Lambert Chapman LLP make Pre-Budget Report predictions

On our main site we produced an article making predictions on the forthcoming Pre-Budget Report. Our material came from a number of Lambert Chapman personnel and the full text of their thoughts is included below. We would be delighted if you wished to add your own comments underneath.

Chris Harman 

Colin Timms, Financial Secretary to the Treasury recently said ‘It is right that taxpayers pay their fair share of tax.  However, there are a minority who continue to seek ways to avoid paying their share.  This is unacceptable.  It is unfair on the majority of taxpayers, undermines fiscal sustainability, and reduces funding for public services.  This Government will not tolerate tax avoidance schemes or tax evasion in any form, and will act promptly to tackle both of these’.

 From that statement which includes tax avoidance I must put as one of my top predictions that:

• HMRC will take the view that many things that are tax planning will, in HMRC view, be considered as tax avoidance and therefore many simple and standard tax planning actions will be disallowed. 

Other predictions:

• Corporation Tax : Small Companies rate to stay at 21%.  Main rate to stay at 28%.
• Income Tax : A 60% rate to be introduced for income above £250,000.  Environmental issue ; People who commute to work in their car and who are provided with free parking by their employer will have a taxable benefit on the provision of the parking space unless they also transport a passenger to their workplace.
• Capital Gains Tax : The rate to increase to at least 25%.  The Exemption to elect for a second home to be a Principle Private Residence (PPR) to be abolished.  PPR to be exempt only up to a fixed level of gain and any PPR gain over that level to be taxed at a rate that is less than the full CGT rate. 
• IHT : The £nil rate band to increase to £750,000.  A 50% band on Estates over £5,000,000.  Business Property Relief and Agricultural Property Relief to be capped.
• NIC : No changes.
• Stamp Duty : The £175,000 starting level for residential houses to be extended to £200,000 w.e.f 1/12/2009.
• VAT : The 15% rate will continue until 30th June 2010 from when it will be 20%.  The reduced rate of 5% for domestic heating will be increased to 10% w.e.f 1st January 2010 (I must get my next lot of oil ordered!)
• Wealth Tax : A new tax which will be 0.25% on assets, anywhere in the world, owned by a U.K. domiciled resident where their Open Market Value at 31st December each year exceeds £5,000,000.  The rate will be increased or the excess level will be reduced in the tax year during which people emigrate.
• The proposed alignment of our fiscal year to be moved to a calendar year and therefore inline with much of the world.
• Beer and spirit duties : The duties will remain the same but steps will be put in place to set minimum selling prices so that supermarkets can’t sell cheap alcohol.
• Road Fund Licence : Increases on ’unfriendly vehicles’.  The lowering of the emission bands for ‘friendly vehicles’.
• Funding for the building of more Universities to start in 2013.  This will be because more people will have to have a ‘degree’ before they can undertake their chosen work* and will also be seen as giving the Construction Industry a boost following on from the Olympics building work.  Measures will be brought in so that ‘one man band’ and ‘labour only’ construction workers will have to be employees and not self employed if they are to work on any such projects.
• The ‘remittance basis’ for U.K. residents who are not U.K. domiciled will apply to those who have been U.K. resident for five of the last seven years (instead of 7 of the last 9 years).
• Long term unemployed without any qualifications will be offered a cash inducement to travel to interviews and jobs (for the first year of work). Those who have studied and worked will have to get on with it without any help). 

I heard on the radio this morning that all new nurses will, by 2013 (funny that is after the Olympics!) have to have a degree before they can become a nurse.  I know that they have to undergo learning and need a degree or a diploma to be a nurse (they can start nurse training with no qualifications), but, the radio report only mentioned a degree so is a diploma out of the window?  Isn’t nursing a vocation?  I can foresee other trades will be pushed towards having to have qualifications i.e a butcher needing something in the field of chemistry combined with biology!

Gill Philpott and the Tax Team

Capital gains tax rate to rise to 25% to cut the differential between income tax and capital gains tax which has in the last year led to tax payers seeking to tax events as capital rather than income

To assist the property market the retention of the £175,000 Stamp Duty Land Tax exemption

Introduction of anti avoidance legislation aimed at removing tax advantages of employee benefit arrangements

Another deferral on the introduction of the income shifting rules due to difficulties in drafting the legislation

A measure to penalise ‘fat cat’ city bonuses – perhaps in the form of a punative National Insurance Rate,

and of course the perenial favourites years measures to promote green issues and measures to penalise the drinkers and smokers and drivers of fuel guzzling cars

Something we would like to see but don’t think will be introduced profit averaging for all businesses and not just farmers and artists to help businesses even out profits, tax and therefore cashflow between the good and bad years.

Mike Carabine

Mike Carabine

The standard VAT rate is due to go back up to 17.5% from 1 January 2010. However I predict the increase will be delayed 1 or 2 months but will rise to 18% (possibly even as far as 20%).

