The Budget – 8 March – our predictions and thoughts

The Chancellor, Philip Hammond, present his first Budget on 8 March. It is the first of two this year, and the last to be held in the Spring. The Budget then moves to the Autumn, so we’ll have a second Budget this year in October/November.

We don’t expect this Budget to be very exciting, for three main reasons. First, there was an Autumn Statement only a few months ago, and little has changed since then. Secondly, the Brexit timetable is still uncertain and until Article 50 is triggered, new trade deal discussions can’t really start. Thirdly, the Autumn Budget is the most likely time to see major tax policy changes announced as the Chancellor will have been in the role for a year, there will be time to debate the changes before enactment in April 2019, and we might have a clearer idea as to the state of the economy post Brexit and some time into the Trump Presidency.

But what might we learn in the Budget?

Likely

• Re-commitment to a 17% corporate tax rate
• Re-commitment to increasing the personal tax allowance to £12,000 by the end of this Parliament
• Confirmation of the changes to how partnerships/LLPs will be taxed and a further restriction on mixed partnerships with corporate members (in response to a consultation document issued last August)
• A promise to simplify the qualifying criteria for various tax-efficient fund raising schemes (SEIS/EIS/VCT) once the EU shackles have been released
• Confirmation of changes to the VAT Flat Rate Scheme to stop perceived abuse
• Further anti-avoidance measures which will no doubt also catch perfectly legitimate transactions

Possible

• Simplification of the personal tax residency rules – the Statutory Residence Test is fiendishly complicated and unworkable
• A commitment to simplify (and rise?) VAT rates post Brexit (no longer tied to minimum rates by EU legislation)
• Abolition of the Additional Rate Tax (45% for those earning above £150K pa)
• Gradual merging of income tax and National Insurance

Unlikely

• Hypothecated healthcare tax. There is probably more concern about healthcare funding than any other public service at the moment. There is a widespread call for a specific ring-fenced (hypothecated) tax to fund the NHS, with many people saying that they would pay more tax if they could be certain that it would go directly to healthcare. But hypothecation doesn’t work. It was dabbled with in the 1970s and many people tried to withhold tax rather than it going towards defence.
• Reduction in corporate tax rate to 15% or lower to encourage trade deals. In our view this would isolate the UK from most of our major trading nations and be viewed as unfair competition and the attempt to create a tax haven. It would also widen the gap between personal and corporate taxation and there would need to be a raft of anti-avoidance legislation to prevent people using corporate structures to shelter tax.
• Fundamental overhaul of capital gains tax to tax short-term gains as income and long-term gains as capital.

Finally, our greatest wish is that we start to see a simplification and shortening of the tax code. Of course legislation is required to ensure that taxes are not avoided, but we need clarity, not ambiguity, workable solutions, and above all, certainty.