By Nigel Syson
Haines Watts
WITH just over six months to go prior to Brexit, the question is whether Philip Hammond will persist in Project Fear or instead produce a budget for an outward-facing, entrepreneurial and global Britain? If I was writing this article in the era of Nigel Lawson, I’d be optimistic of a dynamic tax-cutting budget. The second question might be whether in the event of Mrs May being replaced, is he still in a job?
Instead, the omens aren’t good, as there’s talk once again of attacking tax relief on pensions. Pension planning’s worthwhile because, as my colleague Neil Watson of Tilney Bestinvest rightly points out, ‘you can get tax relief going in at up to 60 per cent (normally 40 per cent) for high rate taxpayers and when you take the pension, the majority of people are basic rate taxpayers paying tax at 20 per cent – thus ignoring investment returns, pension planning’s attractive for higher rate taxpayers’. Pension planning also has a significant benefit for the Government in that if people save for pensions, it removes a future benefit bill from the Government.
The falling Corporation Tax rate has made UK PLC an attractive place for corporate investment. With the American tax rate being radically reduced, the multinationals will be considering their options. Therefore, there’s a strong argument for continuing to have a corporate tax environment that both attracts investment and that in turn produces profitable tax-paying businesses. An example of the Laffer curve in action.
In terms of tax relief, the EU has traditionally restricted the quantum of R&D tax credits as they regard this relief as notifiable state aid. Once we’re out of the single market and free from its rules & regulations, the Government has the opportunity to extend R&D and make it more generous. This in turn will increase innovation in UK PLC and will benefit many of our innovative clients.
Earlier this year, the EU temporarily withdrew the tax status of Enterprise Management Incentives (EMI) and although this matter has now been resolved, it highlighted the extent to which elements of our tax system were open to EU override. Given that EMIs are an important relief for entrepreneurial businesses, it’s good to see that this is another relief that could be extended by the Government as part of a policy to make UK PLC more competitive.
An area ripe for reform is stamp duty. The George Osborne adoption of continental levels of this duty has been successful in slowing house sales and significantly reducing stamp duty receipts. Although nobody wishes to see a return to inflationary house prices, a significant reduction or abolition of stamp duty on peoples’ homes would get the housing market moving again. The transactions would generate significant VAT revenue which would compensate the Government for loss of failing stamp duty revenues. There would also be significant benefits in terms of labour mobility and an opportunity for older home owners to downsize and free up equity.
The Budget’s a significant opportunity to show the world that UK PLC is ‘open for business’. Philip Hammond needs to take this opportunity and show us he’s a worthy successor to Geoffrey Howe and Nigel Lawson. The biggest question of all is, will he do just that?
For more information about Haines Watts visit www.hwca.com
