The Chancellor’s Spring Statement has been billed as a low-key response to forecasting and growth figures. However, with the potential release of a number of key consultations on a variety of issues, the devil may prove to be in the detail.
Insiders have predicted that the Chancellor is likely to be on his feet for less than 15 minutes (a quarter of the time spent on the average Budget speech) responding to the latest growth and productivity figures. The government has promised a ‘zero tax’ fiscal event tomorrow, but this very much depends on the definition of zero tax. And also their definition of promise.
In announcing the creation of the statement, Philip Hammond left himself room for manoeuvre by stating that there would be no changes "unless the economy needed it".
AccountingWEB takes a look at the newest economic show in town and examines what could be announced in its aftermath.
What is the Spring Statement?
In November 2016, Philip Hammond announced the abolition of the annual Budget in March. It would be held in the Autumn instead, with the current Autumn Statement scrapped. The Autumn Budget would be the one and only major fiscal event of the year.
However, the Office for Budget Responsibility (the government’s fiscal watchdog) is still legally mandated to produce two forecasts a year. So rather than changing the law, the government will allow the OBR to continue to update its forecasts in March and will respond to those forecasts in this Spring Statement.
How reliable are the forecasts?
The Spring Statement is, in theory, all about the state of the UK economy (borrowing, debt, productivity etc.) and projections for the future.
According to Carl Emmerson, deputy director of the Institute for Fiscal Studies, the figures are looking better than at any time during Hammond’s time at 11 Downing Street.
Thanks to tax revenues holding up better than expected, the UK is forecast its first current budget surplus, ie, borrowing just for investment, since 2001–02, and borrowing this year should come in at least £10bn below the forecast from last March.
However, speaking to AccountingWEB, RSM’s senior tax partner George Bull was sceptical on whether this would lead to Philip Hammond announcing an end to austerity and a loosening of the Treasury purse strings.
“The Chancellor has a big problem: the reliability of economic forecasts,” said Bull. “The history of growth projection inaccuracy shows how difficult it is to make economic forecasts. Every six months you see this hockey stick curve going up predicting growth, and then six months later, in reality, it didn’t get off the ground, but another hockey stick is produced. The reality is just a jagged line at the bottom of the graph.
“The Chancellor needs to spend more, but can only do it if he has reliable data on which to base his decisions,” continued Bull. “If we get buoyant projections but cautious plans, then this shows the Chancellor doesn’t believe.”
Will there be (another) VAT review?
The previous Budget saw a raft of speculation around a potential reduction in the VAT threshold. Eventually, the plans amounted to nothing more than a red herring, but the potential opportunity to bring in a major increase in the amount of VAT raised by the Treasury, at relatively lower cost than other taxes, means this is issue unlikely to go away.
This time around, the mood music isn’t quite so drastic but the FT reports that Philip Hammond is planning to announce a review into the problem of the VAT threshold holding back the growth of small UK companies.
According to those briefed, the “call for evidence” will examine ways of tapering the introduction of VAT, so small companies do not face a massive disincentive to increase their turnover beyond the £85,000 threshold.
Will there be movement on IR35 for the private sector?
The Autumn Budget confirmed rumours of a consultation exercise about rolling out the IR35 tax rules to the private sector, but no document has so far been forthcoming.
However, given the prevailing mood in Whitehall around the apparent success of the rules in the public sector, a consultation on extending the regime to the private sector seems almost inevitable.
Any such paper is likely to provoke widespread controversy, given the response of contractors, contractor organisations and accountants to the rules. In an article for AccountingWEB Dave Chaplin, CEO for ContractorCalculator called the legislation “misjudged and damaging”, and called for the government to repeal the reforms altogether.
Will there be further Making Tax Digital developments?
While some of the details around the government’s digital taxation scheme are beginning to emerge, further clarity will be welcomed by all in the accounting community.
MTD for VAT is currently due to start on 1 April 2019, with the regulations recently passed. Financial Secretary to the Treasury Mel Stride has indicated that MTD for income tax and corporation tax will not be introduced before April 2020, and speaking to AccountingWEB last week Tolley’s consultant Andrew Hubbard did not rule out a further delay.
A number of tax experts AccountingWEB spoke with are also predicting the emergence of an MTD for complex businesses consultation.
Mazar head of tax Eric Williams commented that it will be interesting to see if the Spring Statement brings further news on how MTD will be implemented for income and corporation tax, and whether there will be any exception from corporation tax MTD for larger businesses in the same way as has been indicated for larger partnerships with respect to income tax.
What property tax announcements should we expect?
Although the anti-forestalling rule aimed at bringing non-UK resident owners of UK immovable property within the scope of UK corporation tax applied from 22 November 2017 there is currently no draft legislation for this measure. The first draft of this legislation is expected after the Spring Statement speech.
Consultations to expect - in italics = not certain
- IR35: public sector rules expand to private sector
- Rent a room relief
- MTD for complex businesses
- Gaming duty
- Impact of VAT and air passenger duty on tourism on Northern Ireland
- Single-use plastics waste
- Extending time limits for offshore non-compliance
- Petroleum revenue tax treatment of retained commissioning liabilities
- Securing debt in insolvency: extension of security deposit legislation
- VAT: fraud in labour provision in the construction sector
- Capital gains tax entrepreneurs’ relief: relief after dilution of holdings
- Corporation tax: non-UK resident companies’ UK property income and certain gains
- VAT: consultation on the design of the registration threshold
- Taxation of trusts
- Insolvency and phoenixism risks
- Intangible fixed asset regime
- Encouraging compliance by users of digital platforms
- Enterprise investment scheme fund
- Extending the scope for employees and self-employed to claim tax relief on self-funded training
What are you expecting to see from the Chancellor’s first Spring Statement? And what would you like to see?
About Tom Herbert
Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have any comments or suggestions for us get in touch.