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Four areas where chancellor could tweak tax

The UK tax system remains shrouded in darkness. But with the chancellor’s Budget expected to shine a light, here are some of the tax tweaks to look out for

Even without Brexit, the UK tax system is at a crossroads. With the tax base shrinking, there is the salient question of who should pay how much tax on what.

There is also the question of which social goods we should pay for through the tax system, and whether some current tax reliefs should be reined in. After all, the cost to the Exchequer is not matched by the broader benefits they provide.

Additionally, the role of the tax system in the housing market must be considered: how it tackles social inequality and addresses issues around intergenerational fairness. 

This, coupled with the electoral, political and fiscal challenges facing the government, as well as the looming threat of a cabinet reshuffle, means Wednesday’s Budget will be given by a chancellor under huge pressure.

There is a need to restore voter confidence, to reflect the fiscal and economic needs of the UK and to impart a sense of control and order to a government that is perceived to be riven by divisions. The pressure is on the chancellor to deliver a big, bold Budget. So, what are the main tax areas to look at?

Even without Brexit, the UK tax system is at a crossroads. With the tax base shrinking, there is the salient question of who should pay how much tax on what.

There is also the question of which social goods we should pay for through the tax system, and whether some current tax reliefs should be reined in. After all, the cost to the Exchequer is not matched by the broader benefits they provide.

Additionally, the role of the tax system in the housing market must be considered: how it tackles social inequality and addresses issues around intergenerational fairness. 

This, coupled with the electoral, political and fiscal challenges facing the government, as well as the looming threat of a cabinet reshuffle, means Wednesday’s Budget will be given by a chancellor under huge pressure.

There is a need to restore voter confidence, to reflect the fiscal and economic needs of the UK and to impart a sense of control and order to a government that is perceived to be riven by divisions. The pressure is on the chancellor to deliver a big, bold Budget. So, what are the main tax areas to look at?

Personal Tax

It is unlikely there will be many giveaways, other than perhaps for first-time buyers in England and Wales, who will be hoping for a reduction in stamp duty land tax.  

It is more likely restrictions will be introduced to some tax reliefs, including on pension contributions and enterprise investment schemes.

Following the release of the Paradise Papers, we can perhaps expect further anti- tax avoidance measures to be introduced to address perceived abuse by the wealthy and internationally mobile.

The government is already committed to two further increases to the level of personal allowances by 2020. So we are not expecting any new announcements about the personal allowance in this Budget.

Corporation tax 

The UK is already committed to a low corporation tax rate of 17% in the future. With growth prospects uncertain, any change to rates is unlikely, at least for now.

However, the chancellor will be keeping a close eye on corporate tax reductions in the US, which may force his hand in the future.

Still, we could see some reform of well-established tax reliefs, such as capital allowances or research and development tax credits. Both are generous and could feasibly be cut back.

VAT 

One area to watch closely will be VAT. A recent report from the Office of Tax Simplification proposed changes to the VAT registration threshold.

The UK’s VAT registration threshold is £85,000 per year: the highest in Europe. One proposal is to decrease it to £20,000. This would have a huge effect on small businesses. It would increase prices to end users and bring more businesses into the government’s Making Tax Digital reporting regime earlier than planned.

We are also likely to see more funding for HM Revenue & Customs to continue its fight against businesses that evade taxes.

National insurance  

Employers need to keep a close eye on this Budget for clues as to how the government will respond to the Royal Society of the Arts chief executive Matthew Taylor’s look into the 21st century workplace.

In his wide-ranging review of modern working arrangements, Taylor highlighted the major problem of the mismatch between tax law and employment law.

How the government reacts to this important report will potentially have huge implications on the national insurance contributions paid by employers, employees and the self-employed.

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