards, late payment penalties for VAT and Making Tax Digital for Income Tax Self Assessment (ITSA) will increase from 2% to 3% at 15 days, 2% to 3% at 30 days, and 4% to 10% from day 31. To help enforce the new regime, Reeves will set aside £80 million to pay for third-party debt collectors to bring in £1.3 billion in outstanding tax over the next five years, meaning that the Treasury is forecasting a return of £16 for every £1 spent on their employment.
Given the almost universal unpopularity of the tax measures announced last time out, it’s no shock that Reeves was eager to quash speculation about tax rises in the days before her speech. Instead, she has been hammering the message of spending cuts as the next step in Labour’s plan to restabilise government budget books.
With contractions in the UK economy, it makes sense that the Government would seek to encourage spending rather than saving, so it is maybe somewhat surprising that Reeves has abandoned the rumoured plan to cut the annual tax allowance for ISAs from £20,000 to £4,000. This remains an area that those affected should keep a close eye on for the Autumn Statement.
Another area relatively untouched was pensions, but again this remains something to watch in October. Speculation about changes to the tax-free lump sum and pension tax relief before last year’s Autumn Statement amounted to nothing. Pension reforms will perhaps take centre stage for this year’s Autumn Statement, with the Pensions Investment Review likely leading to workplace pension funds investing in funds designed to boost UK economic growth. This summer’s Pension Schemes Bill will also include new measures aimed at delivering value for money and joining up small pots left behind when individuals changed employers.
The fact that the discussion around this Spring Statement is more centred on what may come down the line in the autumn is indicative; this was an announcement where what wasn’t said counted for as much as what was.
To discuss any aspect, please get in touch with Neil Armstrong, Tax Director T: 028 9032 3466 E: neilarmstrong@bakertillymm.co.uk