Budget: Expect help for the young and SMEs
With the quantum of the final divorce bill from Brexit still to be agreed and with expectations of a large pay out, he may throw caution to the wind and pitch in some giveaways to buy some goodwill from the voting public.
Likely beneficiaries could be the younger generation who are at the stage in their lives to decide whether to base themselves in the UK or travel further afield to continue education or take up employment. A reduction in stamp duty could be on the cards.
News that the recent quarter’s UK tax receipts have exceeded expectations will have given the Chancellor some joy and perhaps he could afford to offer a small reduction in the VAT rate.
It has been a period of long stability in the rate of VAT, with the 20% having been in effect since 2011. At 20%, it’s a lot easier to compute than the previous 17.5%, so if Philip Hammond is considering a reduction, please can he make it an easy to compute number, 15% would be good!
Another option to have a VAT giveaway would be to increase the VAT threshold from £85,000.
From April 2019 the Government’s Making Tax Digital initiative has a mandatory requirement for businesses with turnover above the VAT threshold to make digital quarterly reporting to HMRC.
So an increase in the VAT threshold to, say £100,000, would be welcomed by many small businesses which face additional administrative costs of complying. More announcements on Making Tax Digital are likely to be contained within the Budget’s small print.
Or he could offer an increase in personal allowance, which will also apply in Scotland as this is a reserved power. This could influence what is announced in the Scottish Budget with the prospect of a further divergence in the UK and Scottish income tax systems.
Any movement in the income tax space will be eagerly watched over and analysed by Scotland’s Finance Minister Derek Mackay.
With the ink barely dry on the recently released discussion paper examining the role of income tax in Scotland’s budget, he’ll need to be cognisant of the UK’s direction of travel to ensure that Scotland remains attractive to both employers and higher paid employees.
For larger corporates, a period of stability on corporation tax legislation and rates would be welcome, as forward planning and budgeting for a 3-5 year horizon already has so many uncertainties with Brexit.
Questions around what will be the extra costs of Customs Duties and how much will corporates need to absorb themselves post-Brexit will be currently occupying many minds; but no answers will be forthcoming in the short term.
Also, new complex legislation for larger corporates affecting loss utilisation and interest deductibility is still being digested and its impact on groups evaluated.
Overall, I expect this to be a calming budget for the financial markets; there are already too many disturbances.
More on the clampdown on specific tax avoidance structures is likely, even if it’s just to show the public that they are on top of the situations revealed by the Paradise Papers leaks.
Susie Walker is head of tax, Johnston Carmichael