PBR 06: Personal tax predictions

Thousands of individuals with offshore bank accounts would have felt shivers
down their spine following HM Revenue & Customs’ success in winning access
to Barclays’ offshore account holders.

The pre-Budget report could see chancellor Gordon Brown make an announcement
of a partial amnesty for these account holder to pay their taxes and incur a
smaller-than-usual penalty.

This would certainly be a standout moment in the PBR, but the good people
across the accounting industry have highlighted a number of other potential
personal tax issues to be raised on Wednesday.

Tax return penalties

An increase in the penalty for late income tax returns (currently £100) to £250
is expected. Harsher penalties for those who unwittingly pay too little tax are
also a possibility.


Current investment limit for a maxi ISA is £7,000, this could be raised to

IR35 and ‘composite companies’

Individuals who operate via composite companies could be exposed to IR35-type
legislation that could see them taxed as employees, warns Ernst & Young head
of tax policy Chris Sanger.

Abolition of stamp duty on share purchases

While widely called for, abolition is viewed as unlikely. ‘The 0.5% charge is
not a large disincentive to trade, however, and the Chancellor will feel that
his relationship with the City is not yet sour enough to countenance such a loss
of revenue,’ according to Nigel May, tax principal at MacIntyre Hudson.

Domicile and residence

The Gaines Cooper case caused uproar among tax advisers, who believed HMRC went
against its guidance in pursuing this tax case. Advisers are calling for clarity
of HMRC rules; a possible PBR issue.


‘It is not expected Brown will do anything to change the tax perks for
non-domiciled individuals in the UK. Britain is still an outstanding destination
for people wishing to minimise their tax burden,’ said Matt Coward, senior tax
manager at London chartered accountants Blick Rothenberg.

National Insurance Contributions

Classed by many as another form of income tax, mixed messages have come from
tax advisers on this issue. Many expect no increase in NICs, where others have
flagged up a raise as a possibility.


Inheritance tax, which generated about £3.3bn last year, is a sore point with
the Chancellor facing calls to reduce the threshold or abolish it altogether.

However the surprise attack on trusts in the 2006 Budget could signal the
start of a sustained campaign to increase the IHT take. It would be easy to
increase the trust regime tax rate and it would largely be seen as a tax on the
rich and therefore justifiable.

MacIntyre Hudson predicts that the chancellor will choose to focus on
measures to restrict reliefs and curb avoidance.

Green taxes

Ernst & Young predicts that while the chancellor may be forced to show
his cards on environmental issues, rushing into green taxes could be premature
without first reviewing the effectiveness of existing taxes.

MacIntyre Hudson predicts a 5p per litre rise on petrol pump prices and a
re-establishing of the Fuel Duty Escalator in the short term.

Patrick King, tax principal at MacIntyre Hudson, said falling fuel prices
present Brown with a good opportunity to raise revenue and boost his green

‘The fall in green tax take under the Labour government is almost entirely a
result of freezing fuel duty while crude oil prices have been rising. If Brown
wants to get serious on this issue he will undoubtedly make a significant rise
to duty now that the oil price has declined from its high.’

The firm adds that the Chancellor may seek new ways of taxing motoring in
order to reduce carbon emissions, specifically ideas that shift the
responsibility onto UK businesses.

‘Linking fuel consumption to actual carbon emissions is the only real way to
deter the worst polluters.

This could see the government requiring all new cars to be fitted with
transponders and eventually introducing a road pricing tax which charges drivers
for each mile travelled based on the carbon emissions produced by their vehicle.

‘This would involve placing transponders on cars, surely a golden opportunity
for the government to keep an even closer eye on us.’

It predicts two additional bands of Vehicle Excise Duty at the top end. Band
H could hit cars producing in excess of 275 g/km with a much steeper gradation
of the VED charge by jumping to £300 per annum. A new top-level of VED (band I)
could be used to hit cars emitting over 340 g/km with an annual levy of £500.

The firm also predicts a 5% air ticket sales tax on top of the current rates
of air passenger duty.

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