Philip Hammond will present his 2018 Budget Statement on Monday 29 October. This has been brought forward to avoid a clash with the potential fall-out from the final Brexit negotiations, which are timed for mid-November.
What are we expecting in this Budget? The draft Finance Bill 2018-2019 was published on 6 July, which sets out many of the tax changes which will take effect from April 2019 or April 2020. However, the detailed tax rates and allowances for 2019/20 were not included in that draft legislation, so there is plenty of scope for surprises.
The Chancellor is required by law to respond to the twice-yearly forecasts produced by the Office of Budget Responsibility (OBR), and his responses are incorporated into the Autumn Budget and Spring Statement.
It will be interesting to read the latest OBR report on the economic and fiscal outlook, as that will have been written before the outcome of the Brexit negotiations is known. Is it possible that we could see a second mini-Budget to adjust the figures should there be a no-deal Brexit?
No tax cuts
The Institute of Fiscal Studies has made it clear that there will be no “Brexit dividend”, as the government’s own numbers show that Brexit will weaken its finances.
Hammond needs to find the money to pay for Brexit and for spending promises made by other ministers, in particular the extra £20bn per year for the NHS announced by Theresa May. There is also the long-term problem of how to pay for social care.
The FT has reported that in a private meeting with finance leaders Hammond said he would not cut business taxes for several years, and that “the current low US tax rates were unstainable.” This may indicate that the proposed corporation tax cut to 17%, due to apply from 1 April 2020, will not go ahead. The UK’s current rate of corporate tax of 19% puts it into the category of “tax haven” for the law of some countries, notably the Japanese.
The most anticipated announcement in the Budget for AccountingWEB readers will be whether MTD for VAT will be mandated as planned for VAT periods beginning on and after 1 April 2019. It is an open secret that the minister needs to make a decision on this project in October.
HMRC is fairly gung-ho and believes that its end of the system is working. However, the pilot project is still in private beta and the APIs have only tested live data from domestic transactions. Although dummy data for international transactions, partnerships, VAT divisions, members of VAT groups, annual returns and overseas traders has presumably been tested within the HMRC sandbox, this does not adequately stress-test the system from end to end.
Many businesses, and some accountants, have yet to wake up to the fact that VAT return processes are changing from April 2019. HMRC’s communications about MTD for VAT have so far been very muted, and the mechanism to apply for an exemption from MTD for VAT won’t be set up until January 2019 at the earliest.
The other much-anticipated announcement is how the IR35 rules will be amended, and whether the changes will take effect from 6 April 2019. The consultation on off-payroll working (as HMRC refer to IR35) closed on 10 August 2018, so we expect a response to be issued in this Budget.
There have been rumours that the 5p plastic charge may be doubled to 10p, and its scope widened to include all shops, not just businesses with over 250 employees. This change would only affect the carrier bag charge in England, as plastic bags are a devolved issue, so the rules are different in Scotland, Wales and Northern Ireland.
Instead of just fiddling with definitions and rates for old taxes, Hammond may succumb to the temptation of inventing a brand new tax. A consultation on single-use plastics closed in May 2018, so could we see a coffee-cup tax.
Waiting for news
Other consultation outcomes we are waiting for include:
- Employment status – making tax and employment rights rules clearer
- VAT registration threshold – could this be reduced from April 2020?
- Cash and digital payments
- Self-funded work-related training
- HMRC’s civil information powers – this consultation closes on 2 October 2018, so there is still time to submit comments
We have also been promised, for several years now, consultations on MTD for corporation tax and MTD for complex businesses such as large partnerships. Have these issues been pushed onto the pile marked ‘too difficult’?
If you have any ideas about what the Chancellor should address in his budget you have just a few more hours to send in your representations.
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.