With the country slowly recovering from the fallout of the pandemic and the government needing to reduce the massive deficit, next week's autumn Budget will need to strike a balance between tax rises and stability.

The Budget will take place on Wednesday, 27th October and the government has already announced some forthcoming tax rises: the rise in corporation tax to 25 per cent with effect from 1st April 2023 (announced at the spring Budget); the recently announced increase in the national insurance contributions (NICs) rate; and the introduction of the new Health and Social Care Levy.

Capital taxes

The spring Budget did not increase the rates of Capital Gains Tax (CGT), as many thought it might. While the prospect of a rate increase cannot be ruled out at this Budget, some consider it is less likely now: given the recently announced NICs rise and the view that encouraging investment in business and supporting entrepreneurial activity will be crucial for the UK's recovery.

There are, however, other options available to the chancellor should he wish to increase CGT revenues: scrapping or limiting some of the CGT exemptions and reliefs such as Business Asset Disposal Relief (formerly Entrepreneurs' Relief). The government has yet to respond to the two reports from the Office of Tax Simplification (OTS) in November 2020 and May 2021 on CGT simplification, so it is possible that the government may make some announcements on improvements or changes to CGT.

Another potential target for change or reform may be inheritance tax (IHT) – with the government still to respond to the OTS's second report on IHT (published in July 2019). The Chancellor may look towards Business Property Relief, which has been little mentioned in recent times but remains very generous (and was raised by the OTS in its report). Changes around the edges of the complicated IHT rules may yield some revenue, even if the headline rate is left untouched.

Employment taxes

Despite the manifesto promise of the triple tax lock (not to increase income tax, VAT or national insurance), on 7th September the government announced tax increases to raise £12 billion a year to be spent on the NHS and social care across the UK. NICs will increase by 1.25 per cent for employees, employers and the self-employed for one year only from April next year. From April 2023, a new ringfenced Health and Social Care Levy of 1.25 per cent will be introduced (and NICs rates will revert back to current levels).

It is possible that we may see some announcements on employee share schemes, highlighting the valuable role such plans can play in supporting the economic recovery by enabling companies to recruit and retain employees. A call for evidence on whether the Enterprise Management Incentive scheme should be extended to include more companies closed in May 2021, and we may see the government's response to that consultation.

Pensions tax

As part of the announcements made on 7th September, the government also announced (breaking another of the manifesto promises) a one-year suspension of the triple lock on UK state pensions. It is also possible that other changes in the pensions arena could be made – for example, removing or lowering the higher rate of relief or reducing the lifetime allowance.

Funds

The government has been looking closely at the UK funds regime to enhance the UK's attractiveness as a location for investment funds and their management.

Although we are still awaiting the launch of a review of the VAT charged on fund management fees and the government's response to the call for input on the UK funds regime, we know that this year's Finance Bill will make two positive changes to the UK funds landscape. The Finance Bill will introduce (with effect from April 2022) the new taxation regime for asset holding companies in alternative fund structures and will also relax some of the rules relating to the taxation of Real Estate Investment Vehicles.

Business investment and green initiatives

To support the economy's recovery, the Chancellor may use this Budget to encourage investment in business – especially in areas in which the UK is no longer restricted by EU rules: for example, he could increase tax reliefs available through the Enterprise Investment Scheme or Seed Enterprise Investment Scheme.

The Chancellor may also want to bolster the government's green agenda by introducing further investment or incentives for electric vehicles and green homes. He may look at improving research and development (R&D) tax relief for green technology. We are still awaiting a response to the consultation which closed in June on improving the R&D tax relief scheme which could see further improvements in R&D investment.

With the COP26 climate change summit taking place in Glasgow next month, the time would seem right for some green tax announcements – that were so lacking from the spring Budget.

Real estate taxes

This year's Finance Bill will include provisions for the introduction of the Residential Property Developer Tax (RPDT) which will apply from 1st April 2022. The legislation aims to ensure that the largest developers make a fair contribution to help fund the government’s cladding remediation costs. As yet the rate of the RPDT and the annual profits allowance (where the tax will not apply) is unknown, but will be confirmed in the Budget.

We may see the final report setting out conclusions from the fundamental review of business rates that the government said would be published in autumn 2021 (an interim report having been published in March 2021). One of the alternatives to business rates raised in that call for evidence was the introduction of an online sales tax on companies.

While this may need further consideration and would have to be looked against the backdrop of the OECD agreement on the taxation of the digital economy and the UK's own limited digital sales tax, the Chancellor may make some announcement along these lines.

Tax administration

This year's Finance Bill will include the proposals (deferred from last year) requiring large businesses to notify HMRC of uncertain tax positions that will take effect for tax returns filed after 6th April 2022, meaning that corporation tax positions being taken today fall within the new regime.

We may also see some announcement regarding the direction of travel for the UK's Mandatory Disclosure Rules. Following the reduced scope of DAC6 in the UK from 1st January this year, HMRC said it will "in the coming year" consult on and implement the OECD’s Mandatory Disclosure Rules as soon as practicable, to replace DAC6. Nothing came out following the spring Budget, so can we expect an announcement?

VAT

We are not expecting any major announcements around VAT. There has been some lobbying from the hospitality sector that the temporary reduced VAT rate of 12.5 per cent for hospitality, holiday accommodation and attractions (which applies from 1st October 2021 and ends on 31st March 2022) should be extended beyond next March to give those industries more time to get back on their feet.

Despite the tax rises already announced, the Chancellor still has a mountain to climb to reduce the massive deficit caused by the Covid-19 crisis. While wanting to maintain taxpayer confidence and increase growth, it is likely that this Budget will include measures to clawback some of that deficit.

While we expect the fiscal event program to get back to normal following the past extraordinary 18 months – so that we have one (autumn) budget a year (followed by a spring statement) – we suspect that headline-grabbing tax rises may be missing at this Budget and the devil is likely to be in the detail of the tax announcements. With the Chancellor announcing "tax rises" at the Conservative party conference, it is likely that we will see a number of tax rises over the next few Budgets.

by Erika Jupe, partner, Osborne Clarke