There are a lot of rumours floating that this is Philip Hammond's last budget. This could be because May won't make it for a lot longer. And it might also be because he seems to have even fewer friends than the average Tory MP right now, not least amongst fellow Tory MPs. But either way he seems intent onsealing his fate. The FT suggests this morning that he has two big measures in mind that will make George Osborne's pasties and caravans look like hum-dinging successes.
The first is to extend the crackdown on the use of bogus contracting to the private sector. It's already being applied to the public sector. Now Good Old Phil wants to tackle the Tory party's natural supporters amongst the supposedly entrepreneurial who set up their own companies, work for a single large customer, and opt out of PAYE in the process.
You would expect me to support this. And in principle I do, but not the way Old Phil's going to do it. I stress I use the term Old not just because Phil's got a couple of years on me, but because he seems to have advanced by decades in his sixteen months in the Treasury. Some evidence of that is to be found in the fact that he thinks this problem is solved by simply 'clamping down' on it, albeit, and no doubt, with an enquiry at this stage. What he should, instead, be looking at is the hard question of why it arose and what real reform might address the issues that flexible working by many who do provide what do look rather like professional services might demand.
Thankfully for Phil I did that thinking, including some of the hard-ish background justification stuff, a decade ago. So if he announces an enquiry I'll update a number or two and pop this 2007 report in the post to him. It was being taken pretty seriously, I have been told, in the Treasury in 2008, but then the banks fell off their perches the issue was laid aside for another day. And this is that day, when Phil wants to turn on his natural support by clamping down on them instead of by seeking to find a creative solution to the problem of contracting that ensures appropriate tax is paid that reflects the economic realities of what is happening in this sector, as I offered. There's a summary of my proposal here.
But in case Phil's worried that alienating another one of his audiences is not enough it sounds like he's doubling his odds by announcing he's also going to hold another enquiry, this time into reducing the VAT threshold dramatically, as proposed by the Office for Tax Simplification. This is, supposedly, a move to raise £2 billion of VAT that is not avoided as it is not due by bringing the UK into line with EU standards just as Brexit is on its supposed way. It will do this by reducing the level of sales at which VAT registration is required from £85,000 a year to about £20,000 a year. In the process the price of many services will rise (Phil knows how to keep people happy); the incentive to evade might increase; and small business admin will go up, considerably. In one fell swoop Phil will alienate millions.
Is there an alternative? Of course there is: I explained it here. What Phil needs to do is crack down on those who don't pay at all instead of making the already compliant pay more. And he can do this by finding the shadow companies that proliferate in the UK economy by securing automatic information exchnage of data on all the companies that UK banks supply services to in the UK, and then making sure that each and every one of them submits accounts and tax returns. It would not be hard. I've even written the legislation for him. And if he did this he could beat the cheats and stand up for all his honest business supporters. But he'd rather do the reverse.
No wonder Phil's on his way out. He deserves to be be so at this rate.
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‘What Phil needs to do is crack down on those who don’t pay at all instead of making the already compliant pay more’.
Spot on really – nothing to argue with there.
It does seem like a suicide mission, dropping the VAT threshold in particular. How he expects that NOT to be painted as an attack on ‘White Van Man’ I really don’t know. As a one man band contractor too I agree that there has to be a better ( I nearly said ‘third’!) way (before you shout at me, I work via an umbrella company and pay full PAYE, employers NI and employee NI) than the current method, where we pay a fair amount of tax and receive a fair slice of the benefits which a traditionally employed person would receive. At the moment I pay full tax and have zero rights, while I also pay for things like the entrepreneur allowance which would be payable by an employer as this is passed down to me by the umbrella company. I’m in a minority of one at virtually every place I work in terms of going down the umbrella/full tax route, as the government want to have their cake and eat it, leading to so many people going down the Ltd. route.
And if the VAT threshold is reduced who is going to police it once all the local HMRC offices close ? No chance of going back to the old days of Customs and Excise when we did “registration drives” – going down local streets with shops, motor traders, cafes etc and asking to see their VAT registration certificates and if they did not have one finding out why.
It will be a farce
Inceartsingly HMRC real;y on the 50% who always choose to be compliant to pay up and tax the rest on a wing and a prayer
Could Mr.Hammond be the Sir Stafford Cripps of his generation? Seventy years on and we are going back to Start.
Please also read the article on the UK housing Market.
Planning is too complex and expensive plus land hording (50% of cost)
It is not lack of dwellings but the cost per dwelling is too overpriced/ income
If new homes are cheaper they will bring prices down in competition.
So we need a very high land value tax on hoarded land with planning permission on it
Next problem, please?
Both of the suggestions would pile more work on an already overstretched HMRC.
The IR35 “contract of service” versus “contract for service” rules are not enforced at the moment and a reduction in the VAT threshold would bring many more returns into play.
Surely he has to start by undertaking a comprehensive review of HMRC, Brexit would seem to demand that anyway.
He should sort out tariff systems before he does this
And remember they’re still planning the disaster called Making Txa Digital – which is going to alienate millions from the tax system
Re: 20K VAT threshold:
Oh great. Many of the small traders affected will be supplying services directly to the public, as opposed to VAT registered businesses, thereby draining more money out of the economy.
Just what we need right now. Not!
Precisely