Budget 22 November – predictions

The Chancellor will deliver the second Budget of 2017 on 22 November.

Our view is that it could be one or two things. Either it could be a “steady as you go Budget”, no doubt making a number of small legislative changes, or it could be far more radical and seek to raise taxes overtly rather than covertly. Much of the detailed content is already known following a series of consultation documents and discussion papers over the past year or so. In many cases, draft legislation has been published for technical consultation, and we are expecting little more than a confirmation that the government intends to include the legislation in the Finance Bill 2018. So, what are the main areas that we expect the Chancellor to focus on?

Avoidance and evasion

As always, this is highly topical, particularly following the publication of the so-called “Paradise Papers” only a couple of weeks ago. We expect to see further detailed changes tackling certain tax avoidance schemes, and also some general measures. It is likely that there will be new penalties for offshore non-compliance, a requirement to notify HMRC of offshore structures, and details on tackling non-compliance through avoidance and evasion in the economy. Finally, we expect VAT to be brought fully into the disclosure regime and completely aligned with DOTAS.

Business tax measures

We expect a response to the consultation to extend corporation tax to non-resident companies. We would also not be surprised to see changes to the transfer pricing rules, in response to the consultation which closed on 18 August 2016. We hope that this will not bring an onerous compliance burden on SMEs, although it is an obvious area for the government to focus on.

Compliance

The making tax digital programme has been chaotic, and has already been put on hold once. We expect final versions of the draft regulations to implement quarterly reporting, and draft regulations issued for the implementation of MTD. There is also likely to be consultation on penalties for inaccuracies promised as part of HMRC’s MTD and hidden economy consultations.

Employment

Following the Taylor Review, we would not be surprised to see further efforts to align the employment status of self-employed people working in the so-called “gig economy” with that of normal employees. This has clearly been in the news a lot lately with a number of high-profile cases surrounding employment status. It is likely that there will be an announcement on draft legislation about the proposal to transfer PAYE and NI liabilities to employees involved in disguised remuneration schemes and other forms of non-cash payments. There is also likely to be draft legislation on tax relief for employees’ business expenses.

R&D and exploitation of IP

It is possible that further details of the review that was announced in the 2016 Autumn Statement will be given, although it may be that the recent launch of HMRC’s consolidated collection of R&D materials concludes its work in this area. We do not expect to see significant changes to the R&D tax credit regime, although we would like to see further clarification and an extension on the definition of intellectual property for tax purposes (at the moment it is too closely linked to exploitation of patents rather than IP in general).

Owner-managed businesses

Following a major review on the taxation of partnerships/LLPs, we expect to see confirmation that the draft legislation to amend the rules concerning the allocation of partnership profits will be included in the Finance Bill 2018. If this happens, any business operating as a partnership or LLP will need to quickly review its structure to determine whether a move to a corporate structure might be more beneficial.

We also expect to see a government response on streamlining the online assurance process concerning venture capital schemes and giving more certainty and clarity to companies looking to raise capital in these circumstances.

A few wild cards

There have been calls to radically reform SDLT in order to free up the housing market. Suggestions have been made that SDLT could be significantly reduced or even abolished, and replaced with some form of enhanced council tax (maybe going back more closely to the old property rates system). We consider that this is unlikely given the changes already made to SDLT to make it more gradual rather than chunky.

We have been predicting for some time, despite pledges made by the government, that one of the easiest ways to raise tax whilst giving some element of discretion as to how it is paid, is to raise the standard rate of VAT. We still think this would be a wise move and we suggest that the standard rate of VAT should be increased from 20% to 22%.

Finally, we would like to see some changes to capital gains tax, making entrepreneurs’ relief more certain, and the annual lifetime limit being increased from £10 million to £15 million.

We will be producing a detailed commentary as soon as the Chancellor has presented his Budget speech, and will then be issuing updates as the Finance Bill is published and debated.