19 October 2018
Ahead of the Autumn Budget on 29 October, Deloitte has summarised its views on the outlook for the economy and public finances as well as its predictions on potential tax changes.
Ian Stewart, Chief Economist, said:
“The fact that the UK is running a budget deficit nine years into a recovery testifies to the damage inflicted by the financial crisis. Mr Hammond’s headroom in the Budget is limited by austerity fatigue and compounded by Brexit-induced political and economic uncertainties.”
“This year’s Budget is likely to be a curtain raiser for far bigger decisions on spending, tax and borrowing which will come after the UK’s probable departure from the EU next March. What is clear, is that it will be hard to end austerity and hit the government’s deficit target without raising taxes.”
Daniel Lyons, Head of Tax Policy, said:
“As Britain negotiates exactly how it leaves the EU, any planning for the future is clearly very challenging, which may make for a quiet Budget. However, promises of extra funding for the NHS and ending austerity could signal unexpected announcements, and taxes may have to rise. Corporation tax is due to be cut to 17% from 1 April 2020. Cancelling this reduction would bring in a small amount of money in 2020-21, but up to £5 billion in the succeeding years. Some of this extra revenue could go into supporting business investment, which would still leave the UK with the most competitive corporation tax rate in the G20, while simultaneously raising extra revenue. A Digital Sales Tax is unlikely to feature in the Budget whilst negotiations are still ongoing to introduce such a tax on an EU-wide basis.”
Gerry Biddle, Director of Business Rates, commented:
“It’s likely the Chancellor will announce yet another review of business rates, which will focus on their impact in light of recent insolvencies of high street chains. There may also be a move towards partial self-assessment for the forthcoming 2021 revaluation, which would require occupiers to fill out complex ‘forms of return’, requiring detailed information in respect of both their properties and the terms of their occupations.
“The Scottish government recently implemented a ‘Business Growth Accelerator’, which provides 12-month relief from business rates when building new commercial property or renovating a store, factory or other commercial property. The Chancellor could announce something similar for England, the cost for such a measure in the first year would be around £500m.”
A consultation into whether the government should extend IR35 rules to the private sector was launched earlier this year.
Mark Groom, Employment Tax Partner, said:
“Though we may not get full details on the measures surrounding IR35 in the private sector, we would hope to get confirmation of the start date, which I predict will be 2020 to allow sufficient time for implementation, given the scale and complexity in the private sector. However, non-compliance with IR35 is expected to cost around £1.2bn by 2022 so the alternative of an early start may depend on what revenues can be raised elsewhere.
“There could also be a separate consultation into employment status, which will look into whether or not the current case law employment status tests should be replaced, and whether ‘Limb (b) workers’* should be treated as employees in future. It’s likely these will be kept under review for the time being as changing the employment status test is complex. While changes to Limb (b) workers would be unlikely to raise material revenues currently, they could become more attractive in the future as the gig economy expands.”
The pensions system has seen significant change over recent years.
Patricia Mock, Tax Director, said:
“A period of stability would be helpful for an investment that people will typically be contributing to for many years. However, tax relief on pension contributions costs £38.6bn a year and it is possible that some restrictions on relief might be introduced to raise revenue, either by restricting the annual limit or reducing the amount of relief due. Restricting tax relief to basic rate would be hugely complex, particularly for employer schemes, and a reduction in the annual allowance might be more likely if changes are thought necessary.
“Generally we may also see some tightening of reliefs to more closely focus these to their stated objectives.
“On simplification, The Office for Tax Simplification has been commissioned to report on the possible simplification of IHT, with a report due to be published this Autumn.
“When looking at the current rules in place for individuals, and the interaction of the various tax rates, savings and dividend allowances, understanding the amount of tax due is challenging for many. This is a sentiment which was echoed in the OTS review of tax on savings income published in May, and some simplification in this area is needed in future.”
There has been speculation that the Chancellor may lower the UK’s VAT registration threshold, thereby bringing some of the 3 million unregistered businesses within the scope of VAT and raising more tax.
Daniel Lyons, Head of Tax Policy, commented:
“It’s highly unlikely that the VAT registration threshold will be lowered. Firstly, all VAT registered businesses have to implement Making Tax Digital for their VAT accounting from 1 April 2019, which will already be challenging, and adding hundreds of thousands of businesses with no experience of applying VAT could make it even more so. Secondly, such a change could be difficult for HMRC to manage when their resources are already stretched preparing for Brexit. Thirdly, in a position paper from November 2017, HMRC committed to maintain the current VAT threshold of £85,000 until 1 April 2020.”
On IPT, Daniel Lyons added:
“Until a few years ago IPT had received little attention, with a relatively low standard rate of 6%. That rate is now 12% and the tax raises £5.6 billion each year for the Exchequer.
“The question for the Chancellor is whether IPT can be increased further - increasing the standard rate from 12% to 13% would raise an extra £400m a year- without encouraging individuals and businesses to underinsure. Although certain countries align IPT and VAT rates the Chancellor is unlikely to increase IPT again in this Budget.”
Rebecca George, public sector lead partner, said:
“After the Prime Minister’s announcement that austerity is over, this Budget could tell us where extra funding will go. Our latest research shows that two-thirds of the public believe that government spending should be increased – even if that means tax rises – and 70 per cent are worried that public services will do too little to help people in the years ahead.
“That public sentiment could give the Chancellor some room to manoeuvre in seeking additional funding for public services.”
Notes to Editors
*Limb (b) workers are:
(a) Employees; or
(b) Self-Employed individuals who are not quite as independent as “fully self-employed individuals”, by virtue of exhibiting more of a dependency on, subordination to and/or lack of bargaining power with their client. In this regard, they are considered to be more vulnerable, in a similar way to employees, and so in need of some of the rights and protections afforded to employees.
Deloitte’s most recent State of the State report can be found here.
Experts from Deloitte are available now and on the day of the Budget for comment. On Monday 29 October, please call the Deloitte Media hotline on 020 7007 3333, where you will be directly connected to one of our spokespeople.
Deloitte LLP is the United Kingdom affiliate of Deloitte NWE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”). DTTL and each of its member firms are legally separate and independent entities. DTTL and Deloitte NWE LLP do not provide services to clients. Please see About Deloitte to learn more about our global network of member firms.