As the Chancellor gets ready for his first and last Spring Budget, tax partner, David Brookes, looks at the key issues that could and should be addressed on 8 March to support businesses and a ‘new economy’ as the UK makes its exit from the EU.
The Chancellor has talked about getting the economy ‘match fit’ for the post-Brexit world. But he must take a long, hard look at the 20,000 pages of UK tax legislation in order to do that.
The sheer volume and complexity of tax law is a major obstacle to growth, with more than half (57%) of the businesses we’ve spoken to saying they would support tax simplification even if it meant marginal tax rises.
As the Chancellor announced in December, we’re moving to just one major fiscal event per year, the Autumn Budget, as of 2018. This is a step in the right direction, which should result in less frequent change for businesses and hopefully make it easier to plan for the long term
But we think he should go a step further and announce a moratorium until 2020 or until Brexit negotiations are finalised (whichever comes first) on any tax changes that do not simplify the tax system. A commitment to simplicity would send a clear pro-business message, allowing the Government to focus on Brexit and giving businesses some certainty in uncertain times.
The Chancellor should also do a U-turn on his decision not to align income tax and NIC – a decision only discovered in a letter to the Office for Tax Simplification in November last year. It now seems likely he’ll announce a consultation on this matter before committing to changes in the Autumn Budget.
The gig economy has moved from the margins to the mainstream, with the number of self-employed people in the UK growing by 26% in the last decade.
However, the UK tax system has failed to keep up. The new business models and working patterns of the gig economy, which is reportedly costing the Treasury £4bn a year, are embroiled in a maze of employment law that is concerning and confusing for everyone involved.
Aligning the rules on NIC and income tax for the employed, self-employed and those using personal service companies would remove tax from the decision-making process. Creating a level playing field for all, this would deliver a lasting benefit of simplicity for employers and individuals, and could raise a reported £1bn for the Treasury if NIC rates for the self-employed were increased from 9% to 12%.
The forthcoming clampdown on public sector employers using non-payroll labour could also be extended to the private sector in 2018. As the changes within IR35 take effect next month, there are reports that contractors are already moving away from public sector contracts. If the private sector was subject to the same tax regime, it would limit the public sector’s ‘brain drain’ concerns while addressing another imbalance in employment tax legislation.
Controversial consultations to help pay for social care
The Chancellor will want to avoid putting up key tax rates, however we should expect to see him announce a consultation to address the long-term funding needs of social care.
BDO believes the options that may be considered for financing social care costs include: the introduction of new lower rate of NIC for individuals who continue to work after the age of 65, the creation of a ‘pensioner loans agency’ to provide low cost equity release financing to help pensioners pays towards home-based care provided by local authorities or a proposed reduction in pension tax relief for higher earners.
To find out more and read our analysis of the Spring Budget 2017, view our Budget hub.
View David’s interview where he gives his predictions for the upcoming Chancellor’s statement.
David Brookes is Partner and Head of Tax at BDO in Reading.