Osborne unlikely to turn tax upside-down in Autumn Statement

by Calum Fuller

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23 Nov 2012

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George Osborne Budget box

WHILE THE AUTUMN STATEMENT is fast approaching, it will be more a winter statement than an autumn one by the time it arrives.

Misnomer aside, at present there is not much we know for certain about the contents of the chancellor's announcement.

What we can be fairly sure of is that tax avoidance will be high up George Osborne's agenda, with the incoming general anti-abuse rule expected to be unveiled with some refinements to the draft issued earlier in the year.

It is also thought that there will be a reduction to the maximum tax-free annual pension contribution will drop from £50,000 to £40,000, which will bring in a reported £600m for the public purse. For far greater impact, though, he could impose a more drastic cut to £30,000 and generate closer to £1.8bn, but it would likely provoke fury from grass-root Tories.

Yet if there is no political appetite for that, Osborne will need to find a new and lucrative revenue stream to compensate for the upcoming drops in income tax and corporation tax.

Despite that, it's unlikely he will alter tax rates too greatly following the fierce backlash the government faced earlier in year over changes to the age-related allowance and taxes on hot takeaway food and caravans.

VAT, too, is unlikely to change at a time when spending is to be encouraged if the recovery is to become less anaemic, says Reeves tax partner Geraint Jones.

Indeed, that is the incredibly delicate balance Osborne has to strike; maximising the Revenue's take and stimulating commerce.

Options for the chancellor are limited, with conflicting pressures exerting themselves from both sides of the coalition.

Given the depth of most pockets has shallowed in recent years, increasing taxes is an unpleasant prospect for most, and would not likely be well received. One option, however, which has gone largely unmentioned, is increasing higher-level national insurance contributions both on a personal and corporate basis.

There is also the possibility banks could be dealt a rise in the levy they pay the Treasury in a bid to maintain £2.5bn yield from the industry.

In recognition of shallower pockets, Osborne will likely reaffirm his intention to increase the personal allowance to £10,000 by April 2015, with a rise in April 2013 already announced.

A statutory residency test also is likely to be brought in to help taxpayers determine if they are resident or not in the UK. It is hoped the test will provide much-needed certainty in relation to taxpayers' affairs after a series of difficult years when the rules have been, as Grant Thornton put it, "muddied" by changing HMRC guidance and a number of long-running tax cases. The final version of the test will show what the key criteria are that will determine UK residency.

Inheritance tax is another area for consideration, says Jones, having gone untouched since 1984, but at this point in the economic cycle, other areas are likely to take priority, he says.

Overall, though, it promises to be an incredibly stern test for Osborne. There is a fine balance to be struck, and getting it wrong could well impede the country's recovery considerably. If ever there was a time to get things right, it is now.

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