22 October 2018
With just under a week to go before the Chancellor announces his Budget, the ‘will he, won’t he?’ speculation is picking up speed. Daniel Lyons, our Head of Tax Policy, joins the debate.
The current Brexit negotiations make planning for the future challenging, so we could be in for a quiet Budget. However, I’m not ruling out a few surprises given the need for NHS funding and the pledge to end austerity – and that could mean tax rises.
Here are my thoughts on some of the main taxes currently falling under the spotlight:
A promise was made to cut corporation tax to 17 percent from 1 April 2020. Cancelling this would bring in a small amount of money in 2020/21, but up to £5 billion in the following years. Some could be used to support business investment and it would still leave the UK with the most competitive corporation tax rate in the G20.
Philip Hammond has spoken openly about his willingness to introduce a digital sales tax. However, this tax is unlikely to feature in this Budget while negotiations are still taking place on a new EU-wide levy.
There’s been speculation that the Chancellor may lower the UK’s VAT registration threshold, bringing some of the three million unregistered businesses into scope. Personally, I don’t think this will happen.
Firstly, all VAT-registered businesses must implement Making Tax Digital for their VAT accounting from 1 April 2019. This is already challenging and adding hundreds of thousands of businesses with no experience of applying VAT isn’t going to help. Secondly, such a change could be difficult for HMRC to manage when their resources are already stretched preparing for Brexit. And finally, HMRC has committed to maintaining the current threshold of £85,000 until 1 April 2020.
Insurance premium tax
Until a few years ago, IPT had received little attention, with a relatively low standard rate of six percent. That has jumped to 12 percent and the tax is now bringing in £5.6 billion a year for the Exchequer.
The question for the Chancellor is whether IPT can be increased further – raising the standard rate to 13 percent would generate an extra £400 million a year – without encouraging individuals and businesses to underinsure. Although certain countries align IPT and VAT rates, I think it’s unlikely that IPT will rise again in this Budget.
Head of Tax Policy, Deloitte LLP