Budget 2020: Will the Chancellor fire starting gun on VAT reform?

In the run up to Budget 2020, we asked our MHA Moore and Smalley tax experts to preview the first big moment of Rishi Sunak’s chancellorship. In part four, Jonathan Main, our VAT and indirect tax partner, shares his thoughts on what we might see.

It’s been an awful long time since we had a government with a big enough majority to more or less guarantee a five-year parliament.

And in these circumstances, what you do in your first budget are usually the most dramatic things, so if there are unpopular decisions to made this is probably the time to do it.

While any changes to the headline rate of VAT have already been ruled out, I believe there is a need to reform the VAT system as a lot of the reliefs and exemptions are out-of-date. Granted, this is not something that will excite people, but I think we could see a mention in the budget of a consultation being launched on VAT reform.

There is an opportunity over the next two to three years to get a better functioning VAT system in place because it’s one of the government’s biggest revenue generators. Leaving the EU gives the government the ability to modernise the VAT system in a way we’re not currently allowed to do. It may not be seen as a priority but the scope for change is there.

I think we will see some changes to environmental taxes – the big three being landfill tax, the aggregates levy and climate change levy. With a few notable exceptions, governments in the modern era are keen to show their commitment to tackling environmental issues, so we may see some incentives for individuals and businesses to switch from fossil fuels to green energy.

We’ve now left the EU, but there’s still a lot to be determined before we can start talking about possible free trade agreements, import duty and so on. Therefore, I think the government will be keen to keep any talk of Brexit or trade agreements to a minimum in this budget.

I think the chancellor will use this budget instead to focus on the domestic agenda. While Mr Sunak will be delivering the budget, I think it will have the prime minister’s fingerprints all over it and will be used as an opportunity to show ‘Boris the Centrist’, not ‘Boris the Brexiteer’.

Click here to read part three of our four-part series, in the run to the Budget announcement.

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