EY’s Autumn Budget 2017 predictions


Stuart Wilkinson, tax partner at EY in the East of England says: “This Budget, as the first one of a Parliament, would normally be expected to be full of bold moves, where the Chancellor builds a war chest to utilise later in the Parliament. However, in this case, with a minority Government, and business and citizens struggling to understand what the future of the UK will be following Brexit, the Chancellor may seek to buck this particular trend.

“Even if he does seek to keep this first Autumn Budget for two decades a low key affair, we can still expect it to have elements to address those factors that were identified as reasons for the election result.  And, with the move to a “single fiscal event” and the downgrading of the Chancellor’s Spring appearance to merely an economic statement, the Chancellor may be forced to include some measures he might have wanted to leave for six months.”

Business tax

“With all the uncertainty, whether from the delayed implementation of the post-election Finance Bill, the complexity of the legislation being introduced to deliver on the G20/OECD Base Erosion and Profit Shifting (“BEPS”) project, or just Brexit, businesses are looking for some stability.  We can expect the Chancellor to update on the Business Tax Roadmap, this time perhaps adding a bit more detail to how he wants the tax system to look at the end of the five year parliament.

“The Coalition Government identified four elements of tax competiveness: tax rate, tax base, tax policy making and tax administration. We can expect the Chancellor to focus on all four areas, reinforcing the message that, at 19%, the UK’s corporation tax rate is the lowest in the G20 and that BEPS is leading to an alignment of tax bases across the world.  The move to the single fiscal event (moving the Budget to the autumn and stopping the new Spring Statement from being a mini-Budget) will feature on the policy making side, with greater focus on engagement and rigour in policy making. Finally, on tax administration, the consultation on business risk reviews and the focus on cooperative compliance will feature.

“But beyond this explanation, we may also see some initiatives and action. Following the past consultations, and action for smaller businesses, the Chancellor may decide that now is finally the time to address the increase in business rates on all businesses. With the business rates at 47.9% being applied to revalued property, we have seen a significant increase in the burden of this tax, which has averaged 41.4% over the last three revaluations.  Such an increase in tax rate has occurred gradually but nonetheless represents an increase of over 15%, affecting those businesses which require property, such as manufacturing and high street retail.  Cuts now could boost investment prospects but may require additional funding to local government.

“With the focus on productivity, the Budget might include some incentives for investing in capital, with increases in the rates of capital allowances or the Annual Investment Allowance (potentially reversing the recent reduction in the annual investment allowance from £500,000 to £200,000, providing the relief up front, something that is included in the latest plans for tax reform in the US).  More substantively, we could see a systematic review of the incentives that the tax system creates towards investment, which could give rise to restoring relief for spending on industrial buildings and potentially going further.  At a time of uncertainty, the UK’s prospect for foreign direct investment could benefit from the boost that these policy changes would deliver.”

Housebuilding and property taxation

“Another area of concern has been the shortfall in housebuilding, but the Chancellor has not yet felt the pain in his pocket. So far the recent changes to stamp duty land tax (“SDLT”) have generated £8.6bn in SDLT in 2016-17 on just over 1m residential property transactions, 17% up on 2015-16.  However this increase disguises the real story.

“On the face of it, the recent stamp duty changes have been a success for the Exchequer. However, digging deeper, the increase in revenue has comes from the additional 3% charge on second homes and buy-to-let properties, and disguises an 8% drop in transactions on average across the country.

“With residential transactions now at their lowest level since before the financial crisis, the Treasury should be considering whether the current system is delivering the right support for the housing market both in terms of numbers of transactions and the delivery of new homes.  SDLT can act as a significant impediment to purchasing property and to the development of new and affordable housing stock, something that is a clear objective of the Government and indeed the London mayor.”


“Bruised from the abandonment of the increase in national insurance on the self-employed at the last Budget, the Chancellor might be more cautious this time.  However, one area of focus could be the extension of the off-payroll worker rules that currently only apply to public sector bodies.  These rules move the obligations for operating the disguised employment rules (the so-called IR35 provisions, named after the Inland Revenue press release that first discussed them) from the personal service company up the contractual chain, potentially right to the public service body.

“The Chancellor could consult on extending these rules to all companies, thereby including the private sector. The current rules are proving problematic to operate and are driving the wrong type of behaviour so we might expect a period of consultation and evaluation before the rules come into force, potentially in April 2019.

