THE rumour mill is gathering pace with the Budget just days away.
Chancellor Rishi Sunak is believed to be plotting a pensions raid and business tax hike alongside more support for workers and struggling families.
The Budget will be held on Wednesday March 3.
The Chancellor takes centre-stage as he outlines the government's plans for tax hikes, cuts and things like changes to Universal Credit and the minimum wage.
It is due to take place at around 12.30pm, once Prime Minster's questions ends in the House of Commons.
The update is likely to focus on the economic fallout from the coronavirus crisis.
What is the Budget?
THE Budget is when the government outlines its plans for tax hikes, cuts and things like changes to the minimum wage.
It's different to the Spending Review, which sets out how much public cash will go towards funding certain departments, devolved government's and services, such as the NHS.
The Budget is read out in the House of Commons by the Chancellor of the Exchequer. It will be Rishi Sunak's second Budget as Chancellor.
Mr Sunak's first one in March last year has been dubbed the "coronavirus Budget" after it focused on supporting Brits financially through the crisis, rather than the government's "levelling up" agenda as promised in the 2019 general election.
Normally, the Budget is held once a year but the unprecedented circumstances of the pandemic in 2020 saw Mr Sunak give a "mini-budget" in the Commons on July 8.
The government has borrowed a record £284.7billion from April to November to help fund schemes such as furlough and the bounce back loans for businesses.
Mr Sunak will be expected to outline how this will be repaid and tax hikes are one way of boosting the government's finances.
Here are some of the key rumoured changes that could affect your wallet.
The Chancellor announced a £20 a week boost to Universal Credit last year to help low-income families through the pandemic and lockdown restrictions.
The hike, worth £1,040 a year, was only a temporary measure set to end next month.
There has been much speculation over whether the policy will be extended beyond March.
It was previously reported that Mr Sunak could offer Universal Credit claimants a one-off payment of £1,000 instead of keeping the £20 uplift.
What to do if you have problems claiming Universal Credit
IF you’re experiencing trouble applying for your Universal Credit, or the payments just don’t cover costs, here are your options:
- Apply for an advance – Claimants are able to get some cash within five days rather than waiting weeks for their first payment. But it's a loan which means the repayments will be automatically deducted from your future Universal Credit payout.
- Alternative Payment Arrangements – If you're falling behind on rent, you or your landlord may be able to apply for an APA which will get your payment sent directly to your landlord. You might also be able to change your payments to get them more frequently, or you can split the payments if you're part of a couple.
- Budgeting Advance – You may be able to get help from the Government for emergency household costs of up to £348 if you're single, £464 if you're part of a couple or £812 if you have children. These are only in cases like your cooker breaking down or for help getting a job. You'll have to repay the advance through your regular Universal Credit payments. You'll still have to repay the loan, even if you stop claiming for Universal Credit.
- Cut your Council Tax – You might be able to get a discount on your Council Tax by applying for a Council Tax Reduction. Alternatively, you might be entitled to Discretionary Housing Payments to help cover your rent.
- Foodbanks – If you're really hard up and struggling to buy food and toiletries, you can find your local foodbank who will provide you with help for free. You can find your nearest one on the Trussell Trust website.
But it is understood Mr Sunak plans to announce at the Budget that the full measure will stay for a long as Covid restrictions are in place, before being phased out to help only the neediest.
The DWP has already revealed that the rates for Universal Credit and other benefits will go up in April separately.
Business and jobs support
The government currently covers 80% of an employee's wages if they have been furloughed, up to £2,500 a month under the Coronavirus Jobs Retention Scheme.
It has been extended three times already. Firstly, it was pushed back from its initial deadline of May 31 to October 31 2020.
The scheme was then extended to last until March 31, 2021 following the second national lockdown in England.
And Mr Sunak then extended it until the end of April in December.
Prime Minister Boris Johnson said last week that the Government wouldn't "pull the rug out" on economic support when he outlined the UK's roadmap out of lockdown.
The Chancellor is believed to be planning to extend the furlough scheme until the end of June.
A fourth Self-Employed Income Support Scheme grant is also rumoured to be announced in the Budget.
