BUDGETS immediately before general elections are notoriously dull affairs.
The combination of a lack of time for enacting policies and a desire to avoid rocking the boat tend to conspire to ensure the final Budget of the term is largely insipid and content-free.
That said, practitioners are not wholly convinced this year’s will pass entirely without event. What is expected, then, is plenty of tinkering around the edges, and a continuation of the themes that have characterised this government – namely clamping down on tax avoidance and supporting low income families.
Further inroads against tax avoidance are expected, with the introduction of the ‘pay up first’ policy on disputed schemes likely to provide the most controversy.The proposals, initially announced in January, see those in tax avoidance schemes compelled to pay their bills up front while HMRC conducts investigations into their arrangements.
The move is designed to eliminate the tactic of holding onto disputed tax while cases are investigated and litigated, which can take years. Critics, however, are dismayed by the retrospective nature of the plans, which will examine arrangements given a Disclosure of Tax Avoidance Schemes (DOTAS) number as far back as 2004. The apparent extension of HMRC’s powers, too, has drawn concern from practitioners.
Similarly, steps will be taken in taxing large multinationals following public opprobrium over the shifting of profits to lower-tax jurisdictions. However, it is thought much of these will be minor, signposting the direction of travel rather than anything more significant. Instead, the government will await OECD recommendations before making more substantial changes.
On a more vanilla level, the personal allowance is expected to rise again, this time to £10,500, but practitioners point out the basic rate band is shrinking, with the 40% band kicking in earlier. One option, with the 45% being too hot a political potato to handle, could be a reduction of the higher rate of income tax by 1p, which practitioners estimate would cost around £1bn.
Pensions, too, could attract some action, with previous opportunities to tap into their capital reserves passed up. While removing higher rate income tax relief for pension contributions could yield as much a £5bn, the Conservatives may find such a move politically unpalatable to its core supporters and eschew the move.
Other expected announcements include a social investment tax relief, although there is no indication of the rate as yet. In-keeping with the strong anti-avoidance policy, the use of charities in avoidance is likely to be attacked with changes to the definition of a charity for tax purposes.
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