“Another tax increase under contemplation could be an increase in the dividend tax rate.  Whilst we saw a reduction in the allowance in the last Budget, the tax was introduced to offset the benefit of working through a company but the rate was not increased when the corporation tax rate was reduced.

“More widely, Matthew Taylor’s review of workers has reported and this provides the opportunity to revisit the taxation of those workers closely connected to particular employers, potentially aligning any tax reform with reform over workers’ rights.

“There is the possibility of making the extended definition of a ‘worker’ subject to national insurance contributions (employer and employee). Alternatively we could see more clarification on classes of worker for indirect pay arrangements. Will there be some grandfathering of arrangements?

“With a review of modern employment practices already underway, this is an area that looks set to see a fundamental review of its tax and social security treatment. This is a complex area, where tax rules can diverge significantly from employment law. In launching such a review, the Government should start at the ‘green paper’ stage, considering a range of issues rather than jumping straight to the conclusion.”


Intergenerational fairness - lower tax rates for younger employees

“One of the key themes is “intergenerational fairness” so this may prove to be a “see-saw” Budget. Typically Chancellors have used tax breaks to help the elderly, but this time the break may tilt towards the “new” or “next” generation.

“The Chancellor could chose to do this in a number of ways. First, we could see the re-introduction of an “age-allowance” but instead of this being directed at the over 65s it could be for the under 30s. The allowance could taper away as income rises.

“In the alternative scenario, he may choose to readjust NICs for those under 30.”

Tax reliefs

“While the Chancellor will doubtless again focus on anti-avoidance and HMRC’s success in this area, he may also turn his attention to tax reliefs. He might resolve to reduce the tax breaks offered by the Enterprise Investment Scheme, possibly by reversing the increase in 2011 of the income tax relief from 30% to 20%.

“Business property relief, which exempts unquoted trading companies from the inheritance tax charge on death, has also been under recent scrutiny by the Inland Revenue. We may see a cap on the value of this relief.”


“Whilst pensions seems to be an area of constant tax reform, the 25% lump sum has so far escaped change. Any such change is likely to keep the lump sum for all past contributions, and hence the benefit of any change would only benefit future Chancellors rather than this Government.  However if the Chancellor wants to leave his mark, he might try to restrict the lump sum, knowing that future Chancellors will thank him, even if taxpayers don’t.”


Beyond these themes, there are a number of discrete measures that may feature on 22 November:

Tax traps
There has been recent press coverage on three bands – removal of child benefit, removal of personal allowance and higher rate restriction on pensions. Notwithstanding the press coverage, these are deliberate recaptures and the last two in particular hit high(er) earners so don’t expect action here.

Nom-doms and anti-avoidance
Further anti-avoidance measures to deal with taxation of offshore trusts – we will see the last of the nom-dom changes from the last Budget (draft published 13 September).

Raising personal allowance
Further progress towards raising the personal allowance to £12,500 and higher rate tax threshold to £50k by 2020.

Private client
Some high net worth individuals are using companies to hold their investments so as to pay tax on their returns at the lower corporate tax rates. The Chancellor may move to restrict the tax advantages offered by such companies.

A scheme to allow charities to recover a portion of VAT incurred in the preceding year may be considered (similar to the scheme to be introduced in Ireland). 

Fuel duty stabiliser
Since its introduction the stabiliser hasn’t been used (since the formation of the Coalition Government in 2010). An increase in fuel duty by RPI at 3.9%* would be expected to cost just over £1bn in 2018-19.
*Based on Sept 2017 rate, published in October. https://www.ons.gov.uk/economy/inflationandpriceindices

VAT recovery for Scotland’s emergency services
Will there be moves to introduce VAT recovery for Scotland’s emergency services? This would require the introduction of different rules from those in the rest of the UK. This is a politically important issue for Scotland.

VAT Split payment modification
The Chancellor may consider a draft provision on split payment modification for VAT purposes for online sales. To target retailers who piggyback off online retailers.

Non-resident landlords
Non-resident corporate landlords are likely to be brought within the scope of UK corporation tax (rather than income tax) in order for the Government to be able to apply certain corporation tax-only rules to such entities. These rules include restrictions on loss relief, interest deductions and loan relationships. 


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