The hidden (missing) clues for Hammond’s long-term plan

David Brookes, tax partner at accountancy and business advisory firm BDO LLP, looks at what was missing in the Budget and gives us some clues as to what the Chancellor’s long-term fiscal strategy looks like.

‘Digital real estate’ tax – “Business rates have caused a major headache for the Chancellor and businesses alike. 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.”

Annual Investment Allowance – “Hammond remained focused in his speech [yesterday] on creating a system that supports innovation and productivity. 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 (AIA) 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.”

Non-payroll labour – “I’m surprised the forthcoming clampdown on public sector employers using non-payroll labour has not been extended to the private sector. As the changes within IR35 take effect next month, there are reports that contractors are already moving away from public sector contracts. 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.”

Who are the winners and losers in business?

Hammond wants to build a “stronger, fairer, better” Britain. The challenge with being ‘fairer’ is that there are inevitably going to be winners and losers, says David Brookes, tax partner at BDO.

“Gig economy workers who are self-employed have been hit with a phased 2% tax rise. Although bad news for those individuals affected, it does level the playing field. Aligning NIC takes tax out of the decision-making process for people choosing whether to be employed or self-employed. And it will give a £2bn boost to the Treasury’s coffers to 2022.”

Small businesses come out on top, says Brookes. “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.

“Although welcomed by start-ups and small business owners, 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.”

Infrastructure investment to boost to productivity

According to the Office for National Statistics, in the time it takes a British worker to make £1, a German worker makes £1.35, a US worker £1.30 and a French worker £1.27.

David Brookes, tax partner at BDO, said: “Almost half (43%) of businesses believe investment in infrastructure would boost productivity and help put the UK in its strongest position for Brexit.

“Investment in smart, connected infrastructure is about getting from A to B – both physically and digitally, in both production and automation – in the most efficient way possible. For every £1 invested in infrastructure, there’s a reported £3 return for the economy. This would be a good place for Hammond to put his money.”