Ahead of George Osborne’s Summer Budget on July 8, his first as Chancellor for the new majority Conservative government, Chris Morgan, Head of Tax Policy at KPMG in the UK, outlines his predictions and wish list for tax.
“Anticipation is building ahead of George Osborne’s ‘Summer Budget’, due to be unveiled on July 8. We’ve had some indications already about what to expect. The Chancellor will be enshrining in law that there will be no rises to income tax, VAT or national insurance contributions rates. He is keen to make good on manifesto pledges such as raising the personal allowance and higher rate income tax threshold and may well take the opportunity to do so now, so setting out the direction of travel to a lower tax economy.
"In addition to the pledges on the personal allowance and higher rate threshold there has been some speculation that the Chancellor could reduce the additional rate of tax from 45%, perhaps back to 40%. However, given the current economic climate the former seems more of a priority than the latter.
“The government has also said it plans to raise £5bn from avoidance and evasion so we anticipate the Chancellor to take a tough stance here.
“Where might we see other measures? There could well be changes to taxes outside of the protected three (such as capital gains tax for example) where we could see rises in the form of changes to rates, adjustments to allowances or general reforms of regimes. If the CGT rate is put up in the budget, we hope that there will be measures to protect incentives such as Entrepreneurs’ Relief which encourage individuals to invest in business.
“There will probably be a fair dose of fiscal medicine around pensions tax relief; a pre-election Conservative press release referred to reducing the annual amount that can be contributed to a pension tax-free for those earning over £150k, with those earning around £210k only able to contribute £10k. There may be other changes around the tax free lump sum or possible changes to the way people can use ‘salary sacrifice’ to make pension contributions. There have been multiple changes to pensions tax in recent years. In view of this, we strongly support the pensions industry’s call for a fundamental review of pension taxation to address the anomalies and complexities of the current regime and suggest that there should be a moratorium on further change ahead of this.
“For businesses the headline rate of corporation tax is very unlikely to move, but we are likely to see some more targeted anti-avoidance measures – almost an inevitability on budget day. “Probably of more interest to multinationals will be the OECD’s final recommendations for tackling base erosion and profit shifting (BEPS) which are due out later this year. The Chancellor has already shown he’s prepared to bring in new rules ahead of time on this in the form of his introduction of UK’s Diverted Profits Tax last year. We hope he resists the temptation to ‘jump the gun’ on any further measures.
“Overall, it’s in the area of tax policy that the Chancellor really has scope to make transformational changes. We would really like to see wider moves to improve the whole area of tax policy development and implementation in the Summer Budget. For instance, we welcome the government’s commitment to permanently establish the Office of Tax Simplification (which was created at the beginning of the previous parliament for the duration of the coalition). We would like to see this valuable institution’s remit expanded to include a review of all substantial new tax legislation whilst in draft.
“Additionally, we would value an expansion of parliamentary time given to discuss tax matters. In recent years tax has taken centre stage in public consciousness and tax policy is a key issue for government. In contrast, however, time for considered debate in government is very limited. We would support the establishment of a cross-party committee to consider tax policy issues as we believe this could significantly improve the legislative process.
“Another welcome policy move would be if measures could be introduced to allow improved methods to analyse and communicate the likely impact on taxpayers of proposed measures. This is especially relevant when a change is set to affect smaller businesses and those individuals without ready access to specialist tax advice.
“In terms of specifics, infrastructure tax is an area that could really benefit from the introduction of some targeted incentives. There is an anomaly in the UK tax system whereby business expenditure on capital investment in structures and associated buildings is not tax deductible. We believe that addressing this issue by introducing allowances to support such capital investment would improve the affordability of major upcoming investment in projects like tidal lagoons, power stations, airports, roads, rail and other public infrastructure works where private funding plays a major role.
“Finally, we’d like to see more tax ‘roadmaps’ announced in the Summer Budget. The coalition produced a corporate tax roadmap in its early days which set out the direction of travel it intended to take. This was very useful for business as it gave them some certainty around the government’s intentions, enabling them to plan for the future. We’d like to see another corporate tax roadmap and, in an ideal world, a similar roadmap for personal tax.
“But whatever the detail, George Osborne has proved he’s adept at pulling rabbits out of hats so we can certainly expect some surprises on the day.”
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KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.