Deloitte's team of tax experts, its chief economist and
public sector leader consider key potential announcements, the
economic outlook and the state of public finances ahead of this
year's Budget.
Business Rates
Business rates are devolved taxes, so any reforms announced by the
Chancellor would apply in England only. It would be open to the
Scottish government and Welsh Assembly to make their own
choices.
Bill Dodwell commented:
"Our expectation is that the government will retain the
business rates system broadly unchanged – despite lobbying
from major retailers for reductions. Around 70% of business
properties do not pay the tax due to exemptions for small
properties but for major retailers the cost typically exceeds their
corporation tax bills. The government announced last year that more
control over the system would be passed to local councils,
including the ability to increase the rate where the locality has
an elected mayor. We expect more details on how this will
work."
Business Tax roadmap
The previous coalition government set a corporate tax roadmap for
the 2010-15 parliament, which was welcomed by business as it set
out the government's plans for tax changes. This government has
promised to unveil the Business Tax roadmap at Budget
2016.
Bill Dodwell remarked:
"The most important part of this – given that we already
know corporation tax will be cut from 20% to 18% by 2020 – is
whether the UK will introduce a wide-ranging limitation on interest
and financing deductions. The G20/OECD Base Erosion and Profit
Shifting project recommended a limitation and so has the European
Commission in its draft 'anti-BEPS' Directive. The
difficulty for the UK will be to ensure that much-needed
infrastructure projects can continue to get tax deductions for
their borrowings, whilst potentially cutting back on possible base
erosion elsewhere. The government has previously said that no
change would be introduced before April 2017; we hope that more
time would be given to allow businesses to adapt, if changes are to
be brought in."
Employment taxes
The Treasury and HMRC have consulted on a number of measures
affecting employment taxes and further news are expected at Budget
2016.
Mark Groom, partner in Deloitte's Employer Service practice,
said:
"An important area concerns whether to make businesses that
engage workers who use personal service companies – so-called
PSCs - liable to withhold PAYE and bear the cost of employer's
NIC on payments to those PSCs. The current rules place the onus on
the personal service company to withhold PAYE and NIC where the
worker is deemed to be an employee, as opposed to a self-employed
person. However, HMRC believes that many PSCs do not apply the law
properly, leading to a loss of tax and national
insurance.
"It is possible that the ultimate engagers will be forced to withhold tax and NIC, leaving truly self-employed individuals to reclaim. This would be a major change – but could raise significant amounts. The proposals present many challenges but a consultation for change could be announced with a view to new rules applying from 2017.
"We would also expect a new strategy for company car
taxation to be outlined at Budget 2016, no doubt supporting a move
to low emission vehicles, including electric vehicles, and there
could be further announcements following the work of the OTS on
income tax and NIC alignment, employment status, and in relation to
HMRC's consultation on termination payments."
Oil and gas taxation
The decline in the oil and gas prices has had a major effect on
the North Sea, and at current prices many of oil fields will be
loss making in 2016.
Roman Webber, head of Energy & Resources Tax at Deloitte,
said:
"There have been calls for the Chancellor to make further tax
changes, building on the action the Treasury has taken over the
course of the last year. Firstly, he could encourage exploration by
reducing the effective rate of tax for new discoveries. Secondly,
he could facilitate a change to allow companies to sell field
interests more easily. Decommissioning costs are tax deductible and
the likely resulting losses can be offset against prior year
taxes.
"However, an asset sale currently does not allow access to
this corporate tax history – meaning it can be very hard to
sell a field to a different, perhaps more efficient, operators such
as late field life specialists. Allowing access to this tax history
would help transactions and get the assets into the right hands.
Finally, the Chancellor could consider cutting the main corporation
tax rate on oil and gas from 30% towards the current 20% applicable
to other industries."
Air passenger duty
More information is expected on whether the Chancellor will
devolve air passenger duty (APD) to local areas in England. APD
will be devolved to Wales and Scotland and there is some concern
that English airports could be disadvantaged if they were not able
to respond to changes in duty rates.
Economy
Ian Stewart, Deloitte's chief economist, said:
"Mr Osborne's room for manoeuvre in this year's
Budget is hugely constrained by weaker than expected tax receipts
and slower growth. To meet his own targets for eliminating the
deficit, he will require a run of good luck or further cuts in
public expenditure.
"There will be less good news in this Budget than Mr
Osborne might have expected ten months ago in the warm afterglow of
the Conservatives' election victory. Once again events are
conspiring against the Chancellor, making the path of fiscal
rectitude longer and more arduous than he had hoped."
Public Sector
Mike Turley, global and UK public sector leader at Deloitte,
said:
"Austerity may deepen again at this Budget. The Chancellor
has warned that the public sector could face fresh cuts on top of
those already planned if growth continues to fall short of
assumptions in the deficit reduction plan.
"For Whitehall and the wider public sector, that could mean additional pressure as they continue to take costs out, collaborate to secure savings and make better use of technology. In the coming years people are likely to start seeing big differences in the size and shape of their public services alongside increased costs, as council tax is increased to pay for police and social care.
"Last March, the Chancellor set out spending cuts that would have been twice as deep as anything the public sector had seen in recent years. But in the months that followed, he scaled those cuts back by more than £80 billion. This Budget may just see some of those cuts returning."
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