Ahead of the Budget Announcement on Monday 29th October 2018, our Tax Partner Alastair Wilson shares his thoughts and predictions with Brexit in mind…
What do we know?
The Government have committed to giving £20bn to the NHS and someone needs to pay for that. Additionally, Fuel Duty will be frozen again. Whilst this isn’t a “cost”, it isn’t going to pay for the £20bn for the NHS either!
What do the public (and businesses) want?
People want clarity on what the actual impact of Brexit will be on goods and services (availability and cost). What will encourage overseas owned businesses to stay in the UK or to invest further? i.e. what will deliver all the upside of Brexit which we have been told will come!
What might raise the additional taxes that the Government need (but is hot air rather than actual help)?
A “Digital Services Tax” on the “FANGS – Facebook.Amazon.Netflix.Google.Starbucks” sounds good for the economy. However it will take years to implement in practice. It will require a lot of consultation to make sure that it’s not impacting UK businesses in an unintended manner.
What will the Government really do to fill the gap (the easy wins)?
They could implement the “IR35” approach for private companies. This means that the use of “false self employed” labour to reduce NIC costs in the private sector will become significantly harder. Politically, this is an easy win, as the public sector have trialled the approach. Why should the public sector have to apply this but not the private sector?
Reducing the annual allowance for pension contributions from a maximum of £40,000 a year to a lower level is an easy step. Few voters will complain about the treatment of those who can afford to put £40,000 a year in a pension!
Delaying the increase to £50,000 of the threshold where a person pays income tax at 40% was a manifesto pledge. However, there are indications that this could be delayed to fund tax increases. Philip Hammond has confirmed that tax increases may be a necessity and this would spread the burden to a small increase for a lot of people.
Removing the Employment Allowance for larger businesses (this is a NIC exemption for all businesses each year) would be an easy way to raise taxes by limiting the exemption to small, or SME, businesses.
The government could limit Entrepreneurs’ Relief to disposals of business assets relating to SME businesses. It is widely acknowledged that Entrepreneurs’ Relief is costing a lot more than the Treasury expected as it is poorly targeted. It would be easy to make the relief apply to only disposals of, for example, businesses with less than 250 employees and with turnover limits, which are criteria used widely in a lot of other reliefs.
If you would like to discuss this in further detail, please contact Alastair Wilson.