EY – Budget 2015: What can we expect?
THE Chancellor will take credit for the improving state of the economy and public finances when he presents the last Budget of this Parliament next week.
However, tax experts at EY have said that any real policy changes are likely to have to wait until after the General Election.
Andrew Spence, tax partner at EY in the Midlands, said with the Budget set against the dying embers of the coalition, the event promised to be something of a novelty.
“We are looking at a different kind of Budget that will inevitably reflect on the Chancellor’s successes over the past five years. But with the election just around the corner the Chancellor is faced with a tough decision,” he said.
“Will he press ahead with key announcements on March 18, and share them with his coalition partners, or save any pre-election giveaways for the Conservative Party’s manifesto?”
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Regardless of the timing, below is a selection of measures that EY said the Chancellor could be considering:
Business Tax
“On business taxes we will see more incentives and tightening of the rules,” said Mr Spence. “The vast majority of businesses (69%) are happy with the changes the Chancellor has introduced to the tax system so far. However, there are still outstanding elements in particular around investment allowances, support for SMEs and business rates.”
Extension of the £500,000 Annual Investment Allowance (AIA) – “The AIA is due to revert back to £25,000 this year,” added Mr Spence. “We expect the Chancellor to prolong the £500,000 extension, or even to increase it, to allow the policy to further support the economy’s expansion.
“To stimulate and support spending on critical infrastructure, we may also see the introduction of a capital allowance taking us back to the good old days of industrial buildings allowances. These allowed businesses to claim a tax deduction for a proportion of the cost of certain buildings.”
Introduction of a tobacco levy – A new levy introduced in addition to corporate tax rates, based on a tobacco company’s market share is on the cards, forecast Mr Spence.
“We will be keeping an eye out for this announcement on Budget day as it may be the Chancellor’s way of laying the foundations to expand similar levies to other sectors in the future.”
Reform of business rates – Mr Spence said that following the announcement of the Government’s consultation, the Chancellor may use the Budget to provide details around the reform of what many consider is an outdated system.
“How fundamental this reform will be remains to be seen and many will be hoping that the Chancellor will remove constraint that any review should be revenue neutral,” he said.
Personal Tax
Elaine Shiels, private client services director at EY in the Midlands, said it was unlikely the Chancellor would pull any rabbits out of his personal tax hat.
“However, particularly as a pre-election Budget, the Chancellor may choose to make tweaks to some of the existing reliefs and allowances that are already available,” she said.
These will include measures to ensure that, from April 6, non-residents pay Capital Gains Tax for the first time when they sell residential properties in the UK.
Below is a list of EY’s runners and riders on possible personal tax measures that could be announced in the Budget:
60% chance – Ms Shiels said: “We are likely to see an increase in the inheritance tax nil rate band with the Chancellor even promising to raise the threshold to £1m by 2020. This will help families take their homes outside the inheritance tax net.”
30% chance – “We know that the personal allowance will be increased to £10,600 and there will be a repeat of the promise to raise this to £12,500 by 2020. The Chancellor, however, may spring a surprise by setting out on his path to reach £12,500 earlier than expected by raising the personal allowance again. However, it would be more helpful to the lower paid to increase the threshold at which national insurance is paid.”
15% chance – “There is a slim chance that the Chancellor will announce an increase above the £11,100 level already scheduled for 2015/16 in the Capital Gains Tax allowance. We may see changes to Capital Gain Tax entrepreneurs’ relief, which ideally would be amended so that it offers more encouragement to serial entrepreneurs.”
What else to expect?
Devolution
Mr Spence said: “In the Autumn Statement the Chancellor announced that Northern Ireland would have control over its Corporate Tax rate. This raises questions as to whether corporate tax will be devolved to Scotland, among other powers, and what that means for the English regions.”
Avoidance and transparency
“Tax avoidance will be a key theme in this Budget,” added Mr Spence. “We are likely to see more announcements building on recent comments on criminalisation of assisting tax evasion and the introduction of possible penalties for evasion and aggressive tax avoidance.
“More details around the implementation of country by country reporting may also be included in this Budget, as a result of the project by the OECD and G20 on Base Erosion and Profit Shifting (BEPS). Combined with the introduction of direct recovery of debts by HMRC, we should expect announcements of increased resources heading the Treasury’s way.”
