Navigating a tight budget – Arag

The new Chancellor will put her first budget before Parliament on Wednesday (30 October 2024) and the government has made it clear that it’s unlikely to leave many of us with more money in our pockets.

What is less evident is how much of the burden businesses will have to bear. While SMEs are unlikely to get into November completely unscathed, most of the conversation leading up to this budget has been about how taxes will impact individuals and families.

The introduction of VAT on private school fees is obviously a tax on a specific type of business, but most of the attention has been focused on its impact on parents.

Inheritance and capital gains have also been touted as taxes that could be tweaked to recover the significant overspend the government identified within weeks of taking office.

There will be wall-to-wall media coverage and analysis of every word the Chancellor says on 30 October during the budget announcement, but the following weeks will bring a lot of questions about how particular aspects of this budget affect individual businesses.

Arag’s legal and tax helplines are used to fielding a multitude of queries in the period following a budget from businesses of all sizes.

Unforseen consequences

The unintended consequences that spiralled out of Kwasi Kwarteng’s single budget speech two years ago were exceptional, but there will always be unforeseen winners and losers.

Smaller businesses find independent, practical advice particularly useful, but often hard to access.

Wherever the Chancellor looks to raise the revenue needed to balance the national books, one department we can expect to benefit from more investment is HMRC.

Before the election, the Labour Party promised to narrow the ‘tax gap’ between what the treasury is due from economic activity and what is collected. Not all of this is the result of deliberate avoidance, as a lot of tax goes unpaid by mistake or omission.

The tax gap has come down over the past twenty years, but only as a percentage of the total theoretical liabilities owed to HMRC. In pure numbers though, at just under 5% of what is owed, the gap is at an all-time high of nearly £40bn.

That’s a lot of change falling down the back of the national economic sofa.

Labour pledged to invest more than £500m in helping HMRC to recover a few billion more each year, rising to £5bn extra tax, by the end of this parliament.

As well as employing 5,000 more staff, the investment will be used to improve customer service and digitisation, including the use of AI. There will also be more focus on offshore compliance and funding ‘strategically important criminal cases’ to create a strong deterrent to avoidance. 

All this certainly sounds as though it may result in more investigations being launched by HMRC, as well as more disputes. As an underwriter providing cover for tax investigations to both businesses and families, Arag will obviously be watching these developments closely.

As well as representing the business in an investigation or dispute following a compliance check by HMRC, all of Arag’s commercial policies benefit from our Executive Suite, which includes cover for an HMRC enquiry into the personal tax affairs of a director, partner or senior officer of the organisation.

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