While many taxpayers would prefer a break from the seemingly endless tax changes introduced in recent years, the Autumn Statement is likely to bring more of the same warns RSM.
Below are some of RSM’s key Autumn Statement tax predictions affecting individuals, businesses and employers.
Individuals
Commenting on the forthcoming Autumn Statement, Stephen Hay, RSM’s head of tax in Scotland said:
‘Following the Government’s defeat in the House of Lords, we can certainly expect changes to the Chancellor’s original tax credit proposals but this could result in cuts to other benefits such as housing benefit.
‘Alternatively, reductions in the tax credit changes could be offset by a restriction in the capital gains tax relief on the sale of the most expensive homes. That would be politically well received, redistributive in its effect and of considerable benefit to the Exchequer.
‘We could also see changes in the tax regime affecting business owners. The £10m of Entrepreneurs Relief currently available is arguably more than generous and a reduction to £5m may be under consideration.
‘We may also see changes to Business Property Relief. This currently gives an unlimited exemption from Inheritance Tax for the value of a trading business or shares in a trading company on the death of the owner/shareholder. This can exempt large values from 40% inheritance tax and a tinkering of the rules could result in a reduced exemption (say 50%) or the value of the relief being limited to a fixed amount.
‘In the last Budget, we also heard a lot of noise about the ‘death of the tax return’ in favour of digital filing. While some aspects of HMRC’s digital strategy are known, we are expecting some much needed clarity on what will replace the tax return and what deadlines will apply in future.’
‘With the Scottish rate of income tax due to be announced on 16 December and the Smith Commission recommendations now included in the 2015 Scottish Finance Bill, we might also expect the Chancellor to make some further announcements on devolved powers for Scotland.’
Businesses
‘The Chancellor took everyone by surprise in the Summer Budget by announcing that the corporation tax rate would be reduced to 18%. This is unlikely to fall further, but other business tax changes could be on the cards.
‘Top of the list of priorities is likely to be a response to the OECD’s project to ensure that multi-nationals pay their ‘fair share’ of tax. This could result in restrictions on the deductibility of interest and also the use of hybrid structures which seek to exploit differences in definition of taxable entities between various countries.
‘With the patent box tax regime having run into trouble in Europe, perhaps this Autumn Statement will bring forward new proposals to stimulate research and development, and the creation of intellectual property generally.
‘We may also see assistance provided to companies to invest in cyber-security in the form of enhanced tax allowances.’
Employers
‘Following a consultation, we are expecting changes to the tax regime for umbrella companies or personal service companies – reforms that could potentially raise taxes for some 400,000 predominantly low-paid workers.
‘Generally speaking, the expense of travel from home to work does not qualify for relief from tax and neither does the cost of the lunchtime sandwich. Yet certain employees of umbrella companies or individuals who work for their own personal service company have been able to get around this rule by claiming to work from home or by having a special employment contract called an ‘overarching contract’.
‘Closing this anomaly could raise about £160m in extra revenue, meaning an average rise of £8 per week in tax for affected workers. Such measures would affect predominantly low paid workers – warehouse packers, temporary manual workers and the like – so this comes with some political risk for the Chancellor.’
VAT
‘Notwithstanding the triple-lock tax clause specifying that rates of VAT will not rise, there may be some changes to the scope of VAT.
‘Previously, the UK has applied VAT at the reduced rate of 5 per cent for the installation of energy-saving materials in residential property. However, in doing so the UK has been found to be in breach of European VAT law. The Autumn Statement is therefore likely to announce the application of VAT at the standard-rate to the installation of all new energy-saving projects, commencing some time in 2016. This development will result in increased costs for consumers, housing associations, and not-for-profit organisations unable to recover VAT on underlying costs.’