Pre-Brexit Budget Predictions

The Chancellor of the Exchequer Philip Hammond will deliver his Budget on 29th October 2018, the last one before Brexit finally happens (on 29th March 2019 at 11pm to be exact – “closing time” in more ways than one!). The date set for the Budget is earlier than usual and comes after the EU Summit, but at a time when the outcome of our EU negotiations will still be shrouded in massive uncertainty. Here, Partner Jim Meakin, and Head of Tax, provides his predictions for a pre Brexit Budget…

Higher Interest Rates

Hopes that the “end of Austerity” announcement made by Prime Minister Theresa May in her Conservative party conference will pave the way for a tax giveaway are likely to be dashed. If anything, the opposite is possible if the Government decides to loosen the purse strings on public services, especially to fund the need of the NHS. Both the Treasury and the Bank of England have issued warnings that a significant relaxation in fiscal policy will be inflationary and will lead to monetary policy being tightened – in other words higher interest rates.

Tax Relief and Pension Contributions

My “top tip” in terms of likelihood is at least a reduction in the annual allowance for pension contributions and/or a reduction in higher rate tax relief for contributions, which Mr Hammond appears to see as the State contributing more to the pension provision of the better off.

Extension of IR35 Rules

Another very high level of probability is an extension of the so-called IR35 rules. These prevent workers who are really employees acting as consultants through the medium of a limited company. The rules are widely flouted and the issue has been one of significant public interest as far as the BBC and other workers are concerned. HMRC have consulted about tightening the rules and this is particularly likely to affect public sector organisations with workers seeking to avoid the PAYE net.


The Chancellor will talk about the need to increase the housing supply, especially to those in key public service jobs, many of whom simply cannot afford to buy, and to “generation rent,” but will there be concrete proposals that will make the difference that recent initiatives frankly have not? Reports suggest the Treasury is weighing up a proposal to exempt landlords from capital gains tax if they sell to tenants who have been living in a property for at least three years. However, this sounds like more tinkering at the edges of a problem which looks sure to have an increasing significance on our society in the years to come. Mr Hammond is on record as promising to use the “powers of the state” (sounds ominous) to increase construction by 300,000 units per year. This may signal the introduction of planning powers and quota imposition on owners of development land. Almost certainly the Help to Buy scheme will be extended.


A small increase in the VAT registration threshold, as is customary, is likely, however - and extremely unlikely with Brexit on the horizon - it has previously been suggested that the Government could take radical action on the VAT registration threshold, even as much as halving it! There was a consultation earlier this year after HMRC held that the current design of the VAT registration threshold may be dis-incentivising small businesses from growing their business. Don’t hold your breath….

Fuel Duty & Insurance Premium Tax

It’s almost certain that there will be a continued freeze on Fuel duty rates and equally likely is an increase in Insurance Premium Tax to claw back some of the Fuel Duty.

Passporting Rights to the UK Financial Market

It’s essentially a given that the UK will grant EU financial services businesses temporary passporting rights to the UK market. The issue with this is that post-Brexit this will put EU financial services firms in a better VAT position than UK firms as they will be able to recover VAT on financial services provided to UK customers, but UK banks will not be able to do the same for their supplies into Europe. There’s therefore all likelihood that the Government will probably look to announce measures on how to address this discrepancy, although granting a right to recover VAT to UK financial service businesses will be seriously expensive.

Tax Avoidance

I’d also expect further – consultative or firm - moves to counter various VAT avoidance. One almost certainly to be addressed in further detail is the proposed VAT collection “split payment” rules, which will have to be applied by online shopping platforms or merchant acquirer to identify VAT on transactions and remit it directly to HMRC in real time. This defends against non-payment of VAT by online retailers and represents a significant shift in how online businesses transact and account for VAT.

Whilst I’m certain that there will be yet more measures to counter perceived tax avoidance and close the tax gap, my feeling is these are sometimes perceived (by HMRC) rather than real and there is considerable doubt about some of HMRC’s claimed returns on additional tax collected. At the same time they are driving down resource levels in HMRC and the day to day service to the “customer” (as they like to call us) is suffering.

Simplification to the Tax System – Wishful thinking?

I will make my annual appeal (but unfortunately no prediction) for much-needed simplification of our tax system. That may seem like a Turkey voting for Christmas for a tax adviser, but really the complexity of our system has gone too far – it is almost starting to look like a deliberate set of traps for businesses and individuals. A good place to start would be to integrate income tax and NI contributions, or at least align the various thresholds and thus eliminate the marginal rate traps which particularly affect people on middle range earnings, certainly in our region.


Whatever one’s political views, Brexit provides an opportunity for the UK to set out its stall as an exciting and unique place to do business in the world. Having a certain (and that means simple(r)) tax system which is attractive to entrepreneurs and global businesses alike. This must also be a tax system which has a broad base but competitive rates, and that means not just for corporate entities (which we already arguably have) but also for the individuals who own and work in those businesses. The ongoing certainty means it is too early yet to define the details, but Mr Hammond must demonstrate a commitment to this approach and not least to how it will support our regions, which will feel a significant brunt of any negative Brexit impact.

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