Budget 2007: Personal taxation predictions

It is predicted that contentious tax policies around pensions and IHT will be
left untouched by chancellor Gordon Brown in the Budget, with just new rules
surrounding freelancers operating within composite companies creating any kind
of stir.

‘The good news is that there are unlikely to be any significant tax increases
for individuals. The bad news is that anyone thinking that the chancellor will
use his last Budget to reduce the tax burden is likely to be disappointed,’
E
&Y tax partner Patrick Stevens.

The government has consulted on ways to stamp out what it perceives as tax
avoidance in composite company arrangements.

But proposals to make such companies deduct income tax and NICs from workers
has led to many new arrangements to dodge impending rules.

Some advisers have called for a delay in implementing the rules until they
will work properly.

‘These proposals may adversely affect existing service companies established
for sound commercial reasons and which have no particular focus on tax savings.

‘As the new rules may penalise those for whom they were not
intended, we urge the government to delay the new provisions for a further year,
to allow innocent businesses and individual workers time to rearrange their
affairs,’ says Richard Mannion, national tax director at
Smith
& Williamson.

John Whiting, tax partner at
PricewaterhouseCoopers,
said new legislation on managed service companies was a certainty on the
anti-avoidance front.

‘Avoidance around managed service companies is substantial and previous
measures in this area have been unsuccessful,’ Whiting said.

PwC suggests that although income tax thresholds will rise with inflation, it
will still create fiscal drag.

The firm added that capital gains tax, despite its complexity, was unlikely
to be streamlined this year.

Individuals who have failed to disclose funds from the taxman in offshore
bank accounts might get a mention, as some have suggested that HMRC could offer
an amnesty to tax avoiders.

‘A tax amnesty would be a first for the UK’s tax authorities,’ said Mannion.

A tariff-based system for tax penalties is also expected to appear in the
Budget.

For higher earners, brown could be tempted to increase NI charges from 1% to
10%, or increase the employer’s rate of NI on bonuses above the current rate of
12.8%.

Further reading:

Budget 2007: Corporate tax predictions