Autumn Budget 2017: Deloitte's tax preview and economic outlook

Ahead of next week’s Autumn Budget Deloitte’s tax experts and chief economist consider potential announcements and the fiscal outlook.

Fiscal outlook
Bill Dodwell, head of tax policy at Deloitte, said:
Over 13 million individuals currently have a Personal Tax Account, which will become the default way for people to file tax returns, provide information and communicate with HMRC. The system will rely on data provided by a wide range of third parties, mainly banks and building societies at present, but expected to widen to other providers in due course.

Deloitte’s chief economist Ian Stewart added:
“Mr Hammond’s deficit reduction rules give him some headroom for more spending. I think he’ll modestly raise spending in key areas and stick with his key target for getting the deficit below 2.0% of GDP by 2020-21.

“But anyone expecting fireworks from this Budget is likely to be disappointed. Politics and economics dictate that there’ll be no break with the commitment to eliminate the deficit and no big giveaways.”

Business tax
Bill Dodwell said:
“We hope to see the Chancellor consider measures to support the climate for business investment. As the OECD recently reported there is a slowdown in UK business investment. The UK has a competitive business tax regime, with the lowest tax rate in the G20, but there are areas where the UK falls behind international competitors. Unlike the UK, the Netherlands, Ireland and most European economies allow tax relief on all intangible assets. Our default write-off rate of 25 years doesn’t match up either. UK business now invests more in intangible assets than tangibles – but we need to attract overseas investors in uncertain times.

“We’re not expecting any other significant corporate tax changes. The Chancellor will no doubt wait for the report from the OECD to the G20 on the digital economy before considering any further corporate tax changes.”

Employment tax
In April the public sector started assessing whether freelancers should be treated as quasi-employees, subject to PAYE and NIC, or as self-employed individuals, paid gross.

Bill Dodwell said:
“It’s likely that the Chancellor will consider extending this approach to the private sector, both to level the playing field and raise money. We hope that, if the Chancellor does move in this direction, sufficient notice will be given to allow systems to be built. It’s also important that HMRC invest more in their online employment status checker, which helps engagers and freelancers understand which side of the line they fall.

“For the longer term, Mr Hammond will need to consider how to approach the complex issue of the growth in self-employment and the boundaries between employment, self-employment and freelancing. We think he should follow the precedent of the Taylor Review and set up an independent group to look at the tax, national insurance and benefits issues.”

Personal Allowance
The Chancellor previously said that he will increase the Personal Allowance to £12,500 and the Higher Rate Threshold to £50,000 by 2020/21. These rise by CPI each year unless another amount is substituted. If the CPI rise of 3% were to apply in 2018/19 this would give a Personal Allowance of £11,850 for 2018/19 (£11,500 2017/18) and a Higher Rate Threshold of £46,450 for 2018/19 (£45,000 2017/18).

Patricia Mock, tax director at Deloitte, said:
“If CPI continued to rise at the 3% rate the Personal Allowance would exceed the limit by 2020/21 and the Higher Rate Threshold would almost meet the limits in the same year. It may be that the Chancellor decides not to raise the allowance this year, as this would of course be very costly for the Exchequer.”

Making Tax Digital
Over 13 million individuals currently have a Personal Tax Account, which will become the default way for people to file tax returns, provide information and communicate with HMRC. The system will rely on data provided by a wide range of third parties, mainly banks and building societies at present, but expected to widen to other providers in due course.

Patricia Mock said:
“It’s important that the Government and HMRC use this Budget to set out a road map for information providers, so that they can understand what data will be needed and which format it should be provided in. The necessary systems changes and information gathering will take years to establish. The Government also needs to ensure that data gathering and provision is compatible with UK and EU data protection laws, including the GDPR, which commences in May 2018. Finally, HMRC needs to provide tax agents with access to the information in Personal Tax Accounts so they can help their clients comply with filing and information provision.”

Pensions
The pensions system has seen a lot of change over recent years.

Patricia Mock commented:
“The pensions regime is one that people will typically be in for many years but constant tinkering makes it difficult for them to understand and plan for the future. One possibility might be to change the rate of tax relief to a flat 30% rather than a marginal tax rate. This could be revenue neutral but focus relief towards the lower paid and/ or younger pension investors.

“Now that the annual limit on pensions tax relief is £40,000, and only £10,000 for the higher paid, it’s debatable whether there is a need for a lifetime limit as well. When this was introduced the annual limit was some £250,000 so one could understand the reasoning behind it, but at present it merely adds complexity and makes it difficult for people to know when they should stop investing to avoid hitting the lifetime limit.”

Business rates
Bill Dodwell said:
“There is continued business dissatisfaction with the business rates system. Business will wonder why the RPI index continues to be used to push through increases. In addition, the massive spike in upwards and downwards adjustments caused by the seven-year gap between revaluations makes it much harder for businesses to plan for their future.

“A swifter adoption of the CPI index would be welcome, together with a more effective package of relief for those especially hard-pressed by the April 2017 increases. A consultation on more frequent revaluations would also be a good move. Some will argue that the rates system is outdated but the recent review in Scotland did not come up with any consensus on a better system.”

Tax complexity
Bill Dodwell concludes:
“The last few years have seen very major changes to the tax system, which have added thousands of pages of new law and brought significant complexity. It’s much harder today for individuals and businesses to understand their own tax position, which has added to business and individual costs, as the burden of complying with UK tax rules has increased substantially. We’d like to see a greater focus on a simpler and more effective tax system.”

End

Notes to editors

Follow us online
Deloitte’s Budget coverage will be on our dedicated website www.ukbudget.com. You can also follow us on Twitter: @BillDodwellTax where Bill Dodwell, head of tax policy at Deloitte, gives regular views; @IanStewartEcon for our chief economist Ian Stewart, @EdRoddis for Deloitte’s head of public sector research Ed Roddis, as well as @DeloitteUK.

Deloitte spokespeople
The following experts from Deloitte are available now and on the day of the Budget for comment. From 12pm on Wednesday 22^nd November, please call the Deloitte Media hotline on 020 7007 3333, where you will be directly connected to one of our spokespeople:

• Bill Dodwell, head of tax policy - Business taxes and general topics
• Daniel Lyons, tax partner - Indirect taxes
• Patricia Mock, tax director - Personal taxes
• Mark Groom, tax partner - Employment taxes
• Gerry Biddle, business rates consultant - Business rates
• Ian Stewart, chief economist - Economics
• Ed Roddis, head of public sector research - Public sector

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