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News - 7 March 2012

What will the 2012 Budget bring?

With just under two weeks to go before the Chancellor delivers his third and possibly most challenging Budget yet, we asked for the opinions of our resident soothsayers to offer their predictions for the Treasury’s measures to stimulate growth, fund these policies, any increases in personal tax, and clampdown on avoidance.

Income Tax
It has been suggested that the Chancellor may introduce planned increases in the personal income tax allowance earlier than the due date of April 2015. Stuart Coleman, Manager of the ABDS Tax department thinks:
“We may well all agree that raising personal tax allowances to £10,000 is a good idea to help the lowest earners, it will, in reality, be incredibly expensive. To pay for this, the Chancellor is likely to claw back the abatement for higher rate taxpayers, bringing a sting in the tail for the squeezed middle.”

Corporation Tax
In last year’s Budget, the Chancellor pledged to reduce the headline rate of corporation tax, currently at 26%, in incremental stages to 23% by 2014.
The Centre for Policy Studies has urged him to go further, slashing the rate to 20%, or even 10% in the longer term. Proponents of cuts to corporation tax say that it not only attracts more businesses from overseas and encourages new ones to set up in the UK, but that it also boosts confidence and provides businesses with more revenue for investment and, crucially, job creation – which means even more profits and more revenues for the taxman. Tonmoy Kumar, manager of the Accounts Department at ABDS thinks:
“Such drastic cuts are unlikely given the perilous state of the public finances, but the Chancellor may give a green light towards further long-term reductions, perhaps accompanied by a realignment of the tax base to pay for them.”

Announcements last week of the retrospective blocking of two tax avoidance schemes entered into by a High Street bank which would have cost the exchequer up to £500m in corporation tax, and growing support in Government for some form of General Anti-Avoidance Rule (GAARs) to stamp out aggressive tax avoidance schemes, illustrate the Treasury’s determination to act to reduce the tax lost to such arrangements.
Stuart Coleman:
“Taxpayers can expect a continued assault on anti-avoidance and further announcements are likely to be made in the Budget, high profile companies that indulge in tax planning must now consider the reputational risk involved in participating in tax avoidance schemes – regardless of how effective their tax planning may be. Tax planning not Tax avoidance”

Corporation tax and economic growth
With widespread acceptance that economic growth is totally dependent on private sector activity; the Chancellor will be looking for a way to balance out the effects of the planned reduction of the Annual Investment Allowance from £100,000 to £25,000 from April 2012.
Tonmoy Kumar says:
“With little room for manoeuvre on tax, the Chancellor could offer a limited window of accelerated allowances, perhaps with repayable tax credits, for targeted capital investment projects. However, the difficulty is that much of our capital equipment is imported, so at the ‘front end’ the beneficiaries may well be our trading partners overseas. In the longer term, however, the increased economic activity should help to create employment.”

Real Time Information (RTI)
HMRC currently envisage that all employers and pension providers will have joined the RTI system by October 2013, to improve the operation of PAYE, with a pilot commencing in April 2012.
Oliver Reeve of the Payroll Department of ABDS thinks:
“Continuing their plans to implement RTI across all UK businesses, HMRC are demonstrating that they’re in denial about the widespread lack of awareness of their scheme among employers. Businesses are not ready for the major changes that RTI will involve. Recent performance issues in the HMRC PAYE coding system show us that insufficient time is being set aside to trial a major new system.”

Stamp Duty Land Tax
With speculation surrounding the possible introduction of a mansion tax – possibly as a political quid pro quo for the abolition of the 50 per cent tax rate – discussion also continues around the potential creation of a higher rate of Stamp Duty Land Tax.
Lavinia Newman, Founder of ABDS says:
“HM Revenue & Customs (HMRC) will be more determined than ever to close stamp duty loopholes and clamp down on avoidance. HMRC will be looking property transactions like a bloodhound. Those participating in such schemes should be prepared to deal with an enquiry.”

All are in agreement, however, that following two consecutive rises in the standard rate of VAT, bringing it up to 20% on 4 January 2011, no further changes are expected in the forthcoming Budget. Any increases on VAT for zero or reduced (5%) rated goods and services are also unlikely.

If you need any help and advice on Inheritance tax, capital gains Tax, or any other implications of the Budget, don’t hesitate to contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help in all your financial planning.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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