In this edition of RSM’s weekly round-up of the most important tax news, we consider what tax changes might be included in next week’s Budget. In the paragraphs below, we summarise some of the bigger tax issues. All the detail is contained in this document which we hope you will find useful.
When he delivers his Budget Statement on Wednesday 8 March 2017, the Chancellor of the Exchequer Philip Hammond faces a paradox. In the medium term, he may have little choice but to raise taxes, but in the short term he will be well aware that the bewildering range of tax changes introduced by his predecessor have left businesses and individuals alike suffering from tax fatigue. So what can we expect?
Decent economic figures may give Mr Hammond some confidence about the short-term direction of travel in the UK economy, as will January’s record tax receipts. Nevertheless, the Budget Statement will reflect the continuing need to rebalance the public finances using a combination of expenditure cuts and tax increases. However, the Government’s promise not to increase rates of VAT, income tax or NIC during the current Parliament limits the Chancellor’s ability to increase taxes in a straightforward way. It’s therefore difficult to escape the feeling that any tax increases will be narrowly focused, technically complex and somewhat hidden from sight. When the Conservatives were in opposition, those were called 'stealth taxes'.
Whatever else he does, the Chancellor must address public concerns about social care and also tackle the perceived shortfall in NHS funding. There are arcane thoughts that this might involve hypothecation – the attribution of specific taxes for specific purposes – with part of NIC receipts specifically and visibly directed to the NHS. There are also less arcane, downright alarming really, rumours that the Chancellor may be considering a 10 per cent 'death tax' to help fund social care.
While the Chancellor has been careful to distance himself from the business rates debate, the imminent revaluation is causing considerable concern in the business community. Some feel that, as tax receipts are buoyant, the Chancellor could afford to give extra relief to the worst-affected businesses. With local authorities now sending out business rates demands, others feel that any further changes now would only cause confusion. During Prime Minister’s Questions in the House of Commons this morning, Theresa May indicated that funds are being put in place with the Chancellor looking at ways to help businesses in the Budget next week.
It’s also beginning to look likely that the Chancellor will usher in a review of the way the self-employed are taxed, to sit alongside a consultation on the gig economy. Ways of working are changing, and the tax system may now need to move quickly to catch up.
With many owners of small businesses acutely aware that income tax is paid on profits at a headline rate of 45 per cent, whereas corporation tax is charged at only 20 per cent, incorporation is an attractive means of reducing the tax bill. In marked contrast to Gordon Brown’s strategy, which boosted incorporations by offering a zero per cent starting rate of corporation tax, we may well see Philip Hammond take action to reduce the tax benefits of incorporation.
So what does all this mean? In summary, we expect to see progress in or finalisation of measures proposed in earlier Budgets and Autumn Statements. These will, we hope, include revisions to HMRC’s plans to Make Tax Digital, which have come in for criticism from many directions. However, there is a growing feeling that there will be relatively few completely new tax proposals from the Chancellor. Never has the prospect of a boring Budget seemed so attractive, although the prospects of that recede as Budget Day comes nearer!
My tax colleagues at RSM keep their fingers on the pulse and have prepared a summary of our Budget 2017 predictions, showing what we are confident will be announced, what we might reasonably expect to see and what at a stretch could be announced. We hope you find this useful. Do contact us if you’d like more comment on any aspect of this.
In our Tax Brief next week, we will provide details of media support which will be available on the day.
For more information please get in touch with George Bull or your usual RSM contact.