By Andrew Mitchell, Tax Partner, Armstrong Watson

IT'S only three months since the March 2020 Budget and at that time none of us could have predicted how our lives would be affected by the COVID-19 pandemic, or the effect on government finances.

With the Treasury facing a budget deficit in excess of £300 billion this year, how will the Chancellor claw-back the billions of extra spending?

In normal times a Chancellor would have the choice of cutting expenditure and/or raising taxes. However, these are not normal times and cutting expenditure will be very difficult, if not impossible. This leaves increases in taxation, but the Chancellor will not want to increase taxes too quickly for fear of stifling the economic recovery.

In their manifesto last year, the Conservatives pledged not to increase the rates of income tax, national insurance contributions (NIC’s) or VAT - but can they stick to this pledge given the scale of the deficit?

An announcement regarding Inheritance Tax (IHT) was expected but not received in the March Budget, but this doesn’t mean there will be no changes. Although any measures on IHT can realistically only fill a small part of the deficit, it could still result in businesses facing larger bills in future.

There was no manifesto pledge on Capital gains Tax (CGT) so we cannot rule out an increase in the rates payable on a property disposal and tax on property transactions is easier for HMRC to collect than other taxes.

When the Chancellor announced his package of measures to support the self-employed at the end of March, he made an interesting comment: “It is now much harder to justify the inconsistent contributions between people of different employment statuses. If we all want to benefit equally from state support, we must all pay in equally in future.”

What could this mean?

• The self-employed pay 9% NIC’s compared to 12% by an employed person – could these see a rise?

• Could there be an attack on the so-called “gig economy” where people such as taxi drivers and parcel delivery personnel, who would previously have been employees have become self-employed?

• Could there be a further tax on dividends? Any increase in NICs may be accompanied by an increase in the tax on dividends, as otherwise there is an incentive for more businesses to convert to limited companies.

However the Chancellor chooses to meet this growing deficit, only time will tell, but one thing is for certain, tough challenges lie ahead.

For any further information or clarification on HMRC business schemes or taxes, please contact Andrew Mitchell, Tax Partner on 07818 415469 or email: