Read our response to the Budget 2016 here
Not too brutal for pensions- for now at least
Justified fears that pensions would be raided yet again have been allayed but for how long? The Chancellor is known to favour further reductions in relief, for higher rate taxpayers in particular. So even if there is to be no immediate change, expect an announcement about his longer-term aspirations and consultations on change.
Topping out the 3% SDLT on additional residential property
Consultation on details of the new SDLT charge of 3% on additional residential property purchases from 1 April 2016 closed on 1 February 2016 and we expect to see the final proposals in the Budget.
The original proposals threw up anomalies that require clarification and possibly simplification. Problem areas include the charge applying when
- parents who help their children purchase a residence are named as joint owners, even if their interest is minimal and only for the sake of security; or
- a home is bought for an aging parent or a relative with special needs.
New Deemed Domicile Rules
We hope that the Government has listened to criticism of the draft legislation for new deemed domiciled rules for income and capital gains tax purposes that are to come into force next year, from 6 April 2017. These rules have been subject to lengthy consultation already and Budget is unlikely to contain more than the announcement of further consultation.
Reform of taxation of offshore trusts is a difficult and complex area because of the difficulty and complexity of existing legislation so don’t be surprised if all that is announced in the Budget is further consultation, meaning a further period of uncertainty for non-UK domiciles.
Entrepreneurs’ relief
The restrictions on entrepreneurs’ relief (ER) for disposals of goodwill and disposals to connected persons were roundly criticised when they were first announced in December 2014 and expanded in the 2015 Budget. We have been promised the results of a review of those restrictions.
Whilst there has been the almost annual rash of rumours about its future the scope for further tinkering attacks on ER seems limited and on “Everything I do is right Day” the Chancellor should resist the temptation to tinker for tinkering’s sake.
OTS Small companies review
On 3 March the Office for Tax Simplification (OTS) published its review of small company taxation. This provided a thorough analysis of the issues facing small companies in general, micro-companies in particular. The OTS highlighted areas for the Government to consider including;
- reducing the compliance burden on the smallest companies by allowing for a look through, perhaps similar in effect to the ‘check the box’ option for LLCs in some of the United States; and
- cash accounting for micro-corporates as well as unincorporated businesses.
The Government will only have had a couple of weeks to start to consider the OTS report but its recommendations would be a positive step in nurturing growing enterprises.
A new roadmap for corporate tax
In November 2010, the Coalition Government published a Corporate Tax Roadmap. Back then, the focus was all about making the UK corporate tax regime the most competitive in the G20. We are due another Corporate Tax Roadmap shortly. Whilst the competiveness of the UK economy must still be the objective, the environment has somewhat changed. The Action Plans arising out of the OECD-G20 Base Erosion and Profits Shifting project are already making themselves felt and will have a strong bearing on the direction of travel.
For example, we already know that the patent box benefits are being made more restrictive, so that for new entrants from 1 July 2016, the reduced corporation tax rate will depend on claimant companies having developed the IP concerned themselves. It is therefore worth companies taking maximum advantage of the more generous regime whilst it is still available, as existing claimants can continue to benefit from this until 1 July 2021.
Other changes arising out of the BEPS Action Plan are country by county reporting and measures to tackle hybrid mismatches. One area of crucial importance to companies in the question of corporation tax relief on interest expense. This has been the subject of a consultation document, with the proposal that interest relief would be restricted to a percentage of EBITDA. The OECD recommended that this percentage should be between 10% and 30%. Regardless of whether the fixed percentage is applied at company level or sub-group level, there will inevitably be increased complexity, either through having rules to deal with disallowances or capacity in different individual companies, or in having to allocate an overall restriction between different group members, plus the interaction with the carry forward rules. These changes are likely to hit those sectors where gearing is high, such as the real estate sector where borrowing is on a loan to value basis. Smaller companies may be exempted through a de minimis limit (possibly a net interest expense of £1 million).
Improving Large Business Tax Compliance
‘Transparency’ is something you hear a lot about these days, and this is hot on the agenda for large corporates, with the requirement to publish tax strategies on the internet included in the draft Finance Bill for companies falling into the Senior Accounting Officer Regime. On top of which, George Osborne is understood to be in favour of making public country by country reports; which would be likely to fuel further public debate and hostility about the amount of tax paid by multinationals.
The Digital Age reaches Tax
Finally, we are likely to hear more plans about making tax digital. This is likely to involve more regular reporting for many taxpayers. The consequence of this is likely to be the acceleration of tax payments for many taxpayers, so that tax is paid closer to when profits / income are earned. So, perhaps we should not be celebrating the demise of the tax return?
Don’t expect any giveaways
With a worsening economic situation, George Osborne needs to save money. Whilst he will be looking primarily to reduce spending he needs additional revenue as well. So he will be looking for ways to raise more revenue without breaking his ‘Tax Lock’ which could mean tightening of allowances and more measures presented as countering abuse.