Time for the Chancellor to make his mark, says EY
ACCOUNTANCY and advisory firm EY has attempted to second-guess George Osborne’s likely moves before next week’s Budget.
Andrew Spence, tax partner at EY in Birmingham, said: “In the upcoming Budget, the Chancellor will have to strike a balance between the commitments he made prior to the election, both in terms of spending and tax constraints, and his need to generate revenue.
“As history shows, the first Budget post an election is when most Chancellors seek to fill their coffers, hoping that the benefit of spending those additional funds outweighs any initial pain.
“The Conservative Party’s manifesto pledge for a Tax Lock on VAT, National Insurance and Income Tax (that together make up two thirds of the overall tax revenues) limits the Chancellor’s room for manoeuvre. As a result we may expect to see tackling tax avoidance feature heavily, as a means of expanding the tax base, or indeed the number of taxes.”
Spence suggests that on business taxes, much focus to date has been on the interaction of the UK tax system internationally. However, the Chancellor should not forget the UK domestic tax system, and needs to ensure that it is fit for purpose, he suggests.
“The focus in the last Parliament was on the 20% headline rate and now the Chancellor should look beyond this to the underlying fabric of the business tax system,” he said.
“Businesses will want a roadmap providing a clear indication of where the Chancellor will take the tax system in the next five years.”
On business rates Spence said: “In the last Budget we heard of the Government’s intention to fundamentally review business rates. Now that the consultation has closed, it would be helpful to get an update of where the Government has got to.
“In particular, the Government has stated that any new system should raise the same amount of money, something that severely constrains reform.
“Given that this tax doesn’t change with profits, it can be one of the most onerous for retailers and all options should be considered carefully. We would like to see the Chancellor consider expanding the scope of this review.”
EY is also calling for support for entrepreneurs and small businesses: “We could see the expansion of enterprise zones to include more areas, as well as an exemption for small properties from business rates,” Spence said.
“Following the recent consultation, the Chancellor could also announce steps to improve access to R&D credits for small businesses.”
Spence also thinks we are likely to see changes to the main capital taxes, Capital Gains Tax (CGT) and Inheritance Tax (IHT).
“And with the Chancellor keen to raise revenue, it could be a case of ‘capital punishment’ for wealthy taxpayers,” he said.
