Cash will always be king

09 July 2015

Andrew Hubbard

This Chancellor has found a way to bring in huge additional revenues without touching tax rates. What’s the trick?

You’ve given a commitment not to increase tax rates but are struggling to make the numbers add up. What do you do? This Chancellor has found a way to bring in huge additional revenues without touching tax rates. What’s the trick? Simple. Requiring companies with profits over £20m to pay their tax bills earlier. At the moment they pay some of their tax after their year end. From April 2017, tax on all their profits will be payable in-year. Sounds a modest-enough change. In fact it is forecast to bring in an extra £7.5bn in the two years 2017-19: enough to fund the cost of raising the personal allowance and the higher rate threshold for the duration of this parliament.

But surely this is just a timing difference? Not really. Governments work on a cash basis, so early payments create additional income. It will reverse out – but only in the year in which the economy comes to an end. At that point we’ll have far bigger things to worry about!

Could he pull off the same trick again? Well he can’t do much more about big companies – unless he moves to a system where they pay tax in advance of earning profits (let’s not put ideas into his head…!). But he could do the same for smaller companies. The effect would be less dramatic but it would still boost receipts. And what about self-employed profits – could they become taxable in-year? I wouldn’t bet against it.

It’s wonderful what you can do with figures!


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