UK: Deloitte Preview Of Budget 2012

Last Updated: 21 March 2012
Article by Deloitte Tax Group

Most Read Contributor in UK, August 2017

Bill Dodwell, head of tax policy at Deloitte, considers what tax measures the Chancellor is expected to focus upon in the Budget on 21 March, and what we already know is in the Finance Bill 2012.

Following a particularly tough 2011, when growth was hampered by sharp rises in commodity prices and events in the Eurozone, Chancellor George Osborne faces a challenging environment for his 2012 Budget.

The Office for Budget Responsibility forecast in November 2011 that tax receipts for 2011-12 would be £554 billion, but public spending and investment (net of other receipts) would push the UK into borrowing £127 billion. The Institute of Fiscal Studies forecast a slightly better outlook in its Green Budget: tax receipts fractionally higher at £555 billion, but a lower borrowing requirement of £122 billion. The January receipts and spending figures were positive, which supports the lower borrowing requirement.

The Chancellor is being urged by some to cut tax to stimulate the economy. The quickest way to get money into the hands of consumers is through a VAT cut; the second best is a cut in employer National Insurance contributions. Cutting income tax through increasing the personal allowance is less rapid, as some would have to wait until January 2014. The personal allowance is scheduled to increase to £8,105 from 6 April 2012. The coalition agreement provides for this to be increased to £10,000 by the end of the Parliament, however, the LibDems are keen to accelerate this. Some LibDems have suggested it might be financed by a mansion tax and the withdrawal of higher rate tax relief for pension contributions.

So, what could the Chancellor announce?

50% Tax Rate - HMRC is due to report to the Chancellor before the Budget on the impact of the 50% rate of income tax. Although it is too soon to be able to effectively assess the impact this has had on tax revenues, our view is that it is likely to have raised a small amount. We have no idea, however, how much tax has vanished through emigration (and lack of immigration), acceleration and deferral. We would like to see the Chancellor abolish this rate, or as a minimum set a clear timetable for its withdrawal.

General Anti-Avoidance Rule (GAAR) - Graham Aaronson QC concluded a narrowly focussed GAAR would deter particularly abusive tax avoidance. The Chancellor is expected to announce his GAAR plans at Budget 2012 and political pressure may mean he proposes taking forward a GAAR. We believe principles-based drafting, the use of Targeted Anti-Abuse rules, disclosure rules, and a new look at areas of law which have been under attack is more effective at eliminating aggressive planning. The fundamental problem with a GAAR is uncertainty, and even its proponents don't think it would raise a significant amount of revenue.

Child Benefit - the Chancellor must announce how he proposes to withdraw child benefit from higher rate taxpayers. The initial proposal - full withdrawal once anyone in the household had income over £42,500 - was simple, but quite unfair. We expect the Chancellor will introduce a taper, so that withdrawal is spread over a greater level of income. What a taper would do, though, is impose an effective rate of 50-60% on that income range (depending on the taper rate). This creates its own disincentives. In reality, it is impossible to offer benefits at lower income levels without imposing high effective tax rates, as the benefits are withdrawn for those on higher incomes.

Childcare - the previous Government decided to limit tax relief for childcare vouchers to the 20% basic rate and the amount to £2,915 pa for new claimants - worth less than £600. However, childcare is increasingly costly and there have been a range of calls for additional tax relief to help parents return to work. It is quite possible the Chancellor will launch a consultation on new ways to offer support.

Stamp duty land tax (SDLT) - the use of schemes to avoid SDLT on residential property has grown, partly because of ineffective enforcement of the rules by HMRC. HMRC has now significantly stepped up its compliance work, but it is still possible to avoid SDLT on future sales by buying a property into a company. Levying duty on company sales is harder to enforce, as there is no easy way to track share sales, but some other countries manage to do so. The only practical way to aid enforcement would be to impose a reporting duty on estate agents. The measure would not raise a very substantial amount, though.

Withdrawal of higher rate relief for pension contributions - we doubt the Chancellor will respond to calls to cut pension tax relief, not least because the current system was only put in place in April 2011. Withdrawing higher rate relief would be much more complex than it might at first appear. The way in which Defined Benefit schemes work could mean employees in such schemes could end up with a big pension and low earnings. Some public sector schemes aren't funded, so levying a charge which is then borne by taxpayers raises no money at all. There's also a problem with Defined Contribution schemes. Cutting tax relief could mean many put in less money. However, many schemes operate on a matched contribution basis, cutting an employee's contributions would also cut the employer contribution. Another option being floated would be a cut in the amount that could be put into a pension scheme each year; currently this is £50,000.

Property taxation - there have been suggestions from different quarters that higher taxes on residential property could be charged. The UK has about 27 million homes, but only 154,000 fall into the top band for council tax, with a further 920,000 in the next band. We do not support a mansion tax, suggested to be an uncapped levy on the market value of homes. There is insufficient correlation between income and the capital value of property - so an uncapped levy could be very damaging. However, there may be scope to raise money by increasing council tax charged in the top two bands. A house in the top band is worth at least £1.2 million in London (where one third are located) and at least £700,000 throughout England. The top band house in Scotland is worth at least £550,000, but just £420,000 in Wales. However, even if an increase were to be spread over both the top two bands, it would be unlikely to raise more than £1 billion. This could cover just over one million homes, compared to the four million liable to higher or additional rate tax.

Small business taxation - the Office for Tax Simplification has recently reported on its review of taxation of small businesses (defined as businesses with turnover up to £30,000). The OTS suggests there may be scope to simplify accounting for these businesses. One recommendation is the introduction of a disincorporation relief, equivalent to the relief available on the incorporation of a business, to enable small businesses to disincorporate without incurring significant tax cost. Operating a very small business through a company involves additional administration, but usually carries a lower tax and National Insurance cost. The Chancellor will announce whether he plans taking forward any of these recommendations.

Manufactured Overseas Dividend Regime - there have been too many cases of unintended planning using these rules and it would not be surprising if HMRC were to consult on changes to the manufactured overseas dividend regime. Market participants may need to justify the economic benefits of the regime and find a way to cut down the tax-motivated side if it is to survive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.