Paul Falvey, Tax Partner at BDO in Bristol, commenting ahead of the Chancellor’s Autumn Statement said: “Now that the political parties are gearing up for next year’s general election it is likely that the political decision making process will become bogged down. The fear is that the forthcoming Autumn Statement will not escape this and as a result turn out to be a damp squib.
“No doubt there will be some headlines for show, but the fact that the UK has a coalition Government will mean that we will not see the usual tax giveaways that you would usually expect from a Government at the end of its term. This particular sweetener will be highlighted in the party manifestos and campaigns but will have to wait until after the election.
“Neither do we expect any material changes to the UK’s tax landscape. However, given the continuing and unprecedented interest it tax and tax avoidance from the media and general public, we expect one central theme that runs through this Autumn Statement to be ‘tax payers paying their fair share’.”
Predictions:
1. Devolution of tax powers
Following on from the promises made by the Government to devolve further tax powers to the Scottish parliament we expect consultations to be put in place and/or announcements made regarding the devolution of tax powers to the nations of the United Kingdom and its regions. Although this process will be complex and, therefore, take time to implement effectively, this will pave the way for an historic fragmentation of the UK tax system.
2. Tax avoidance
The OECD has so far reported back on approximately half of the Base Erosion and Profit Shifting (“BEPS”) action plan that it was tasked by the G20 to deliver so that it may tackle international tax avoidance. The UK is committed to being an early adopter of these proposals and it is expected that changes may be announced to the UK’s transfer pricing rules and country by country reporting.
3. Business rates reliefs for smaller businesses
These rates are a significant and unfair cost to UK businesses as they are not based on business performance. This is widely accepted and lobbying pressure to reform the way in which business rates are calculated continues to build. It is likely that some further token reliefs or exemptions for smaller businesses will be announced, however, these will once again fall short of the wholesale reform that is desperately required.
4. HMRC relationship with Mid Sized Businesses (“MSBs”)
Around 2,000 of the UK’s largest businesses already have a formal relationship with HMRC through the Customer Relationship Manager (“CRM”) programme. However, MSBs do not have this important connection and the uncertainty surrounding business tax affairs that this leads to is bad for the tax payer and ultimately bad for the Treasury. We would not be surprised if an initiative for HMRC to connect with the MSB population to correct this situation is announced.
5. Simplified reporting for PAYE and NIC
There are currently different reporting requirements for PAYE and NIC, in particular regarding employment benefits that are reported after the end of the tax year and have to be manually included in tax returns. We expect that the reporting requirements for both taxes will be streamlined and made consistent, which will lead to a consequential administration saving for businesses.
6. Patent Box
Following the recently announced joint compromise proposal by the UK and Germany to the G20, we anticipate that a consultation will be announced on reforming the UK’s patent box regime. The compromise may lead to an end to the UK’s current patent box regime but with an option for UK businesses to grandfather intellectual property already in the existing regime or an amalgamation with the UK’s R&D regime. However, this constant chopping and changing of tax reliefs does little to deliver the much needed certainty that businesses require to plan their economic affairs and it is hoped that the current BEPS programme being conducted by the OECD will lead to greater clarity to what is and is not acceptable in domestic tax regimes.
7. Personal Allowances, 40p band, 50p rate and the IHT lifetime limit
Although all parties have made recent announcements regarding their intent regarding these focal areas of tax, the reality of coalition government will make it unlikely that any changes will be announced ahead of the general election, leaving these to be further detailed in the party manifestos and campaigning next year.
