Will niche taxes be focus for the Chancellor?

Will niche taxes be focus for the Chancellor?

KPMG tax experts look at what to expect in the Budget on 16 March.

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Looking ahead to the Budget on March 16th, Michelle Quest, Head of Tax at KPMG said: “Having been braced for some major changes on pension taxation it is likely the Chancellor will turn his attention to a range of more niche tax areas on Wednesday.  

The Government has previously announced a ‘triple lock’ commitment, promising not to raise income tax, national insurance or VAT rates during this Parliament.  It remains to be seen whether this will result in a widening of the tax base to increase revenues, perhaps using some innovative measures such as the apprenticeship levy announced last year.   

One of the biggest game changers for the tax system in the UK is the proposed move to digital tax accounts.  Fundamental changes to the way in which taxpayers meet their compliance obligations are ahead.  There are obvious challenges to be overcome and it will be interesting to see if there is any further information in advance of the consultations promised for Spring 2016.Overall, however, this will be a rare Budget as it comes in the shadow of Brexit and the big question is: will the Chancellor look to announce a major headline-grabbing change, such as reducing the top rate of income tax, or stick to steady as she goes?”

Corporate Tax

Robin Walduck, Tax Partner at KPMG, commented: “The Business Tax Roadmap was promised last year and may be published on Budget Day. We know from our own research that UK companies place more importance on the simplicity, stability and predictability of a tax regime rather than on the headline corporate tax rates, and a roadmap certainly fits with that agenda. “The roadmap is expected to contain an outline and timetable of changes to business taxation due to be introduced during this Parliament. This should include plans for the UK implementation of the OECD’s base erosion and profit shifting (BEPS) proposals and, in relation to these proposals, we may also see further details on the deductibility of corporate interest expense that was consulted on last year.”We may hear updates on the Patent Box and the anti-hybrid rules, draft legislation for which has already been released.

Employment Tax

Colin Ben-Nathan, Tax Partner  at KPMG, said: “Draft legislation for inclusion in the Finance Bill 2016 – including the Apprenticeship Levy and legislation to introduce an exemption for trivial benefits-in-kind – have already been published for consultation and we may hear updates next week.“The Government may also set out how it intends to proceed with proposed reform in a number of areas, including:

  • Travel and subsistence.  Whilst specific measures aimed at intermediaries will be in this year’s Finance Bill, the Government is continuing to consider wider-scale change.  A discussion document setting out suggestions for reform was published last year, and we await the Government’s response to this initial consultation exercise.
  • Reform of IR35.  Given the estimated scale of non-compliance with the current rules, change in this area seems inevitable.  The Government published a preliminary discussion document last year, but has not yet confirmed the direction of reform.
  • Salary sacrifice.  Since last year’s Autumn Statement – where it again stated that it remained “concerned about the growth of salary sacrifice arrangements” - the Government has been gathering information on how salary sacrifice is used in practice. The Budget may inform us whether we should expect concrete proposals for reform, following on from this initial information gathering exercise.
  • Alignment of income tax and NICs.  The Office of Tax Simplification has published its report, setting out a package of proposals, earlier this week. Given the timing, we may hear something from the Chancellor next week or, perhaps more likely, the Government may take more time to consider its response.

Small and Medium-sized Enterprises (SMEs)

Bivek Sharma, Tax Partner and Head of Small Business Accounting at KPMG, noted: “SMEs are facing a series of challenges, which could ultimately drive up costs and increase administrative duties.  Research by KPMG Small Business Accounting found that over a third of small business owners spend more than one day every week tackling financial administration. The introduction of the National Living Wage next month and pension auto-enrolment will do little to reduce the time taken to complete the volumes of administration that goes hand in hand with running your own business.

“With all this in mind, we are therefore hopeful of seeing some relaxation of the rules around digital reporting. We know that the Government is keen to simplify tax more generally so the digital reporting requirements could be softened. 

“Additionally we may well see measures to help more businesses easily access faster digital networks, more investment in road networks and importantly much needed changes to an outdated business rates system. We could also see the Chancellor make some announcements designed to improve access to start-up loans and a strengthening of the New Enterprise Allowance (NEA) measure to achieve stronger and more viable businesses.

Personal Tax

Jo Bateson, Tax Partner at KPMG, said: “As regards personal tax there could be a number of announcements including:

  • Non-UK domicile changes – A consultation took place last year on reforming the taxation regime for non-domiciles.  No further significant changes are expected in this area until the final rules are announced. These are not expected to come into force until 2017 but it is hoped that further clarification may be available. 
  • Capital Gains Tax: Entrepreneurs’ Relief (“ER”) – Finance Act 2015 introduced changes to ER, restricting its availability for certain companies with investments in joint ventures or partnerships. The Government is expected to consider bringing forward legislation designed to ensure the relief is available on certain genuine commercial transactions.
  • Income Tax Break – In a move to please voters ahead of the impending referendum, we may see changes to the personal allowance and higher rate threshold with the Chancellor potentially reducing the additional rate of tax from 45%, perhaps back to 40%. This would be a radical move, and while unlikely, all bets are on for what we might see introduced on Wednesday.

Bank Tax

Robin Walduck, Tax Partner at KPMG, commented: “For banks we may see an update on planned changes in scope of the bank levy (expected in Finance Bill 2017) and amendments to the definition of High Quality Liquid Assets (expected via secondary legislation during 2016). A consultation on legislation for the new corporate criminal offence for companies failing to prevent tax evasion has been promised for “early 2016” so it may be published on Budget Day.”

Insurance Premium Tax

Adrian Smith, Global Head of Insurance Premium Tax (“IPT”), at KPMG highlighted: “Given IPT was raised from 6% to 9.5% last summer, the tax would have more than doubled in 9 months if it did rise to 12.5%. Increasing IPT to 12.5% is likely to generate an additional £1.5bn for the Government, bringing the total IPT take to £6bn per annum.  

"Speculation over a possible increase in IPT is of course bad news for UK insurers but should worry us all. We are already under-insured as a society and any increase in premiums will inevitably lead to some individuals or businesses deciding to do without as the costs are passed on to end users. 

“Foreign based insurers who do not always take IPT into account when underwriting risks located in this country, may look to benefit further, though consumers should be mindful that they may not have the same level of regulation or protection.

“In European terms the mooted rate of 12.5% is higher than the average Member State rate. The UK insurance industry is a major strength for the economy and the politicians must ensure it remains competitive."


Media enquiries:

Jess Liebmann, KPMG Corporate Communications

T: 0207 311 3245 

E: jessica.liebmann@kpmg.co.uk

KPMG Press Office: 020 7694 8773

Riku Heikkila, FTI Consulting

T: 020 3727 1240

E: riku.heikkila@fticonsulting.com

About KPMG

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 revenue of £1.96 billion in the year ended September 2015. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 174,000 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.

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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