The Budget and Beyond...

Armstrong Watson’s Award Winning Tax Team consider what they would like to see in the Summer Budget, what they expect to see and what the five year’s of this parliament will bring

Corporation Tax

For the first time we have a single rate of Corporation Tax of 20%. We expect no changes in either direction in the forthcoming budget or, indeed, for the term of this parliament.

We continue to expect the government to use enhanced reliefs for certain sectors but this list mustn’t become too long. Whilst it works to stimulate expenditure on Research & Development, many of the other enhanced reliefs are for specialist niche areas (such as Children’s TV, game shows and competitions) and are not what the majority of the business community desire.  

A new version of the Patent Box, the Corporation Tax relief for income derived from patented products or processes, is imminent and there is a strong possibility this could be published in the July budget. It is hoped that the new version will be simpler for companies to understand, the existing version being a complex calculation to understand.

Capital Allowances

The Annual Investment Allowance, being the amount of qualifying capital expenditure that can attract tax relief in the year of expenditure was first introduced in April 2008. Over these seven years the amount has altered four times as has ranged from £25,000 to £500,000.

The current £500,000 limit expires on 31 December and the Chancellor indicated in his March budget that the limit would reduce but not to the £25,000 that it is scheduled to reduce to.

Hopefully the announcement will be made in the Summer budget to:

  • Set a realistic amount of £250,000 and
  • Fix it for the term of the current parliament to provide certainty and stability

Presently capital expenditure is being delayed or accelerated based on accounting periods and thought being given to complex transitional rules. Decisions should be made commercially, and certainty would allow for this to happen.

Income Tax and National Insurance

Whilst the Chancellor has already announced there won’t be any increases to Income Tax and National Insurance, there will be changes.

Class 2 NIC is to be abolished in 2016/17. Class 4 may be widened accordingly or even aligned with Class 1 as paid by employees. This announcement must happen sooner rather than later.

We expect the higher rate threshold to be increased (the amount at which tax payers start paying at 40%) annually in order for the government to fulfil their promise of a £50,000 threshold by 2020.

Likewise, the personal allowance of £10,600 is to rise to £12,500 by 2020. Furthermore, there is a commitment for those working 30 hours a week on the National Minimum Wage to not have to pay tax. With that in mind the rate of the increase in the personal allowance may be more aligned with the NMW earlier rather than later to avoid the impact of this happening in 2020.

There has also been much talk about whether the Chancellor will scrap the additional rate of tax, currently set at 45% so that all income above the basic rate threshold is subject to income tax at 40%.  As such a cut could be seen as controversial it would seem sensible to do this at the beginning of a parliament and so I would expect to see this introduced, perhaps from April next year, especially if linked to changes in the pension tax relief, which have also been suggested, as this would allow him to remove some of the sting from such a proposal.

Capital Gains Tax (CGT)

The tax take from CGT has increased since the rate was reduced from 40% to 18% and 28%. Therefore, we would expect no changes to the CGT rate, with the usual small increase to the annual exemption.

Entrepreneurs Relief continues to divide opinion – should it be abolished or reduced due to the large amount claimed to date or should it remain as it encourages entrepreneurship and reduces the need for deferrals or other reliefs as most tax payers are happy with the 10% rate.

We expect no major changes, with the government continuing to nibble at the edges of the relief as they have done so recently, perhaps abolishing associated disposals.

Inheritance Tax (IHT)

The current nil rate band of £325,000 has been the same for many years and the previous coalition fixed this until 2017/18.

However, the current government wishes to have a nil rate band of £1m per couple by the end of the parliament. They will achieve this by giving an additional £175,000 per person on their residence. We do not expect this to come into being this year.

Anti Avoidance

We expect the usual specifically targeted anti avoidance measures for particular transactions the government has become aware of.  General anti avoidance is well catered for now with DOTAS, APNs and the GAAR. Hopefully these will be given time to bed in before any further general measures are introduced.

 

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