Chancellor Rishi Sunak needs to plug the £400bn black hole in the treasury’s funds caused by the pandemic.
There was speculation that his budget at the beginning of March would see some swingeing tax increases. These did not materialise, although the freeze on various allowances has been described as a stealth tax.
But the worries began to surface again when the government announced that it would announce new policies and consultations on what was immediately dubbed “tax day” on Tuesday 23rd. Speculation was rife that the announcements would include slashing higher-rate tax relief for pensions, but again, no such proposals were announced
But there were some tax changes that could cost you money. At Continuum we are looking at what ‘Tax Day’ might mean for you.
Why have a tax day?
In the event it looks as though tax day might have had less to do with a second bite at taxpayers cash to plug the Covid debt than feared, and more to do with dealing with plugging loopholes that make up a £31bn “tax gap” – the amount HM Revenue & Customs says it is owed compared to what it actually collects in every year.
In the event, there were none of the tax hikes some had expected. But although what was actually announced was less dramatic than many had feared, there are still some changes that could affect you and your money.
Second home owners may see their tax bills rocket
Currently, second home owners can pay business rates, rather than council tax, on their properties if they declare they intend to make their property available to let for 140 days in the coming year.
Holiday lets are subject to business rates and not council tax, and not only are business rates cheaper than council tax, many small owners benefit from 100% relief from the levy and pay no property tax whatsoever.
There is currently no requirement to verify that a home is actually being used commercially. The Government will be cracking down on those who swerve tax but make no effort to let out their properties.
New laws will mean a second home’s qualification business rates will depend on the actual number of days the property was rented for.
Only those who actually try to let their properties will qualify for these tax concessions. It could also mean extra paperwork for legitimate holiday businesses.
Freelancers may be taxed like employees
Britain’s growing army of self-employed workers – from delivery drivers to computer consultants could be facing tax hikes, as the result of consultation announced on a system to tax them more like employees.
Around 30 million employees pay weekly or monthly taxes through PAYE, while freelancers typically pay tax two or three times a year. The Government has said this can be harder to manage and leads to people more easily falling into debt – although cynics might suggest the real reasons may be more to do with problems in collecting all the tax due.
The Government wants to tax the income of the self-employed as they earn. Quite how this would work has not yet been disclosed. It could mean cash flow problems which would leave many self-employed people with difficulties, and confusion for those whose income is erratic.
New green levies for long-distance flyers
With the government’s green commitments in mind, there will be consultation on reforming air passenger duty and on proposals that would mean those flying furthest pay more. On the plus side, this could mean cutting taxes for shorter domestic flights and improve transport links around the British Isles.
Red tape cut for the bereaved
Inheritance tax remains an emotive issue. Under the current system families have to fill in tax paperwork even if there are no death duties to pay and submit them. It means pointless red tape with 275,000 inheritance tax forms filled out and processed, although only around 25,000 tend to pay IHT each year.
As part of the ongoing modernisation of Britain’s outdated manual system this requirement may be axed
What can you do?
Tax day may not have had the impact that many had feared, but if you believe that you might be affected by any of the provisions in it, it could be time to seek expert help.
Book a free consultation
To find out more about how you can reduce your tax bill book a video consultation with a Continuum expert.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable taxation strategy, you should seek independent financial advice before embarking on any course of action.
Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.
The Financial Conduct Authority does not regulate taxation or trust advice.