Reeves must remove tax distortions that discourage growth in the Autumn Budget

The Chancellor, Rachel Reeves, must remove tax distortions that discourage growth in the Autumn Budget, say leading audit, tax and business advisory firm, Blick Rothenberg.

Mark Cunningham, a Partner at the firm, said: “The Chancellor should focus on removing tax distortions that actively discourage growth and productivity, including, reforming the VAT threshold to smooth the cliff edge and promote growth beyond £90k turnover, rather than penalising expansion.

Removing the tapering of personal allowances between £100k and £125k, which creates a 60% marginal tax rate, discouraging growth.

Revisiting the childcare income threshold, which currently disincentivises earnings above £100k, either by removing it or doubling it and introducing targeted corporation tax reliefs for start-ups, such as a four-year exemption for qualifying new businesses to encourage innovation and job creation.”

He added: “Rachel Reeves does need to take some bold, uncomplicated actions in the Budget, given the deficit she is facing. She could increase income tax by 2% and reduce National Insurance Contributions (NIC) by 2%. A wider base will be caught but importantly for her the ‘working people’ will not be caught in the same way. Ultimately, any tax rises she should form part of a broader growth strategy – removing anti-growth taxes and backing investment and innovation.”

Robert Salter, a Director at the firm, said: “I believe Rachel Reeves core focus in the Budget will be on taxing people rather than improving the tax system or getting rid of tax cliff edges, meaning she may remove the personal tax allowance for people who are UK or EU-based individuals living overseas with UK letting income. This wouldn’t worsen the position for all non-UK residents such as Americans who are non-UK resident wouldn’t qualify for the personal tax allowance anyway.

Reform pensions tax relief. Rather than providing tax relief at someone’s marginal tax rate as is presently the case, the relief might only be available at a reduced rate of tax say 30%;

Salary sacrifice arrangements, used for pensions and extra holiday may lose the NIC saving which is available for such arrangements. Linked to this, HMRC may start to impose employer NIC on employer pension contributions which are presently NIC free for the employer.”

Neil Insull, a Partner at the firm, said: “I believe the Chancellor will want to give certainty to businesses and not play around with the headline rate of corporation tax. However, I expect she has asked HMRC to look at ways make it harder for companies to access tax reliefs and exemptions, particularly where there are perceived abuses or where the tax incentive isn’t driving investment.”

He added: “Research and Development (R&D) tax relief has been a recent recipient of tighter regulation. I expect this to be extended to other areas. Claims for capital allowances, for example, could be incumbered by more qualifying conditions; and claims to carry forward losses could be subject to a time restriction. In addition, more companies could be brought into the quarterly instalment payment regime to accelerate tax receipts.”