Potentially reducing the range of supplies qualifying for VAT zero-rating, blaming EC legislation whilst increasing the amount coming into Treasury coffers.

More attacks on tax avoidance schemes.

Corporation Tax for small companies to rise to 22% as was meant to happen from 1 April 2009. Rates for large companies to continue to fall.

Nigel Whittle 

Increase the Capital Gains Tax rate to 30%

Lisa Potter 

I believe that Government will be playing their cards close to their chest.  With an election around the corner they would be suicidal to make any radical announcements beyond those already in place without further risking their chances of being re-elected.    

 The one announcement to keep an eye out for will be the VAT rate from 1st January, I believe that this may be announced at a higher rate than the 17.5% previously in place.   Regardless of what the rate is, businesses will once again suffer from the inconvenience of the administration burden as a result of the change and many will remain confused as to what income falls under what VAT regime.

 I believe that the 50% higher rate will be fully implemented for forthcoming tax periods.   As for corporation tax I would like to see some changes to the rate for smaller companies, larger company’s have benefited from decrease in rates whilst the smaller company rate has increased.  In light of the current climate this should be addressed to assist those businesses that are in more need of the assistance.      

Overall I think it will be a non-eventful Pre-Budget report based more on the protection of their re-election chances than changes to legislation that will lose them votes.

Richard Thomson

With the next election looming, I think they will be looking for increasing support from voters whilst trying to increase revenue, by delayed measures and targeting higher earners.

Therefore unlikely to increase VAT, Corp tax etc in short term.

Likely to have notional ‘feel good’ announcements:

• Gift to pensioners – extra winter payments,   tax benefits etc.
• Revision of tax credits with increase to lower incomes.
• Further adjustment to ISA’s and encouragement of savings.

And will also have:

Increasing tax on wealthy – perhaps reducing the £150K 50% band.

Increasing NIC on high earners – increasing rate, upper band.

Focusing on Green issues and tax incentives, with additional tax charges for those not being green.

Increase to CGT rate of 18%, which is relatively low.

Revision to IHT to assist middle England – which as house prices have fallen, won’t be as dramatic as many claim.

and of course:

preventing Income shifting, introducing NIC on close company divi’s, increasing tax avoidance schemes etc.

Has Government considered the business cost of its actions?

With all the concerns over the economy and keeping people in work was now the right time fro the Government to cost business an estimated £300 million to be able to reduce the rate of Value Added Tax by 2.5% on 1^st December 2008? Having had some time to reflect on the Pre Budget Report Statement many retailers are thinking that the VAT reduction will not necessarily get passed onto shoppers at the till without negotiation and so is it all really worth the aggravation being caused?

 

This Government has been good at wasting resources. In its first term of office its obvious inexperience of being in Government led them to creating many costly talking shops whilst trying to reach the right answer on policy decisions. Laudable maybe in trying to discover the right answers but if Gordon Brown’s zig zagging method of being Chancellor has been mirrored across the board then a lot of right answers were not reached making the spend uneconomic.

 

Gordon’s last error; the 10p tax rate withdrawal (as if you didn’t know) has proved particularly costly to the Nation. By compensating all tax payers in the way they did the Chancellor issued another tax coding notice to every tax payer to every employed person with the new personal allowance on it. This cost the price of a stamp, an envelope, labour or machine costs to pack it and at least one sheet of A4 paper to produce it within HMRC.

 

Upon receipt there were the extra professional costs to check them to ensure accuracy. But how could they be wrong you ask as only 1 item changed; the personal allowance from one sum to another. Ah yes, but you have to consider that other tax codes had already been issued in many situations which had had things changed that were not correct. We had checked these and advised of the revisions. In many cases these had either not been processed or returned to the incorrect figures again meaning further amendments. Some clients we have had 7 or more tax coding notices this year!

 

And if this was not staggering enough we had to use our working together links to access a computer programmer to understand how the program worked so that we could telephone a Manchester tax office to explain how to use the software. I think this is called training and probably unaccredited training at that as we had never seen the software and so offered it in virtual way. “When a blind man cries” I think was the name of the Deep Purple song!

 

Trading in a difficult economy requires care and attention over the overheads to keep spending at a minimum. I think we need to see some appropriate care and attention from our Government to ensure that they do not cost their customers too much money and at the same time keep their own overheads to a minimum whilst offering an efficient and well trained service.

 

Now there’s a challenge for the New Year resolution!

Lambert Chapman LLP consider the Pre Budget Report

On our main website we have a section containing the information set out in the Chancellor of the Exchequer’s Pre Budget Report Statement of 24 November 2008. It also includes comments on the statement by a number of Lambert Chapman LLP Partners. If you would like to be taken to the site please click on the link set out below to do so.

Having read the comments you might wish to make your own contribution to what the Chancellor or our Partners have said. To do this leave a comment at the foot of this article which will be posted after moderation considerations.  We welcome you adding to the debate that the Chancellor’s statement has created. Have we gone too far? Is there other policies he could adopt?

Let us know your thoughts.

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