It is quite likely that Phillip Hammond will face a difficult decision; to increase the tax take in order to pay for the costs of Brexit, or to continue to support business and entrepreneurship post Brexit through the tax system, writes Tim Shaw – Ensors’ Associate Tax Partner.

Given the current state of the Brexit negotiations, it is almost impossible to predict which way he will go, and he may well be walking a tightrope on the day.

The UK’s corporation tax rate of 19 per cent is internationally competitive and will also reduce to 17 per cent in April 2020. 

Subsequent reductions may be possible, but I believe that it would highly unlikely that any announcements will be announced pre-Brexit. 

The UK’s rules relating to R & D tax relief and the enterprise management incentive scheme are currently restricted by EU state aid rules and are therefore unlikely to be favourably changed pre Brexit.

The abolition of entrepreneur’s relief is often feared with every Budget, but I consider that this unlikely at present. There have been no indications to suggest this and indeed there have been recent consultations on certain favourable changes to this legislation where shareholdings are diluted. 

More concerningly, the Government is looking to introduce legislation requiring companies to potentially apply PAYE and NIC when payments are made in certain circumstances to companies owned by contractors. 

In effect, the contractor’s company would be ignored if it was considered that the relationship with the contactor was, de facto, employment. This would mirror what was introduced in the Public Sector in 2017 and it is possible that such legislation could be extended to the Private Sector from as early as 6 April 2019. 

The annual dividend allowance of £2,000 is understood to cost the Treasury £1.3 billion per annum. The removal of this relief may be easy to “sell” to the electorate and could therefore be a relatively painless win for the Government.

The Chancellor recently stated that he intended to impose a new “digital services tax” and it has since been reported that the Treasury is planning to target the advertising revenues of companies such as Facebook and Google. Such a tax could be difficult to implement and there must be a risk, particularly in the current political climate, of retaliatory action if this was seen as directly targeting US companies.

As with every Budget now, considerable anti-avoidance legislation is introduced in the small print. Whilst this is often rightly targeted at tax schemes and aggressive planning, the breadth of the legislation can often impact adversely on bone-fide commercial transactions.

It would be helpful if such legislation could be specifically targeted or, alternatively, there should be clearer guidance than often now exists on when HMRC would look to use such legislation.

Finally, Making Tax Digital is being introduced for VAT purposes with effect from 1 April 2019.  It is unlikely that this will now be delayed and indeed to do so now could be quite frustrating for those taxpayers who have made preparations for this.  However, clarity on the dates of introduction for income tax and corporation tax would be welcomed.

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