UK: Hot topics

Last Updated: 8 November 1999

The Pre-Budget Report: KPMG's tips on what to look out for

Next Tuesday, the Chancellor will deliver his third Pre-Budget Report or 'Green Budget'. If this follows the pattern set in the last two years, there will be announcements of tax measures he intends to implement in the March Budget, together with more general economic content. The following are areas which may be mentioned.

Personal/employment taxes

Income tax - No change in rates is likely to be announced, since the long-awaited 10% starting rate was finally brought in last April, and a reduction in the basic rate to 22% was announced for next April.

All-employee share schemes - This area is certain to be addressed, with the publication of draft clauses expected.

On the downside, the Chancellor may restrict the ability of companies to obtain corporate tax deductions through the use of QUESTs (Qualifying Employee Share Ownership Trusts) for the gains that employees make on the exercise of Save As You Earn (SAYE) options. Such a crackdown has been mooted for a while but with a review of share schemes it is a real possibility now.

Stakeholder pensions - These are very likely to be mentioned, as the closing date for responses to the Revenue's September consultative document, which proposed a single tax régime for all pensions other than final salary schemes, was 29 October. This strongly suggests that the Chancellor intends to comment on this area.

National insurance contributions - NICs are due to be applied to all staff benefits from April, while the upper earnings limit is due to be raised from April 2001, hitting better-off employees. It is possible that the Chancellor could use the Pre-Budget Report to launch a long-term policy reform, such as proposing the abolition of Class 2 contributions while increasing class 4 contributions, as a simplification measure. This was suggested by the Taylor report on work and benefits. (Both Class 2 and Class 4 contributions are paid on self-employed earnings.)

Company cars - These might well be mentioned, as measures are expected in Budget 2000 detailing how the change in the company car tax régime from one based on list price to one based on carbon dioxide emissions with effect from April 2002 will work. With transport and the environment such topical issues at present the Chancellor could take the opportunity to set out his strategy.

Entrepreneurial/small businesses

Reducing employer burdens - The Government has already announced that it wants to use the Pre-Budget Report to issue proposals in this area. The Working Families Tax Credit might be part of this as there has been concern over the costs to employers of administering the WFTC through the payroll system.

Enterprise Management Incentives - The Government has pledged to bring in an EMI scheme in the March 2000 Budget limited to small high-risk companies. The Revenue issued a technical note in March 1999 setting out the scheme in some detail and it would be surprising if the Chancellor did not refer to it in the Pre-Budget Report. In a speech to the CBI Conference earlier this week he indicated that changes were proposed to extend the scope of the scheme.

Research and development tax credit - This is one of the Chancellor's longer-standing interests as it was first mooted back in March 1998, but with consultation having taken place this year on a Revenue document which proposed a volume-based R&D credit for SMEs, more details are likely to be given next week.

Corporate venturing - This is another certainty, as the Government intends to introduce such a scheme from April 2000. Under the proposals, larger companies will buy stakes in smaller ones, thus providing finance and managerial expertise, but the smaller company will keep control.

Personal service companies - These proposals have been significantly revised following business representations. They are intended to take effect from April 2000 and could be cited by the Chancellor as a successful example of Government listening to business concerns.

Indirect taxes

Aggregates - Some announcement is probable as the Government has been discussing a package of voluntary environmental improvements with the quarrying industry, as an alternative to legislation. The industry was given till the end of October to come up with proposals, which suggests that the Chancellor will cover this area in his report.

Climate change levy - A levy is to be introduced from April 2001 with the rates applying to different fuels to be set in the Budget 2000. There have been protests from energy-intensive industries over these plans so the Chancellor will probably cover this subject.

Graduated vehicle excise duty for new cars - This may possibly be mentioned, as details will be announced in Budget 2000, but much detail is unlikely.

Corporate taxes

Intellectual property - This will probably be mentioned, as over the last two years the Revenue has been consulting on ways to update the intellectual property tax régime to encourage innovation.

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Press releases

- w/e 29.10.99

27 October 1999 - DETR, DTI and HM Treasury - Government welcome for proposed UK emissions trading scheme

Proposals for UK emissions trading scheme, open to all UK companies, welcomed by Government Ministers.

27 October 1999 - DTI - Minimum wage enforcers show their teeth

Reports the first case in which the Inland Revenue has taken an employer to an employment tribunal on behalf of an employee, to enforce the minimum wage.

27 October 1999 - Customs & Excise - First landfill tax fraud prosecution

Reports a successful prosecution for fraudulent evasion of the tax.

28 October 1999 - HM Treasury - Charities are losing out on tax breaks

Research has been published which, inter alia, shows that 70% of the UK population give to charity in a typical month but less than 10% make use of the tax reliefs for charitable giving.

A summary of responses to the Government's consultation document on the taxation of charities has also been issued.

28 October 1999 - Charity Commission - The modern charity

The Charity Commission is conducting a review of the Charities Register 'to see whether there is scope to develop further the boundaries of charitable status within the current law, by the flexible use of [the Commission's] powers'.

29 October 1999 - Inland Revenue - Making tax law clearer: eighth exposure draft - savings and investment income of individuals

This exposure draft from the Tax Law Rewrite project covers all the remaining material on savings and investment income of individuals.

The next Weekly Tax Briefing will be issued on 12 November 1999

For further information about any of the items mentioned, please get in touch with your usual KPMG Tax Advisers contact.

This Briefing is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining the liability to tax or determining investment strategy in specific circumstances. In such instances separate advice should be taken.

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