MoneySavingExpert Martin Lewis revealed in January that the Budget is likely to include news on the fourth self-employed grant, despite it taking place a month after the grant period begins.
The self-employment income support scheme (SEISS) gives grants to help those who work for themselves if their income has been negatively impacted by Covid.
All pension savers get tax relief on their contributions.
The government takes what you would have paid in income tax and puts it in your pension instead.
Basic rate taxpayers get a 20% boost and higher earners, those earning more than £50,000, get 40%.
Additional rate taxpayers, who earn more than £150,000, can get 45% relief.
There are rumours each year that this relief will be scaled back so savers only get the basic rate but there has been no suggestion that Mr Sunak will do this.
But there are reports that Mr Sunak will freeze the lifetime allowance that savers can take as pension payouts.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it so it's compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% and employers contributing 3%. This is up from the 5% of contributions workers and companies were required to pay in previously, where employees contributed 3% and employers 2%.
- Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £175.20 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify.
- Basic state pension – If you reached the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £134.25 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
The allowance, which limits the value of pension payouts before high tax charges, has risen with inflation since 2018 and is currently £1.073,100.
This includes any workplace and personal pensions but not your state pension.
Those who go over face a 25% tax on any extra savings which rises to 55% if they draw a lump sum.
It would mean around 10,000 people would end up paying more than £22,000 in extra tax by 2024 – netting some £250m for the Treasury.
The move would also affect the 1.2million people projected to exceed the threshold by the time they start drawing down income.
The Conservative Party had a manifesto commitment, called the "triple tax lock", that pledged to not raise the rates of income tax, national insurance or value added tax.
Mr Sunak is reported to want to keep to this, according to the Financial Times.
But that still leaves other potential tax targets such as capital gains tax, inheritance tax and corporation tax.
He has previously asked the Office for Tax Simplification (OTS) to review the current capital gains tax system.
Currently, everyone has a yearly allowance that lets them sell assets such as shares or a second property with the first £12,300 free of capital gains tax.
The OTS released its review in November 2020 and suggested the rate could be doubled from the current 10% for basic rate taxpayers to 20%.
For high earners, they suggested doubling the rate from 20% to 40%.
The OTS also proposed lowering the tax-free threshold and said the current system "distorts behaviour" as people try to lower their bills.
Mr Sunak hasn't given any indication of changes.
The Treasury responded at the time that it would consider the findings but its priority was supporting the economy.
Mr Sunak is rumoured to be considering hiking the corporation tax rate to 24%,
This is the tax bill that businesses pay HMRC on their profits.
It is currently 19%, the fourth lowest rate in the Organisation for Economic Co-operation and Development.
Income tax threshold
Mr Sunak may not raise the rate of income tax but there are rumours that the tax thresholds could be changed.
At the moment, the amount someone can earn before paying income tax is £12,500.
It is due to rise with inflation each year and reach around £13,250 by the 2024 election.
Additionally, the £50,000 threshold, above which people pay 40% income tax, is due to rise to around £53,000 by the end of this Parliament.
Mr Sunak is rumoured to be considering freezing these income tax allowances, described as a "stealth tax" because no tax rates are actually being increased.
It could bring in up to £6 billion.
The Chancellor is under pressure to keep the freeze on fuel duty rises as any increase would hit drivers at the petrol pumps just as they return to their vehicles after lockdown restrictions ease.
The Sun launched its Keep It Down fuel duty crusade a decade ago and two dozen Tory MPs have this month written to Mr Sunak urging him not to raise the tax in his Budget.
It comes as ministers signed off plans for E10 — a mix of petrol and ethanol made from materials including grains, sugars and waste wood — from September.
This has been seen as a sign that a fuel duty hike is unnecessary as the cut in emissions from the new eco-petrol will be like taking 350,000 cars off our roads.
The Treasury undertook a review on alcohol duty last year, and is said to be mulling over the findings.
For several Budgets in a row now, it has frozen alcohol duty.
Pubs are begging the Chancellor for more support to help them stay afloat until they can reopen in April for outdoor bookings, and return for indoor service in May.
