This week Chancellor Philip Hammond set out changes to the government’s taxation income and expenditure in his first Spring Statement, many of which will have an impact on the way the UK’s small businesses operate in the future.
The main tax theme seemed to be a significant focus on consultation about the digital economy. Areas covered include:
– Investigating whether it is feasible to attribute revenue from large overseas digital businesses to the UK, so it can be taxed here. This seems very open-ended, but it should be noted that existing international tax rules do already try to apportion revenue to the appropriate country. Unilaterally applying different rules could make life rather complex, and could easily lead to double taxation.
– Automatic VAT collection on online sales, to avoid non-payment by overseas sellers. This might even extend to UK online sales as well: this would avoid the intermediaries having to differentiate between transactions, but could have wide-ranging ramifications. In theory, this should raise a reasonable amount of revenue, but could impose some awkward barriers to selling, especially if it applies to UK traders who are below the threshold.
– Having online platforms help their users to be compliant, whether by providing information about sales or by withholding tax from payments made through them. There is an obvious connection here to Making Tax Digital, but at this stage of the MTD process, it does look like a complex undertaking. HMRC are known to obtain information from such platforms already, so formalising the process and making it widespread would seem like a useful avenue to explore
Other issues which are on the table are the business rates revaluation, releasing funds from the apprenticeship levy to help SMEs, a rather open-ended conversation about the VAT threshold, and a suggestion about taxing single-use plastics.
It is good to see the Chancellor sticking to his guns and showing some resolution in tackling the country’s debt problem.
It has been tackled more slowly than originally anticipated and there are still many calls upon him to increase spending in certain areas, but progress is being made and debt is finally coming under control.
With the unexpected increase in tax receipts and a firm control on spending being maintained, the Chancellor should use this opportunity to hasten a small budget surplus so that at last he can commence a small element of debt repayment.
In my opinion, the country needs a strong economy to be able to weather the constant pessimism that pervades the media and economic forecasters in case a real unexpected event occurs which could have serious financial consequences. It is a time to maintain tight fiscal control and bring the economy back to a sound footing.
I was pleased to read that the Chancellor wants a review of VAT and the starting rate for its imposition. I gather he is looking at an incremental introduction of VAT for businesses with a turnover of £85,000. It would appear that he has a little more leeway as we ease away from the European Union.
The driver for this is the point which is blindingly obvious to us in business that some businesses are reluctant to grow turnover to an extent that they breach the threshold and then have to charge VAT which they cannot easily recover from customers who are not VAT registered.
Hence there is an attempt, by fair means or foul to keep turnover below the threshold. Where foul means are used, such as non-disclosure of income, there is a clear loss of revenue to the Exchequer. Where fair means are applied, it means that a business is not growing, potentially not taking on personnel but with the end result that again the Exchequer is losing out.
I would very much like it if the Chancellor would apply the same logic and approach to other fiscal thresholds which actually act as a disincentive to earn more money (and hence paying more tax). The major one is the £100,000 threshold for Income Tax purposes. Above this level and up to £123,000, the personal allowance is gradually abated, resulting in a marginal rate of tax of perhaps nearly 60%. Thus, those taxpayers who can make sure that their total income comes in at just below £100,000 – the Jimmy Greaves principle in practice. There are other trigger points where there is a high marginal rate of tax operating over a band of income, which acts as a disincentive to work harder and earn more.
I look forward to the Chancellor addressing these in the next year or so. I rather hope too that there will be an announcement that we are diverting the bulk of our Foreign Aid budget to the defence and home security budgets, in the light of recent events. Even with a reduced budget, I am sure Penny Mordaunt will continue to be a very effective Foreign Aid Minister.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.