In his November 22 budget statement, Hammond could announce
a cut in the VAT registration threshold for businesses as part
of his VAT plans, which was recommended by the Office of Tax
Simplification (OTS) in a recent report.
Drastically reducing the UK’s VAT registration
threshold for small businesses – which stands at an
unusually high £85,000 ($111,000) – would be
unpopular but it would raise £2 billion per year for the
UK if it is dropped to £25,000.
"The high UK threshold relieves the administrative burden of
VAT compliance for small businesses," said David McDonnell, VAT
director at MHA MacIntyre Hudson. "It also creates very
real net savings in not having to charge and account for VAT on
"One of findings of a review by the OTS was that, perhaps
unsurprisingly, there are a large number of business
'bunched’ just below the VAT registration
threshold, with a significant fall off in businesses trading
just above the threshold," he added.
Lowering or eradicating the VAT threshold could increase
revenues for the government, but also complicate business
practices. Conversely, by significantly increasing the
threshold, doing business would become easier, but government
revenues may suffer.
"In the challenging pre-Brexit environment they may
decide to keep the status quo, for now at least," said
McDonnell. "But the issue is now firmly on the agenda and
we shouldn’t be surprised if the chancellor acts
quickly to shake things up."
The chancellor is shouldering extraordinary political,
fiscal, media and economic pressure as the UK battles with a
budget deficit the government had promised to eliminate years
ago, monumental changes to its finances and tax system from
Brexit, and a customs system which is unprepared to trade with
the EU as a third country.
"I can’t remember – ever – a
chancellor being under this much pressure… so many
rocks, so many hard places," said George Bull, senior tax
partner at RSM UK. "He might just go for broke."
One senior government official told UK newspaper The Sunday
Times: "This budget has got to be big, it’s got to
be powerful, it’s got to be revolutionary", adding
that "people are very clear that it is basically the last
chance" for Hammond.
However, Hammond has a reputation for being cautious, both
politically and fiscally, and after being roundly criticised
from all angles for his spring budget he is reticent and may be
reluctant to make major changes.
Hammond backed the Brexit campaign to remain in the EU, so
if he loses his job following a budget perceived as poor
– and it almost certainly will be portrayed as so in
the media – a Brexit-backing colleague could take his
place. Many fear this would jeopardise the economy further.
Further VAT changes – 'split payment
The chancellor is likely to announce a new measure, or at
least the results of a consultation, aimed at establishing
alternative methods of collecting VAT on goods bought from
online companies such as Amazon and eBay.
The UK revenue authority, HMRC, could be empowered to
extract VAT directly from transactions at the point of
purchase, assuming that the sales price on the marketplaces
includes VAT. Under this method, banks or the marketplaces
themselves would withhold the cash on HMRC’s
In this situation, "the UK government will automatically
collect VAT from [such companies] on the assumption that they
should be paying VAT", said Brad Ashton, an indirect tax
partner at RSM.
Likely corporate tax changes
The budget is likely to be fairly quiet on corporate tax.
Hammond’s predecessor, George Osborne, had
publicly expressed his desire to lower the UK’s
corporate tax rate – which stood at 30% just 10 years
ago – to 15%, and the rate is currently 19% and
scheduled to fall to 17% in 2020.
While the UK corporate tax receipts have reached record
levels despite the falling rates – many argue that the
two are linked, others attribute the increase to the BEPS
project – Hammond will want public finances on a solid
footing ahead of Brexit and is unlikely to cut corporate tax
further. The rate is already competitive, as within the EU only
Ireland and Hungary having lower rates.
Trouble in paradise for personal income tax?
One area where we can expect to hear Hammond talking tough
is on tax avoidance. The
Paradise Papers, released by the International Consortium
of Investigative Journalists on November 5, have angered many
members of the public as it appears that the wealthy –
or the '1%’ – are paying less tax than
Almost all of the activity revealed in the Paradise Papers
is, of course, legal. But don’t expect this to
stop Hammond condemning such practices in strong terms to
ensure he appears strong on the issue.
He is facing political pressure from opponents such as
Labour MP Margaret Hodge, former chair of the UK Public
Accounts Committee, who said Hammond should use the budget to
"compel our overseas territories and crown dependencies to
publish public registers showing us who owns what and
"The Paradise Papers showed us that the problems created by
secrecy are much bigger and more complex than we ever thought
possible," she added. "That’s why we need to
legislate for transparency in our tax havens."
It’s unlikely that he’ll make
significant changes to legislation in this area, though, but we
can reasonably expect some movement on rules governing payments
and benefits made from offshore trusts intended for UK-resident
individuals in some situations. On the whole, most legal
practices evident in the Paradise Papers will remain legal.
"The top 1% are paying approximately 27.1% of all income
tax, however the perception is they’re getting
away with low taxes," said Gary Heynes, head of the private
client practice at RSM in the UK. "Most people are already
caught by existing rules – the exception is
"There’s enough legislation around offshore,"
More likely to be announced in the budget are changes to
employee business expenses, for which the government called for
evidence in the
spring budget 2017. Employer-provided accommodation will
likely be subject to a call for evidence as no rules were
changed in the spring following an announcement in the previous
autumn budget 2016.
Also likely to be announced, or released are an examination,
is legislation on partnership taxation, rent-a-room relief, and
rules to address fraud on labour provision in the construction
sector. Measures against disguised remuneration-avoidance
schemes are also likely following a number of high-profile
cases, such as the
The gig economy and the Taylor Review
Another area of personal taxation where it’s
possible the government will make changes is national insurance
contributions for the self-employed.
The Taylor Review, released in July,
suggested big changes to the UK tax system to ensure that
it keeps pace with modern working practices – i.e. the
'gig economy’ – and recommended that
digital tools for the self-employed and gig economy businesses
be included in HMRC’s Making Tax Digital programme
and, more drastically, overhauling the tax system to influence
behaviours and address the hidden economy.
It’s doubtful that the Treasury, grappling with
hundreds of Brexit-related tasks, has had time to come up with
a meaningful plan in this regard, but Hammond could set the
The potential for tax changes is high in next
week’s budget, but the question is whether Hammond
will deliver or disappoint.