Budget 2018: taxes
Brexit uncertainty hangs over Hammond’s tax plans
Uncertainty around the impact of Brexit and how this drip feeds into his financial projections could skew his numbers in any direction and, of course, it’s still due to happen over the last weekend in March 2019; just over 22 weeks from now.
For us tax folks, on that same weekend we have Making Tax Digital kicking in for VAT from the beginning of April 2019.
What we do know is that money is desperately needed to support the NHS, affordable housing and policing. Theresa May offered an end to austerity at the recent Conservative Party conference and this may be a hint that increased Government borrowing will be drawn on to fund the gap and the Chancellor will steer a steady ship as we all navigate through Brexit and find out what the consequences really are.
What tax tweaks might we see in this Budget?
We don’t expect any major changes for corporate tax as the Chancellor is going to have to play hard to persuade large corporates that the UK is open for business and a great place to do business from as Brexit kicks in.
The steady reduction in corporation tax rates to 17% from 2020 is still scheduled to happen and if there’s one thing large corporates want it’s certainty of tax rates so they can plan ahead. Further incentives for investment in the UK could be announced, particularly in the entrepreneurial and innovative space, to encourage investment and R&D.
On personal tax, the Chancellor could announce freezing of thresholds at which income tax starts to bite and when higher rates begin, rather than deliver on pledges made previously to reduce the tax burden on individual tax payers by 2020.
Scottish tax payers have their own rates and bands so any impact of changes in this area will be less for those of us north of the border. Reducing tax relief for pension contributions could bring in more tax revenue and it’s always an easy target to hurt the higher earners who’ll feel less pain.
There’s a strong likelihood of the Chancellor announcing changes to IR35 rules, this reform has been long expected and will redefine the lines between Personal Service Company contractor and Employee.
Another potential tax raising tweak could be lowering the VAT registration threshold, though with Making Tax Digital just about to begin, it feels too much of an administrative headache to make any changes here in the short term.
Tax on diesel cars could be another easy target for the Chancellor, but if I had to put money on the table for what I expect in next week’s Budget, I’d go for minor tweaks to provide some stability and certainty until we establish what Brexit is going to mean in practice and to buy support for the Government.
Susie Walker is Partner and Head of Tax at Johnston Carmichael