What to expect from the pre Budget report

Tax cuts are thought – and the Institute of Directors wants £20bn of them - to be on the agenda, but what kind?

Over the weekend it emerged that

• a substantial drop in VAT is expected to at least 15%
• income for higher rate tax payers earning more than £150,000 has also been trailed
• The Institute of Directors has advocated cuts in income tax, 3p, and in corporation tax, 4p.
  

And what other technical changes will affect the profession, for better or for worse?

• The foreign profits consultation is one key area. Sue Bonney of KPMG says: 'The corporate tax world is waiting for the next development on the changes to the way that foreign profits are taxed and we’d expect to see something on this in the pre-budget report. Exactly what might emerge is not very clear – a full consultation document with detailed proposals on all the areas of foreign profits taxation under review is very unlikely but updated proposals on changes to the controlled foreign companies regime and a new restriction on interest expense are likely before the end of the year and could be unveiled in the pre-budget report.'

• One thing the PBR always does is set personal allowance and national insurance rates. Bill Dodwell of Deloitte says: 'The PBR is the time when the personal allowances, benefits rates and national insurance rates for the next tax year are announced. These are based on the September Retail Prices Index (RPI), which peaked at 5.2%. Whilst the Chancellor could choose to override the RPI, setting lower rates, we think he will want to help households, which have borne inflation at this level in 2008.'

• Some are speculating there could be income tax reductions. George Bull of Baker Tilly said: 'Reductions in income tax rates could be implemented more quickly than any other direct tax change. Such reductions would make more sense as a general measure relieving the overall economic downturn than they did as an answer to the 10p tax debacle.'

• Others are hoping there will be changes on small business taxation, perhaps a review dropping the unpopular Arctic Systems-related changes. The Chartered Institute of Taxation says: ' In these turbulent economic times, the CIOT believes it is even more important that the Government thinks very carefully about how it approaches the difficult issue of income shifting which, as originally proposed, would place a significant admin burden on the majority of family businesses. The CIOT has long argued for a fundamental review of small business tax, as this would resolve many inconsistencies including the shifting of income.'

• There is likely to be an update on progress on a Taxpayers' Charter. Francesca Lagerberg of Grant Thornton says: 'HMRC's powers have changed significantly in the last two years. It is imperative that taxpayers are kept up-to-date and informed of what is expected of them and what protection they have when things do not go as they should. The Charter is an opportunity to set out a clear statement of a taxpayer's rights and obligations and would bring the UK in line with many other countries. When it comes to taxpayers' rights, the best result would be for the Charter to be encapsulated in legislation to give it real 'teeth' so that it can be fully relied on by a taxpayer. Such a move would potentially form part of a welcome package of tax measures for SMEs.'

Accountancy Age will be reporting all the details of the PBR as they emerge. Click back to accountancyage.com for all the latest updates.