Pre-budget report predictions
Article Date: Dec 02 2009
It's likely overall taxes will go up
It could be Alistair Darling’s last Pre-Budget Report (PBR). Paul Webb, a partner with business tax specialists Robert James Partnership, weighs up whether the Chancellor is likely to offer any relief for growing businesses.
With the election looming, it is unlikely the PBR will include anything really controversial. But at the same time, the battered Treasury coffers need replenishing and inevitably that will mean tax rises.
Putting things into perspective, tax receipts have dropped by nearly 13 per cent this year, with a 30 per cent fall in levels of corporation tax alone. Figures just released highlight just how bad this problem is. The overall tax take in 2007 was £510 billion, falling to £495 billion in 2008, and figures for the year to date show the tax take so far to be only £260 billion.
With this in mind, these are our predictions for the 2009 PBR:
1. Introduction of anti-avoidance measures for taxpayers seeking workarounds to the new 50 per cent tax rate. The impending tax hike on high earners has attracted a huge backlash and as a result some very obvious avoidance strategies have arisen, so much so that one very high profile tax expert has advised against business owners doing anything to avoid the measure until after the PBR. The reality is that the higher rate is going to stay because it represents such a good source of revenue for the Treasury and it has long been argued that a rate above 40 per cent was required to create a fairer tax system. If anything, we believe that the level from which personal allowances for higher earners are being withdrawn may be further reduced.
2. Increase of capital gains tax (CGT) from the current 18 per cent. Although it will be very unpopular among entrepreneurs and property investors, it’s probable that CGT will be raised to become more aligned with income tax rates. Currently we have a system whereby capital is taxed at a much lower rate than income and many experts consider this highly unfair. Furthermore the abolition of entrepreneur’s relief is an easy policy measure which is likely to win favour with lower and middle income voters.
3. VAT is rising back to 17.5 per cent on January 1. Given that the government deficit is so large, it’s quite feasible that the main rate of VAT might be increased to 18 per cent. However, it is possible the Chancellor will give a boost to the construction industry after the backlash against the “false self employment” proposals and introduce a lower rate for VAT associated with property repairs or refurbishments. A change to stamp duty rates for certain commercial property transactions could also be announced, again welcome boosts for an ailing sector.
4. Similarly a national insurance rise would be an obvious way to generate additional income. But rather than introduce a blanket rise, it’s more likely this will be phased in gradually by adjusting the bands at which the various rates would apply.
5. The tax credits schemes will be adapted to target those families most in need of support.
6. For business owners, there may be initiatives to encourage the introduction of share schemes. This could be achieved by simplifying the rules surrounding their introduction.
7. The generous extensions to the loss carry-forward initiative which allows business owners to take into account previous years’ losses to reduce future tax liabilities may be subject to some form of restriction.
8. There may be changes to the business property relief rules for inheritance tax purposes via a change to the type of assets that benefit from the 100 per cent rate and/or a reduction of the rates themselves.
Whatever the Chancellor actually announces on the day one thing can be guaranteed: there will be further measures introduced designed to clamp down on perceived tax avoidance by both companies and individuals.
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