Simon Littlejohns, Partner and Head of Tax at Friend Partnership Limited, gives some thoughts on what might be expected in the forthcoming Budget.
Setting the scene for the General Election on 7 May
The Budget is on Wednesday 18 March and the Finance Bill will be published on Friday 20 March and will be enacted during the course of the following week prior to dissolution of Parliament on 30 March.
There will then be less than six weeks of campaigning before the General Election on Thursday 7 May.
The tone, and content, of the Budget is going to be highly political.
The Budget Changes
The main, eye catching, announcements are likely to be changes which the Chancellor would like to make in the next Parliament if the Conservatives are in power, or a member of a Coalition, in that Parliament.
What might be on the tax initiatives shopping list if the Conservatives get back into power?
More measures to tackle tax evasion and tax avoidance
It is highly likely that measures will be announced, to provide criminal sanctions for not only tax evaders themselves but also for those providing them with the advice. An earlier proposal in 2014 for a strict liability offence of offshore tax evasion was consulted on but, for the moment, has been left in abeyance.
Personal allowances and income tax thresholds
The personal allowance has risen from £6,475 to £10,000 during the term of the current Administration. In the Autumn Statement it was announced that it would go up to £10,600 in 2015/16. The Chancellor may repeat an earlier promise to raise the personal allowance to £12,500 over the forthcoming Parliament.
There may also be a more concrete indication of the Chancellor’s intention to raise the 40% tax threshold to apply to incomes above £50,000, taking into account the personal allowance, by the end of the decade. He mentioned this in his Autumn Statement.
Pensions and pensioners
The Prime Minister has announced that he wants to protect pensioners’ benefits, cynics would suggest because this is the section of the electorate most likely to vote in a General Election, but there may be some changes to the tax arrangements which would affect future pensioners.
There may well be announcements about tax relief for pension contributions which might perhaps mean a reduction in the amount of annual contributions which can qualify for relief. Eventually there may be some limitation in the relief for each £ of contribution, i.e. at basic rate only, but such a change is very unlikely to be announced so close to a General Election.
There may be a return to the pledge to increase the inheritance tax nil rate band to £1m setting a time limit for its introduction and clarifying if the £1m is per person or per married couple / civil partnership.
The Annual Investment Allowance is currently £500,000. The allowance is due to fall back to just £25,000 on 1 January 2016 and it seems possible that the Chancellor may promise to leave it at £500,000 if the government is re-elected in May.
Research and development tax credits
In the Autumn Statement, the Chancellor announced that from Autumn 2015 there will be a new advance assurance service for small companies making their first claim and new guidance. The Chancellor may offer further assistance to small companies undertaking R&D, perhaps through simplifying the rules as to which costs qualify.
Simplification of the UK tax code remains a wish for taxpayers and advisers alike. The Office of Tax Simplification has made a reasonable start but a lack of resources has prevented the root and branch reform which is needed.
The cost of Entrepreneurs’ Relief (“ER”) in 2013/14 at £2.9bn is three times higher than HMRC’s estimated cost. Following an unexpected change in the Autumn Statement, ER can no longer be claimed on the transfer of goodwill on incorporation. It is possible that the Chancellor may announce other ways to cut the cost of ER in the Budget.
What will be in the Finance Bill?
There will be a number of measures which have already been announced which are non-contentious. In addition there will be the Budget measures which will no doubt be focussed on securing votes.
How can I hear about it?
We will have a summary of all the measures on our website the day after the budget. If you are on our mailing list you will receive a summary overnight. Please let us know if you are not already on our mailing list and would like to be.