Autumn Budget: Is The VAT Threshold Going To Reduce?
What's the Chancellor going to announce?
POSTED BY JONATHAN VOWLES ON 23/10/2018 @ 9:00AM
It is that time of year in the business community when speculation grows about the contents of the Chancellor's Autumn Budget speech. This year the Budget is set to be announced on 29th October 2018 ...
The Autumn Budget will be announced by the Chancellor on 29th October 2019!
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With Brexit looming, this might not be looked forward to with eager anticipation, but the Government has made some big pledges such as £20bn in extra money for the NHS and that the personal allowance and threshold for 40% tax will steadily rise.
Interestingly, both of those pledges are spread over time, which means that the Chancellor only needs to find about £5bn for the NHS this year!
There are some big uncertain costs on the horizon all to do with Brexit and quite what it will cost and what the UK government will have to do to replace EU spending with UK spending. Remainers will be hoping for some sort of Brexit dividend or saving to be made, but this is a controversial point and may not happen.
Clearly, the government needs to think about what changes to make, but also about the effect of those changes. Making the UK a better place to locate international businesses and be more attractive than mainland Europe might be part of that.
What might happen to taxes? In a recent speech, the Prime Minister said: "taxpayers will need to contribute a bit more", so we can expect tax rises, but what and where?
Will tax on tobacco and alcohol to go up?
They nearly always do, but last year there wasn't an increase on beer and wine. Go shopping the day before!
Will the cost of petrol and diesel rise? This is unlikely as we have had a recent pledge not to, but he might signal a future increase.
Will the UK VAT registration threshold change?
It is currently quite high at £85,000; the German VAT registration threshold is just over £15k and the French one a bit less than £30k.
Reducing the VAT threshold to £40,000 would increase the VAT take by about £1.5bn, which is quite a nice increase for the taxman! It is politically a smooth move and wouldn't cost the taxman more to administer.
It would also go towards levelling the playing field for small businesses. The Government has done a lot of research including a public consultation in Spring 2018 on reducing the threshold which makes this a high probability!
Will National Insurance change for the self-employed?
This was announced several years ago and then withdrawn amidst lots of political point scoring. Having another about-face and putting it back on the agenda might be embarrassing for the Government, so this is a bit of a long shot, but might happen.
Will tax relief on pensions be tweaked?
The two possible opportunities are to reduce tax relief on pension contributions to 20% and/or to reduce the annual contribution maximum from its current £40,000pa.
Will a new eCommerce tax happen?
How to tax eCommerce is a worldwide issue and one that I am sure the Chancellor sees as a golden goose! Expect either a new tax to be announced or consultation on one to be introduced later.
Will IR35 be extended?
IR35 was tweaked to tax more people who contract with Government departments through their own personal service companies and it has been a bit of a winner for the taxman, even if it hasn't always worked out for the Government department concerned.
Will they extend the rules to every business and include public sector contractors? This was consulted on in 2018 and therefore it has to be a reasonable chance that this will happen. Although I hope that the rules are substantially corrected if they do as the current rules lead to several inequities.
Making Tax Digital is the taxman's flagship programme to make it easier and cheaper for them to collect money from business. Expect it to be trumpeted again. Also, the taxman believes that going digital will cause fewer mistakes and raise the tax take. The Chancellor could set an expectation that the April 2019 changes to how VAT is reported are going to raise money!
The rate of corporation tax is due to reduce by 1% in 2019. Delaying or stopping that reduction will save around £3bn, so this is a possibility. However, contrast this with the requirement to make the UK an attractive place to do business. So, it might stay or it might go!
Canada has just legalised Cannabis which means they are now taxing it! The Canadian taxman is set to earn $5bn a year from this. This is a bit of a longshot, but will the Chancellor announce a change or a consultation? We will have to wait and see!
Speculation on the budget is all well and good, but really the issue is what does it mean for you? If the VAT registration threshold reduces, then lots of small businesses will need to take action to get ready for Making Tax Digital and getting VAT registered.
"This is a practical point, but if this happens, and you are caught, speak to your accountant straight away!"
If you'd like to find out more about how the Chancellor's Autumn Budget may affect your business then do give me a call on 01234 752 566 or click here to ping me an email and let's see how I can help you.
Until next time ...
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I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.