What the Budget will mean for retailers

shutterstock_356788880Most retailers agree that the last 12 months has been a fairly positive period of growth, when compared to the preceding few years. However as Spring 2016 hits, undoubtedly many retail firms will now feel in the middle of the “perfect storm” battered by a combination of the introduction of a higher National Living Wage, auto-enrolment and introduction of the Apprenticeship Levy. 

With the ever-growing demands on the high street retailer, the chancellor will be under some pressure to go further than merely extending the business rates relief, to support the smaller stand-alone high street retailer. Whilst retailers will be confident of avoiding a paralysing hike in the VAT, following the ‘triple lock’ promise prior to the election (not to raise Income Tax, VAT or National Insurance), the Chancellor recognises that the economy is not growing as quickly as previously hoped and needs further stimulus. The most powerful weapon available would be to reduce the VAT rates slightly, recognising a reduction to 18% will keep the UK spending, and gambling such a measure will ultimately pay for itself.

It is expected that the under-tones of the in/out question to be at the heart of the budget this year, with the electorate going to the polls in just over three months from now. It is likely that the politically astute Chancellor will use his moment in the spotlight to highlight the international importance of the UK market as a gateway to Europe, with relatively low barriers to entry. Recognising it has become the ‘shop of choice’ with global retailers, with its long established tax system and sophisticated distribution network.

E-tailers are arguably sheltered from much of the storm ahead and remain one of the fastest growing parts of the UK economy. However, smaller retailers remain frustrated by the red-tape of a tax system, whose origins were established long before e-commerce or ‘distance selling’ was even conceived.

There have been increased calls for simplification of tax systems, both across Corporate Taxes and VAT for global traders and such a move would be welcomed, both at home and across the EU area – leading the cries of the “better together” mantra.

Whilst the Chancellor recognises that larger global retailers want to do business with the UK, he will be under some pressure to ensure larger corporates pay their fair share of taxes in the UK. While a decision to tax businesses on UK sales volumes would be popular with the electorate, it is unlikely to be practical. In a new digital age, where retailers increasingly rely on e-commerce platforms, the location of the ‘shop floor’ becomes more ambiguous and the Chancellor should aim to adapt the tax system to redress the balance between retailers, e-commerce specialists and firms of all sizes.

Andrew Mosby, retail specialist from Menzies LLP