As chancellor Philip Hammond prepares to deliver the final Spring Budget, we take a look at the key topics that could be on the agenda for 8 March.
Changes to business rates are due to come into force on 1 April, following the revaluation of business properties and the revision of multipliers used to calculate the rates. Hammond has been facing increasing pressure to reform the system, or provide relief to businesses who will see steep rises in rates. Recently, the British Retail Consortium said that the current process “continues to discourage investment in jobs and growth”, and that reform is necessary to “fix an unsustainable system”.
Calls have been made for Hammond to bring forward to 2018 a switch from the uprating in business rates from the retail price index to consumer price index. The switch is currently due to enter into effect in 2020.
It remains to be seen how far Hammond is prepared to go, but many businesses will be eager to see the issue addressed by the chancellor tomorrow.
Corporate tax rates
While delaying or abandoning the corporate tax rate reduction to 17% by 2020 is unlikely to be on the agenda, is there a possibility that the chancellor could bring the tax cuts forward, especially in the midst of Brexit uncertainty? Richard Godmon, partner and head of tax at Menzies certainly seems to think so.
“Simply bringing forward this planned reduction would allow the government to send a clear message to the international business community that Britain is a great place to locate and invest. Ultimately, this will protect UK jobs,” he said.
Making Tax Digital
The government’s scheme to implement a fully digital tax system by 2020 has been met with some resistance by those who believe that the planned implementation schedule does not provide businesses with sufficient time to prepare.
Tax partner at KPMG in the UK Mandy Pearson reiterated this concern and said that MTD was likely to feature in Hammond’s speech.
“KPMG are fully supportive of a digital tax system; without doubt this is the future. But also like many, including the Treasury Select Committee, we are concerned that the proposed timetable for implementation is too tight, that the exemption threshold is too low and that adoption is to be by mandation rather than voluntary. Added to this, with changes due to come into effect for income tax and NIC from 6 April 2018, public awareness also seems relatively low.
“So what does this all mean? At the very least, if MTD is to commence in April 2018, then an enormous awareness campaign is required to inform the public generally. And we could very well see the chancellor start this ball rolling by announcing the proposed exemption threshold on Budget day.”
“On the other hand, the recent scrutiny around costs and timetable could plausibly lead to MTD being deferred for a year or mandation being dropped. Either way, we do expect that the chancellor will have something to say on MTD come Budget Day,” Pearson added.
Tax hikes for the self-employed
The tax system has been unable to cope with an increasing number of self-employed people in the UK, with the Treasury losing an estimated £4bn a year as a result of the gig economy. Hammond is expected to target the self-employed with tax hikes aligned with employee tax rates.
BDO tax partner David Brookes said: “Aligning the rules on NIC and income tax for the employed, self-employed and those using personal service companies would remove tax from the decision-making process. Creating a level playing field for all, this would deliver a lasting benefit of simplicity for employers and individuals, and could raise a reported £1bn for the Treasury if NIC rates for the self-employed were increased from 9% to 12%.
“The forthcoming clampdown on public sector employers using non-payroll labour could also be extended to the private sector in 2018. As the changes within IR35 take effect next month, there are reports that contractors are already moving away from public sector contracts. If the private sector was subject to the same tax regime, it would limit the public sector’s “brain drain” concerns while addressing another imbalance in employment tax legislation.”
“Should the chancellor decide to press ahead with any changes, the guiding principle needs to be moves toward simplification of the tax system,” according to Michelle Quest, head of tax at KPMG in the UK.
Quest said that surveys of KPMG’s clients have highlighted that businesses are looking for “simplicity, stability and predictability” while making business and investment decisions. This research is backed by BDO, with more than half of businesses spoken to by the firm saying they would support simplification of the tax system, even if it resulted in marginal tax increases.
Hammond has signalled support for simplification, as evidenced by his decision to move to an Autumn Budget, yet there remains work to be done.
Brookes has recommended a moratorium until 2020, or until Brexit negotiations are finalised, on “any tax changes that do not simplify the tax system”.
“A commitment to simplicity would send a clear pro-business message, allowing the government to focus on Brexit and giving businesses some certainty in uncertain times,” said BDO’s tax partner.
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