Ahead of George Osborne’s Summer Budget on July 8, his first as Chancellor for the new majority Conservative government, Martin Findlay, Head of Tax at KPMG in Aberdeen, outlines his tax predictions.
“Anticipation is building ahead of George Osborne’s ‘Summer Budget’ and we’ve had some indications already about what to expect. The Chancellor will be enshrining in law that there will be no rises to income tax, VAT or national insurance contributions rates. He is keen to make good on manifesto pledges such as raising the personal allowance and higher rate income tax threshold and may well take the opportunity to do so now, so setting out the move towards a lower tax economy.
“Scottish income taxes will probably garner a mention for political purposes, but as the legislative power effectively now rests with Holyrood, we are unlikely to see much of an announcement.
“We would fully expect to see further extensions to the oil and gas reliefs announced in March which will no doubt be coupled with the re-announcing of those benefits. At current and projected oil tax revenue levels, it’s unlikely for there to be huge benefit to the Exchequer. However, it should go towards creating further positive impact on industry sentiment, particularly in terms of marginal field development, fiscal stability and its general direction of travel.
“In addition to the pledges on the personal allowance and higher rate threshold there has been some speculation that the Chancellor could reduce the additional rate of tax from 45%, perhaps back to 40%. However, given the current economic climate the former seems more of a priority than the latter.
“The government has also said it plans to raise £5bn from avoidance and evasion so we anticipate the Chancellor to take a tough stance here, possibly including the need to create criminal sanctions for tax evasion.
“Where might we see other measures? There could well be changes to taxes outside of the protected three (such as capital gains tax for example) where we could see rises in the form of changes to rates, adjustments to allowances or general reforms of regimes. If the CGT rate is put up in the budget, we hope that there will be measures to protect incentives such as Entrepreneurs’ Relief which encourage individuals to invest in business.
“There will probably be a fair dose of fiscal medicine around pensions tax relief; a pre-election Conservative press release referred to reducing the annual amount that can be contributed to a pension tax-free for those earning over £150k, with those earning around £210k only able to contribute £10k. There may be other changes around the tax free lump sum or possible changes to the way people can use ‘salary sacrifice’ to make pension contributions. There have been multiple changes to pensions tax in recent years. In view of this, we strongly support the pensions industry’s call for a fundamental review of pension taxation to address the anomalies and complexities of the current regime and suggest that there should be a moratorium on further change ahead of this.
“For businesses the headline rate of corporation tax is very unlikely to move, but we are likely to see some more targeted anti-avoidance measures – almost inevitability on budget day.
“Probably of more interest to multinationals will be the OECD’s final recommendations for tackling base erosion and profit shifting (BEPS) which are due out later this year. The Chancellor has already shown he’s prepared to bring in new rules ahead of time on this in the form of his introduction of UK’s Diverted Profits Tax last year. We hope he resists the temptation to ‘jump the gun’ on any further measures.
“Overall, it’s in the area of tax policy that the Chancellor really has scope to make transformational changes. We would really like to see wider moves to improve the whole area of tax policy development and implementation in the Summer Budget. “