GAVIN YOUNG
This time last year Philip Hammond, trying to shake off his straight-laced image, gave a comedy turn, joking that he was presenting his first and last Autumn Statement as Chancellor before delivering the punchline: “Mr Speaker, I am abolishing the Autumn Statement.”
A year on, the Chancellor may don a magician’s cloak as he attempts to conjure up a Budget capable of delivering a political boost for the Government.
So, what might be in his box of tricks?
The self-employed are likely to see some of the biggest changes. After rowing back in spring from increasing National Insurance (NI) contributions, a rise could be back on the cards to create the illusion of a more level playing field between those in employment and the self-employed despite the latter not having employment rights as a safety wire.
Should a hike be confirmed, sole traders will have to think carefully about whether they are better off being self-employed or forming a limited company, especially as the corporation tax rate is falling. However, such a choice could be a magician’s false mirror if off-payroll working rules - already applying to contractors in the public sector – are extended to contractors in the private sector.
As well as reducing the income of contractors, the extra level of bureaucracy created for employers may make them less likely to hire contractors in the future.
Any lowering of the VAT threshold would also have a significant impact on the self-employed. According to reports – and I have my doubts as to the likelihood of this – the amount a trader can earn before paying VAT could be slashed from £85,000 to about £20,000 to raise more funds for the Treasury. While such a move would be fairer for businesses just over the current threshold, it would lead to increased administration for sole traders.
A Budget raid on older generations has been mooted to introduce tax breaks for younger workers and tackle intergenerational unfairness. Under the changes, employees in their 20s and 30s would have their NI contributions covered by cutting pension tax relief for older and wealthier workers.
As part of the plans, it has been reported that the Chancellor is considering a temporary stamp duty ‘holiday’ for first time buyers who are struggling to get a foot on the property ladder and face soaring rents.
This could be the beginning of further moves to reform stamp duty and boost property transactions. According to recent research, stamp duty is suppressing the property market by preventing older homeowners from downsizing and stopping growing families from buying bigger homes.
While any such changes would not be applicable in Scotland, there may still be an impact north of the Border. The Land and Buildings Transaction Tax (LBTT) is not raising as much income as expected and the recent rise in interest rates could create a “squeezed middle” in Scotland who either can’t afford to upgrade or can’t access the housing stock they need.
Reducing the opportunities for tax avoidance has been a mainstay for successive Chancellors and is highly topical following the release of the Paradise Papers. Additional anti-avoidance measures could be accompanied by a political fanfare as well as produce some much-needed funds for the Treasury.
In the same vein, the tax incentives of the Enterprise Investment Scheme, which provides tax relief for investments in high risk companies plus capital gains tax exemption upon disposal of shares, could be reduced. While EIS is critical in encouraging investment in start-ups, it is viewed by some as a way for the wealthy to reduce their tax bill and so is more likely to be trimmed rather than disappear in a vanishing act.
None of these potential changes is likely to do much to bolster the Government’s coffers amid the continuing uncertainty around Brexit, but Phil’s magic act could at least provide positive political smoke and mirrors whilst maintaining the magician’s code of not giving too much away.
Gavin Young is a partner of Johnston Carmichael.
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