One suggestion is that the tax could be slapped on supermarket booze instead.
The move could see 14p added to the price of a supermarket can and 36p knocked off the cost of a pint down the pub.
At PMQs this week, the Prime Minister Boris Johnson said cutting pub booze tax and raising supermarket prices was "an extremely good point which I'm sure will be heard with great interest around the country".
He went on: "There is such a review being carried out, after consulting owners and brewers and I know that the Chancellor is looking very closely at the findings".
Cheaper holidays and meals out
The Chancellor slashed VAT (value added tax) from 20% to 5% for food, drink and holiday businesses as part of his mini-Budget on July 8.
The tax cut was due to remain in place until January 12, 2021, but in September was extended until March 31.
Now Mr Sunak is considering keeping the VAT cut going until the end of June, according to reports in the Daily Mail and Financial Times.
The Sun has been calling for the support to be continued in next month’s Budget to help save jobs in the struggling industries.
Full list of businesses where VAT has been cut
THE VAT rate has been slashed for the hospitality and tourism industries in order to help them bounce back from the coronavirus crisis
- Restaurants, cafes and pubs
- Hotels, inns, boarding houses and similar establishments
- Holiday and caravan parks and other holiday accommodation businesses charging fees for tent pitches or camping facilities
- Amusement parks
- Similar cultural events and facilities
The extension will be a boost to the tourism and hospitality industries, which have been hit hardest by the coronavirus lockdowns.
VAT is a tax paid by businesses to HMRC on the items or services they sell, which is typically passed on to customers in the price they pay for goods and services.
If the savings are passed on in full, it means cuts of 12.5% on the end price people pay, or household savings of £160 a year, according to the Treasury.
Online sales tax
Mr Sunak is said to be keen on introducing an online sales tax, which is projected to raise an initial £2 billion extra a year for the nation's coffers.
Under the plan, a 2% charge may be slapped on all goods bought online in the UK.
It would raise money for the Treasury and help high street shops compete with online giants.
Treasury sources have said the plan was being considered, but played down that the sweeping reforms would be a part of the upcoming March budget.
Stamp duty extension
Mr Sunak has faced repeated calls to extend the stamp duty holiday, due to end March 31.
The tax break, which sees land duty scrapped on the first £500,000, was introduced in July's mini-Budget.
It has been credited for the mini-boom that saw house prices rise by 6% in the second half of the year.
What is stamp duty?
STAMP duty land tax (SDLT) is a lump sum payment anyone buying a property or piece of land over a certain price has to pay.
Up until July 8, most house-buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000.
This was temporarily increased to £500,000 until March 31, 2021 in the government's mini-Budget in July 2020.
The rate a buyer has to fork out varies depending on the price and type of property.
Rates are different depending on whether it is residential, a second home or buy-to-let, or whether you're a first-time buyer.
The usual system in England for residential properties means:
- First-time buyers pay nothing on properties below £300,000 (and relief available on properties of up to £500,000)
- You pay nothing if the property costs below £125,000
- You pay 2% if it is worth between £125,001 and £250,000
- You pay 5% if between £250,001 and up to £925,000
- You pay 10% if it is between £925,001 and £1.5million
- You pay 12% on anything over £1.5million
For second homes or buy to let properties:
- 3% on purchases up to 125,000
- 5% on purchases between £125,001 and £250,000
- 8% on purchases above £250,001 and £925,000
- 13% on purchases above £925,001 and £1.5 million
- 15% on purchases above £1.5 million
Stamp duty rates are different in Scotland and Wales.
Estate agents have called for the holiday to be extended to keep the property market going and ensure sales don't collapse in the coming weeks.
The Chancellor is reported to be planning to extend the stamp duty holiday to the end of June, giving buyers and sellers an extra three months to get deals done.
Find out when the Budget 2021 takes place and what it could include.
We've put together a guide to what changes to Universal Credit may be announced in the upcoming Budget.
Pensions could be a top target for a tax raid in the Budget, here are five potential changes that could hit your retirement pot.
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