1 A disappointing budget for tax advisers, as lacking in measures, but a good one for small businesses as no new ‘nasties’ apart from ending indexation allowances for sales of chargeable assets in companies.
The pressures on Philip Hammond, the Chancellor, nicknamed “Spreadsheet Phil”, for the forthcoming budget on 22nd November are considerable giving the political problems the Government is encountering currently.
The Chancellor has opted, it would appear, to forego reducing the monthly deficit on public expenditure and is trying to emulate Labour by increasing public investment and pay and this is likely to feature in the budget statement on 22nd November.
It is likely therefore that there will be measures to increase the tax burden to finance this additional expenditure. Relatively easy targets would appear to be as follows:
- Reducing the limit for VAT registration down to £25,000 per annum. The logic in this situation is that a lot of businesses nearing the threshold currently of £85,000 are put off expanding which is solved if the VAT net is broadened the to include small businesses, and so raise raises VAT revenue on those small businesses turning over between £25k and £85k.
- There has long been talk about reducing the income tax relief for higher rate tax payers and this would give rise to significant amounts of money if the relief was restricted to 20% instead of 40%.
- Venture capital trust investments – the reliefs here are extraordinary generous to higher rate tax payers and the Chancellor could curb these or significantly reduce these, and raise £200 million by so doing.
- The Treasury see SME businesses ripe for increasing the tax burden on. In the March 2017 budget Hammond originally proposed to reduce the dividend allowance to £2,500 from the original figure of £5k only introduced the previous year by Chancellor Osborne. This didn’t happen because of the June election but is highly likely to be introduced in this budget.
- The Chancellor also attempted to increase national insurance on the self-employed which had to be withdrawn due to a 2015 Election promise not to increase tax rates in the Parliament. This measure could be reintroduced to ensure that self-employed pay more national insurance so as to benefit from benefits that employed people do.
- There could be restrictions on the way freelancer contractors are taxed. They could be forced to become employees of the firms they work for which would bring them into being taxed or increased national insurance contributions.
- Other reliefs that could possibly be restricted include Enterprise Investment Scheme and modifying Entrepreneur’s relief to show that the Chancellor is on the side of a higher proportion of individuals that are employed.
The above all increase the tax yield. Conservative governments have traditionally advocated lower tax and smaller government but this one seems to have given up on that. Inflation is running high and people’s pay packets have yet to show real increases. Tax giveaways would appear to be restricted as follows:
- Increasing personal allowance to take more people out of tax.
- Introducing lower rates of income tax and national insurance for young people. A precedent was set by introducing the Lifetime ISA for people aged under 40 and below last year so this measure could be introduced.
- Stamp duty reductions for first time buyers might feature as part of a package to help young people and make houses more affordable. There is talk of stamp duty being payable by the vendor of a property instead of the purchaser and this would have the attraction of being tax neutral.
With Mrs May being encouraged because of the weakness of her position to now be bold and bring in new members into Government to refresh the current ministerial positions, Philip Hammond might also be emboldened to bring in a number of the above steps to make his mark which was tarnished by his first budget. Otherwise he faces an uncertain future.
Written by Stephen Sellers