With so much Brexit uncertainty, will the spring statement be a damp squib this year?
The mood music from Downing Street and Brussels strongly suggests negotiations over Britain’s EU withdrawal agreement are likely to go down to the wire.
If that’s the case, the chancellor’s spring statement will be announced against a very uncertain backdrop. But that doesn’t necessarily mean it will be overly cautious. In fact, the chancellor will be keen to use the event to show the government is in control of the situation.
History tells us that when we’re expecting an uneventful budget or spring statement speech, the opposite can happen. Even now that the spring statement is billed as simply an update on economic forecasts, we should always expect a surprise or two.
Are we going to see any tax changes in the spring statement?
I think it’s highly likely that there will either be tax changes to headline rates or at the very least the announcement of further contingency measures in the event of a ‘no deal’ exit from the EU. The Treasury is publishing new legislation on a daily basis as part of its contingency preparations for a hard-Brexit, so I would imagine the chancellor has already thought long and hard about possible tax changes that could be announced in the spring statement to pre-empt some of the disruption caused by Brexit, whether we leave with a deal or not. We may therefore see some further headline grabbing changes to the administration and collection of indirect tax.
What’s the likelihood of an emergency budget upon exiting the EU?
If we leave without a deal on March 29 it’s almost certain we’ll have an emergency budget very shortly thereafter. Even if we do agree a Brexit deal, it’s still a possibility there’ll be an emergency budget in the aftermath of our departure, particularly if there’s a change of leadership within the Conservative party.
What measures could be included in an emergency budget to help businesses?
That all depends on whether we leave with or without a deal. If we crash out of the EU, then I would anticipate some measures designed to stimulate the economy and encourage investment.
For example, one option would be a temporary drop in the VAT rate similar to the one we had in 2008/09 after the banking crisis and subsequent recession when the rate went down to 15%. Of course, being out of the EU would allow the UK to adjust the rate of VAT as it sees fit, without the current constraints on VAT rules imposed as being part of the EU.
Lowering the rate of income tax would be another option and may provide a better stimulus as it enables people to retain more of their income and therefore boost their spending power. We might also see some relaxation of tax deadlines, such as lengthening the time over which tax has to be paid or introducing tax holidays.
Quantitative easing, in simple terms the injection of extra cash into the banking system by the Bank of England, might also be something that would be considered as part of an emergency budget.
What should my business be doing to prepare for Brexit?
If your business is involved in importing and exporting goods, there a number of steps that can be taken to prepare for Brexit, even at this late stage.
The first step is to verify your supply chain. I hear many business owners say they only source products from the UK, but the question I ask them is where do their suppliers buy from? If those products originate from outside the UK, which many will, is it likely to be affected by possible customs delays? Talk to your suppliers to seek reassurances and research possible alternative suppliers.
Have conversations early with your board of directors, management team, and funders. If you’re operating on ‘just in time’ deliveries assess whether there’s enough working capital in the business to build up a surplus of relevant stock? Can extra warehouse space be utilised or created to store these goods and ensure uninterrupted delays to your customers?
What can I do to avoid customs tariffs in the event of no deal?
This will be an issue for many manufacturers who are bringing goods into Britain and then exporting them again. That means the goods crossing two customs borders and tariffs potentially having to be paid twice.
There are a number of options open to businesses in this situation. These include looking at setting up a European distribution hub, registering for VAT in another jurisdiction and appointing a fiscal representative in that country, applying for temporary import relief, or exploring the option of storing goods in bonded warehouses. The first step is to speak to your professional advisors including an expert in import and export issues, VAT and indirect tax.