While the Chancellor may have one or two treats up his sleeve next Wednesday, those expecting generous tax giveaways in this year’s Budget could be disappointed, warns Baker Tilly.
Commenting on the forthcoming March 18th Budget, George Bull, Baker Tilly’s Senior Tax Partner said:
‘The Chancellor will want to portray this is as a ‘business as usual’ Budget which will continue to support the Government’s long term economic plan. While one or two post-election giveaways are likely, the public finances are such that any tax promises which benefit some will have to be paid for by tax increases for others, cuts in services or increased borrowings.
‘Given recent political and press focus, we can also expect the Chancellor to announce a further crackdown by the Government to tackle tax avoidance and evasion both harder and faster.’
While the big picture issues are likely to dominate the Budget Statement, below are some announcements that Baker Tilly predicts could be made by the Chancellor…
Taxes on individuals
The Chancellor could use this Budget to announce a withdrawal of Private Residence Relief on houses worth more than £2m. Currently, when a UK resident taxpayer disposes of their UK home, any resultant gain is generally tax free. By introducing such a measure, those selling homes worth more than £2m would be subject to UK Capital Gains Tax (CGT).
The withdrawal, or restriction, of relief for pension contributions at the contributor’s marginal rate of income tax is also possible. Additionally, the rate of CGT may be increased to 35%, with possible restrictions placed on the amount or scope of Entrepreneurs’ Relief.
Taxes on business
The Chancellor is expected to announce a ‘tax break’ for North Sea oil companies, possibly an investment allowance and a reduction in tax rates, in a move designed to protect jobs, attract investment in new exploration and stave off the risk of expensive decommissioning.
It’s also anticipated that he will announce a reform of the UK Patent Box regime amid suggestions that it gives preferential tax treatment to companies that have not undertaken the R&D underlying the patent.
As a result of the increasing pressure to ensure that large corporates are paying their ‘fair share’ of tax, further detail is expected on how the Government proposes to change the way profits arising from international transactions are taxed in the UK, through the OECD’s Base Erosion and Profit Shifting (BEPS) project as well as the UK’s Diverted Profits Tax, commonly known as the ‘Google tax’.
A change to the way business profits are measured for tax purposes is also possible, to address concerns raised by the Office of Tax Simplification.
Taxes on employers
The Government could announce new legislation to remove the ability of employment intermediaries to allow temporary workers to sacrifice salary and claim tax relief on home to work travel, a practice seen by the Government as unacceptable tax avoidance.
An announcement is also expected on actions to be taken to resolve the uncertainty over individuals’ employment status, which provides the financial incentive for individuals to work with business on a self-employed basis.
If the Chancellor decides to bite the bullet, he may also take steps to harmonise Income Tax and Class 1 National Insurance Contributions (NICs) to simplify payroll for employers and remove the scope for errors.
Another possibility is a change to the company car scale charges for 2015/16 to encourage employers and employees to select greener vehicles.
Tax evasion and avoidance
The Government has introduced a raft of new legislation to tackle tax avoidance during the current parliament but an announcement is expected on proposals to introduce ‘special measures’ aimed at deterring serial avoiders and scheme promoters.
Whether the Government intends to proceed with a proposal to introduce a specific penalty for tax avoidance schemes that fall under the general anti-abuse rule (GAAR) will also become clear. Additionally, HMRC could announce a fundamental review of its prosecution policy to bring more people with tax irregularities into the criminal justice system.
VAT
The Government may announce that HMRC will remove a number of VAT extra statutory concessions, meaning suppliers of long-term residential accommodation (including Higher Education Institutions, hotels and boarding houses) may face higher VAT costs.
The removal of the reduced rate of VAT in the installation of energy-saving materials is also possible. This would have an impact on consumers, housing associations, charities and not-for-profit organisations that are unable to recover VAT on underlying costs.