Inflation is forecast to fall in the second part of this year. Although it won’t go near the government’s target of 2%, consumers should see a significant drop, due in large part to increased stability in the price of oil and gas.
Despite this optimistic outlook, taxpayers need to brace for a protracted decline in their real-terms income following the further extended freeze on income tax thresholds announced in November, and the lowering of the threshold for the additional rate tax band. With many employees in the private as well as the public sector receiving pay rises well below inflation, most people’s available spending money will have significantly shrunk.
But while employees may not see much compensation in terms of increased pay, they could benefit from an adjustment to the company share option plan rules from 6 April this year. The benefits will be largely felt by those working in larger companies, where employers will be able to offer individuals double the previous option value at £60,000, which will be free from income tax and national insurance contributions when the option is exercised.
Other workplace developments in the future – perhaps more accessible for more workers – are potential changes to flexible working rights for employees currently being considered by parliament. The proposals for change may seem small but keep increased flexible working in the public consciousness and could have a significant impact for many employees. The new proposals include removing the condition that an employee must explain how an employer could address the effect that an individual’s flexible working hours could have on the business, which helps to shift the perspective that accommodating flexible working always has a negative effect.
The government’s support for smaller companies in the form of tax reliefs is due to change in the new financial year, as the R&D expenditure claim rate is cut from 14.5% to 10%. The government is working towards having one, simplified R&D credit scheme. However, with corporation tax at 25% next year, the actual amount being saved for business owners next year will rise, softening the blow.
For updates on these issues and more, please see our January newsletter. We will continue to monitor key developments and examine the Chancellor’s Spring Budget, so our next newsletter in April will bring you the latest on managing the impact on you and your business.