With the referendum on the UK’s EU membership now set for 23 June, the Chancellor is coming under increasing pressure not to rock the boat with more tax hikes on Budget Day. However, with reforms to pensions tax relief now seemingly off the agenda, RSM is warning that Mr Osborne may be looking at other options for balancing the books.
Commenting ahead of the Budget on 16th March, George Bull, Senior Tax Partner at RSM said:
‘Recent policy initiatives such as the introduction of the dividend tax ‘allowance’ and the ‘liberalisation’ of the pensions regime have created the impression of government largesse but in reality have been significant tax-raising measures. This approach is becoming something of a George Osborne trademark, so we will be going over this year’s figures with a fine toothcomb to see if any ‘giveaways’ are all that they seem.
‘One area that we’ll be keeping a particularly close eye on is the development of the government’s plans for personal digital tax accounts, announced in last year’s March Budget. This will impose an obligation for individuals to file up-to-date information on their income with the taxman every three months. While attention has so far focused on taxpayers’ filing obligations, the changes could also be a cover for introducing in-year collection of tax payable – essentially bringing forward payments which would usually be payable in the year ahead. These changes could have a significant impact – particularly on the self-employed.’
Below are a selection of RSM’s other predictions for individuals and companies:
Higher rate income tax threshold - The conservative party manifesto launched in the run-up to the last general election committed to raising the higher rate threshold so that no one earning less than £50,000 would pay the 40p rate. The higher rate now kicks in at £42,385 and will rise to £43,000 from next month but there are suggestions that Mr Osborne may be planning to raise the threshold more quickly than planned.
Salary sacrifice – the Government has been concerned about the growth of salary sacrifice arrangements for things like childcare vouchers or additional pension contributions. Reforms in this area could be announced come Budget day.
Entrepreneurs’ Relief – the Budget could bring in further restrictions on Entrepreneurs’ Relief, the cost of which has tripled in the last four years. Options include extending the required ownership period of shares or business/partnership interests or even reducing the lifetime limit from £10m to £5m.
Stamp duty land tax - We expect to hear final details about the Government’s plan to introduce higher rates of Stamp Duty Land Tax for purchases of second homes. These details will be of particular interest to landlords and those considering buying a holiday home.
Corporate taxationWe can expect new restrictions on the deductibility of interest costs incurred by companies, which will be in line with proposals from the OECD’s report on Base Erosion and Profit Shifting. We can also expect to see significant restrictions to the UK’s Patent Box regime – the preferential tax rate designed to promote innovation. A progress report on the government’s proposed business tax roadmap for business taxes over the remainder of the current Parliament is also due to be published which could help businesses with future planning.
VATWhile VAT is subject to the ‘tax lock’ meaning there will be no increase in VAT rates during the term of this Parliament, there is still scope for changes resulting from court or tribunal decisions. We may see changes to eligibility to be included in VAT groups, policy changes relating to VAT recovery by holding companies, and changes to the rules around the recovery of input VAT on pension fund management costs. New legislation is also expected to ensure the reduced rate of VAT on energy saving materials is maintained in line with EU law.
A full list of RSM’s considered predictions can be found here.