As Chancellor Phillip Hammond prepares to deliver the 2018 UK Budget on Monday, eprivateclient compiled the top six talking points from the private client industry.
1. Ditch the digital services tax
One of the main topics of discussion within the industry is Mr Hammond’s declaration that Britain will impose a new digital services tax with or without the cooperation of other countries, criticising US tax reforms for stalling international progress. Technology companies have warned the Chancellor that they will pull post-Brexit investment from the UK if he goes ahead with a tax on digital sales in the budget.
But Miles Dean, managing partner at Milestone International Tax said, “inventing a digital sales tax isn’t the answer to the reality that Mr Hammond needs to raise revenue”.
"It is evident that a consensus around taxing digital firms cannot be found – Action 1 of the OECD's Base Erosion Profit-Shifting (BEPS) project is very clear on this.
“At a time when the UK must pull out all the stops to attract inward investment with Brexit looming on the horizon, it beggars belief that a Conservative Chancellor should contemplate levying a brand new tax on companies that have already invested heavily in the UK, employ thousands of people and whose total tax contribution is very often overlooked,” he said.
Similarly, Lucy Brennan, partner in the private wealth group at accountancy firm Saffery Champness said the government will be “wary” of driving businesses into the “welcoming arms” of other jurisdictions such as Ireland, as the Chancellor has signalled he is ready to accelerate beyond the EU and OECD on a digital services tax.
2. Pensions tax relief politically dangerous
Cutting pensions tax relief is a topical subject which Ms Brennan said “is already incredibly tight in real terms and any significant reform will shove the Chancellor into a political minefield”.
Raiding pensions tax relief has tempted Chancellors before, but it just “lumps the problem on to the younger generation who, as well as facing a difficult housing market, will then also face an unfavourable pension saving regime.”
At the same time, the Chancellor could announce changes on inheritance tax, but with the OTS review ongoing it seems more likely that the Chancellor will “bide his time before severe changes are made”, she explained.
3. Nothing to see here
Melissa Geiger, head of international tax at KPMG UK said, she is “fairly optimistic” of a “relatively quiet” budget that maintains the UK’s competitiveness and attractiveness as a place to do business, leaving the Chancellor with options to respond later on to Brexit.
“A boost to productivity and the Government’s vision for the UK to be a knowledge economy would be welcome, but the signs are that the Chancellor is more preoccupied with the issue of how to tax the digital economy,” she said.
However, there is pressure to maintain the UK’s competitiveness and businesses will be hoping for measures that give UK productivity a boost. Ms Geiger explained that increased incentives for R&D and innovation generally deliver value for money and would fit together nicely with the Government’s strategy to make the UK a “knowledge economy”.
4. Brexit above all else
According to a pre-budget poll of business leaders by accountancy and advisory firm BDO LLP, 59 percent of respondents said finalising Brexit negotiations quickly is the single most important action that the Chancellor should take to boost the British economy.
This has risen in importance by 36 percent since last year, and far outweighs this year’s second most popular action – investing in physical and digital infrastructure to improve productivity, which was favoured by only 23 percent of respondents.
While opinion remains divided, many businesses are reluctant for the British public to be offered a vote on any agreed terms of Brexit, with 54 percent against a second referendum.
5. Keep it simple
More than half (56 percent) of business leaders surveyed by BDO would support a simplification of the UK tax system, even if this meant a rise in taxes. While there is still appetite to modify the complex tax code, this marks a decline from 2017 - when nearly two-thirds (62 percent) of businesses were in favour of such a move.
Paul Falvey, tax partner at BDO LLP, said:“We need to see further engagement between Whitehall departments and businesses in order to prepare for the consequences of a disorderly Brexit and to bolster the UK economy as it steers its way through a complex transition period.”
6. Corporation tax to fall
The Chancellor could take significant action on around Corporation Tax and National Insurance, according to accountancy firm HW Fisher & Company.
While Corporation Tax is due to fall to 17 percent by 2020, the Chancellor could reduce this further, to as little as 12.5 percent particularly if the chances of Britain crashing out of the European Union without a deal look greater than the chances of securing a deal, Toby Ryland, corporate tax partner at the firm stated.
“While I would place only 50 percent likelihood of this happening it’s entirely possible the Chancellor might announce a further cut to Corporation Tax to 15 percent by the end of this Parliament”
Tim Walford-Fitzgerald, private client partner at H W Fisher & Company, concluded: “Having realised that abolishing Class 2 National Insurance for the self-employed would leave a lot of such people worse off, the Chancellor may well look at what he can do around Class 4 National Insurance.
“Ultimately, it’s unlikely that he will want to lose much in the way of actual revenue. Given the significant backlash that surrounded the aborted plan to increase in Class 4 National Insurance rates last year, I suspect that the most likely move will be around a combination of the National Insurance thresholds and rates.”