Chris Sanger, Head of Tax Policy at EY, comments: “With this Budget announced in the dying embers of the coalition, next week’s event will be somewhat of a novelty. We are looking at a different kind of Budget that will inevitably reflect on the Chancellor’s successes over the past five years. But with the election just around the corner the Chancellor is faced with a tough decision. Will he press ahead with key announcements on the 18th March, and share them with his Coalition partners, or save any pre-election giveaways for the Conservative Party’s manifesto? ”
Regardless of the timing, below is a selection of measures that EY says the Chancellor could be considering:
Business tax predictions
Chris Sanger, Head of Tax Policy at EY, says: “On business taxes we will see more incentives and tightening of the rules. The vast majority of businesses (69%) are happy so far with the changes the Chancellor has introduced to the tax system, as our recent survey showed. However, there are still outstanding elements in particular around investment allowances, support for SMEs and business rates.”
Extension of the £500,000 Annual Investment Allowance (AIA) - “The AIA is due to revert back to £25,000 this year. We expect the Chancellor to prolong the £500,000 extension, or even to increase it, to allow the policy to further support the economy’s expansion.
“To stimulate and support spending on critical infrastructure, we may also see the introduction of a capital allowance taking us back to the good old days of industrial buildings allowances. These allowed businesses to claim a tax deduction for a proportion of the cost of certain buildings.”
Introduction of a tobacco levy - “A new levy introduced in addition to corporate tax rates, based on a tobacco company’s market share is on the cards. We will be keeping an eye out for this announcement on Budget day as it may be the Chancellor’s way of laying the foundations to expand similar levies to other sectors in the future.”
Reform of business rates - “Following the announcement of the Government’s consultation, the Chancellor may use the Budget to provide details around the reform of what is an outdated system. How fundamental this reform will be remains to be seen and many will be hoping that the Chancellor will remove constraint that any review should be revenue neutral.”
Clarity around the implementation of the Common Reporting Standard
Julian Skingley, EY Partner in Financial Services Tax practice, says: “We hope that the Chancellor will announce when we can expect published legislation on how the Common Reporting Standard will be implemented in the UK. Regulation needs to be laid out by 30 March if they are to make it through this parliament before the general election, so the Budget is the last chance. The financial services industry has been waiting since July 2014, when the issue was consulted on, and, given the CRS implementation deadline of 1 January 2016, there is growing anxiety to understand the logistics and processes that will be required. Firms are already dealing with FATCA, so clarity around the CRS is needed sooner rather than later.”
Banks hope this Budget isn’t laden with surprises
Anna Anthony, EMEIA Head of Financial Services Tax at EY, comments: “Banks will be hoping the Chancellor does not announce further changes to the bank levy this year. In 2014, major banks in the UK paid a total of £2.2bn in bank levy, and were hit for a second time later in the year with a new restriction on the use of banks’ brought forward losses. This came in the form of an unexpected additional cash tax cost, aiming to raise £4bn over five years, and effectively equated to a 36% bank levy hike. It came as a very unwelcome surprise, and the industry will be hoping that this year’s Budget doesn’t come laden with more surprises.”
Disguised asset management fee income rules too broad
Fiona Carpenter, EMEIA Head of Hedge Funds for EY, comments: “Investment managers will be keenly awaiting the Budget, in the hope that revised draft legislation and anticipated guidance on disguised management fees is narrower than the current broad scope. The rules need significant amendment as they currently have far wider ramifications than the stated policy objective, and the Budget is likely to be the last opportunity for the legislation to be amended before it comes into force on 6 April.”
Personal tax predictions
David Kilshaw, private client services partner at EY comments:
“We are unlikely to see the Chancellor pull any rabbits out of his personal tax hat so don’t expect any major new announcements or changes. However, particularly as it is a pre-election Budget, the Chancellor may choose to make tweaks to some of the existing reliefs and allowances that are already available. These will include measures to ensure that from 6 April non-residents will pay Capital Gains Tax for the first time when they sell residential properties in the UK.”
Below is a list of EY’s runners and riders on possible personal tax measures that could be announced in the Budget:
60% chance – “We are likely to see an increase in the inheritance tax nil rate band with the Chancellor even promising to raise the threshold to £1 million by 2020. This will help families take their homes outside the inheritance tax net.”
30% chance – “We know that the personal allowance will be increased to £10,600 and there will be a repeat of the promise to raise this to £12,500 by 2020. The Chancellor, however, may spring a surprise by setting out on his path to reach £12,500 earlier than expected by raising the personal allowance again. However, it would be more helpful to the lower paid to increase the threshold at which national insurance is paid.”
15% chance - “There is a slim chance that the Chancellor will announce an increase above the £11,100 level already scheduled for 2015/16 in the Capital Gains Tax allowance. We may see changes to Capital Gain Tax entrepreneurs’ relief, which ideally would be amended so that it offers more encouragement to serial entrepreneurs.”
Pensions one year on - Malcolm Kerr, Senior Adviser to EY, comments: “This time last year, the pensions industry had no idea of the extent of changes that were on the cusp of being introduced. One year on and it is unclear how ready either the industry or customers are, and there are still numerous challenges yet to overcome. Now under a month from implementation, it will be interesting to see if the Chancellor gives some much needed clarity on detailed taxation implications in the Budget. Worse, of course, would be further tinkering, adding more complexity to the situation.”
What else can we expect?
Devolution
Chris Sanger says: “In the Autumn Statement the Chancellor announced that Northern Ireland would have control over its Corporate Tax rate. This raises questions as to whether corporate tax will be devolved to Scotland, among other powers, and what that means for Wales.”
Avoidance and transparency
Chris Sanger says: “Tax avoidance will be a key theme in this Budget. We are likely to see more announcements building on recent comments on criminalisation of assisting tax evasion and the introduction of possible penalties for evasion and aggressive tax avoidance.”
“More details around the implementation of country by country reporting may also be included in this Budget, as a result of the project by the OECD and G20 on Base Erosion and Profit Shifting (BEPS). Combined with the introduction of direct recovery of debts by HMRC, we should expect announcements of increased resources heading the Treasury’s way.”
Relief for the Oil Gas industry
Derek Leith, Head of Oil Gas taxation at EY, comments: “We expect the introduction of a basin wide Investment Allowance (IA). This will replace the plethora of existing field allowances with a single cost based allowance. Effectively it will reduce the proportion of a company’s profits that are liable to supplementary charge. So for those companies investing in the UK continental shelf it will have the effect of lowering their corporate tax rate from 60% towards 30%.
“We also expect the Budget to contain transition arrangements ensuring that no company with an existing field allowance will be worse off under the new regime.”