The Chancellor, Rachel Reeves could make tax tweaks in the Spring Statement without breaking Labour’s election pledge to not increase taxes on ‘working people’, say leading audit, tax and business advisory firm, Blick Rothenberg.
Robert Salter, a Director at the firm, said, “Although the Chancellor has committed to just one fiscal event a year, she is under immense financial and political pressure. The Government’s plan to cut the benefits bill to cut costs has met staunch opposition, and she may be looking at what she can tweak to raise funds without breaking Labour’s election commitments.
“To raise revenue for the Treasury, Rachel Reeves could amend the payments on account rules for taxpayers who are within the Self-Assessment tax system. At present, someone is only liable to make payments on account, if their tax bill is more than £1,000 or if less than 80% of their income tax bill has not been deducted at source. These rules could be modified so that payments on account were required if a tax return showed an income tax liability of under £500 or if less than 90% of the income tax due had not been accounted for via deductions.
“Modifying the rules on payments on account in this way would not directly increase the taxes payable by taxpayers meaning the Government is still abiding by its election commitments to not raise taxes on ‘working people.’ It would also significantly increase the Government’s short-term tax receipts and reduce the costs of borrowing.”
He added, “Another step the Government could take that would not break its election pledge is increasing the penalties associated with the late submission of Self-Assessment tax returns. The core late filing penalty of £100 has not changed since the late 1990s and could easily be increased to either £500 or £1,000. This might also help address the fact that ca. 1m 2023/24 tax returns were not filed by the 31st January 2025 filing deadline.
“There are a number of other significant changes which the Government could look to introduce which would not arguably break their election commitments, but could increase their tax take. These include reducing the tax relief on employee pension contributions so that tax relief is only available at a flat rate of 20% or 25% rather than at someone’s marginal tax rate, making employer pension contributions liable to employer National Insurance Contributions (NICs) or introducing Value Added Tax (VAT) on additional items such as private medical and dental treatment.
“The reality is that many of these steps would be quite controversial, and arguably the Government should not announce any tax changes at the Statement to avoid further economic uncertainty. But clearly they are facing a difficult fiscal position and will need to make some hard decisions either on the 26th of March or in the Autumn Budget.”
