Tax partner David Brookes points out that, when it came to business rates, chancellor Philip Hammond chickened out of tackling the major elephant in the room – digital retail tax.
Instead, he deferred it by announcing he would consult on business rates reform before the next revaluation. In doing so, he has bought himself another three years – long enough for the furore over the most recent revaluation, which comes into operation on 1 April this year, to die down.
“Business rates have caused a major headache for the chancellor and businesses alike,” Brookes comments. “He’ll be glad when the revaluation saga is over but hinted that the bigger problem has yet to be solved.
“His next job will be to tackle the unfair tax disparity of traditional and online retailers; an issue that is adding to the huge pressure already faced by high street retailers. I wouldn’t be surprised if the government introduced some form of additional new tax on the ‘digital real estate’ of large online retailers.”
Another omission was the annual investment allowance. This was particularly surprising since a major focus of Hammond’s Budget Speech was the creation of a system that supports innovation and productivity.
Brookes thinks he is keeping a few things up his sleeve which can be used to boost business confidence, but not yet. “Money is being set aside for Brexit jitters but once negotiations are over, say in Budget 2019, the chancellor may look towards increasing the annual investment allowance to help increase productivity and unleash our manufacturing might.
“An increase to £5m over a five-year period would be a game-changer. It would provide a significant incentive for businesses to invest in capital assets – such as plant and machinery – that will drive future growth and automation, and give businesses the confidence to plan ahead.”
Brookes also expresses surprise that Hammond didn’t extend the ban on public sector employers using non-payroll labour to the private sector.
He says he is hearing reports of contractors already moving away from public sector contracts ahead of implementation of the changes in IR35 next month.
“If the private sector was subject to the same regime, it would limit the public sector’s ‘brain drain’ concerns while addressing another tax imbalance. I’m sure this will be on his future list of things to do.”
As far as winners and losers are concerned, top of the list of losers have to be gig economy workers who are self-employed. They have been hit with a phased 2% tax rise as the government begins to narrow the gap between how much employees pay in national insurance and how much the self-employed do.
At the other end of the spectrum, small businesses turn out to be the big winners. “The government focuses on small businesses being the life blood of the UK economy, supporting them with business rate reliefs and a delay to digital quarterly reporting for those under the VAT threshold,” Brookes says.
This is great for start-ups and small business owners, he adds, but what about the poor overlooked mid-sized businesses?
“It is frustrating that mid-sized businesses – those that grew faster and created more jobs than small or big firms last year – were once again largely ignored by policymakers."