Martin Bell, partner and head of tax for BDO LLP in Scotland
When he delivers the Budget 2013 on Wednesday 20 March, George Osborne will have the unenviable task of trying to boost business competitiveness while exercising continued restraint on spending.
There’ll be a lot of give and take, but what the Chancellor gives with one hand, he will have to take away with the other.
The Coalition Government’s continuing ambition is to avoid unfunded tax cuts or spending commitments, and no one should expect such cuts in an attempt to ‘kick-start’ the economy.
Any tax concessions are likely to be paid for by those who the Chancellor says can afford it most, namely the rich.
The headline rate of corporate tax goes down to 22 per cent from 1 April this year and it is conceivable that a move to a flat 20 per cent rate by the end of this Parliament will be announced.
We can expect focused proposals aimed at making a) the UK an attractive destination for foreign investment, b) combating abusive tax avoidance and c) simplification of the tax regime.
That last initiative is not new, but to date there has been little in the way of effective progress.
The introduction of a cash basis for smaller businesses is a step in the right direction and the Chancellor may announce further moves towards a system where accounting and taxable profits are more explicitly aligned.
If Osborne is serious about simplification, he must also consider measures such as abolishing capital allowances and instead allowing relief for accounting depreciation.
The introduction of a General Anti-Abuse Rule or ‘GAAR’ later this year to prevent taxpayers from engaging in ‘tax abuse’ is a certainty.
This will no doubt be a highlight for the Chancellor, but don’t expect any further guidance on the line between acceptable tax planning and unacceptable tax avoidance.
Taxpayers and their advisers will be left to figure this out for themselves.
Following the very public criticism of certain foreign businesses not paying their ‘fair share’ of UK tax, the Chancellor is likely to say something about this, but at the same time he can’t afford to scare away international companies from opening new UK businesses.
He needs to create a stable and predictable environment where businesses are not bullied into paying UK corporate tax that bears no resemblance to their actual profitability, while addressing the anger of businesses and consumers and this won’t be easy.
What else can we expect? While there is a decent argument for additional or accelerated tax relief for capital expenditure on trading assets, budgetary constraints are likely to rule this out.
Similarly, an increase in Stamp Duty Land Tax (SDLT) would be unwise at a time when the property market is still struggling to recover.
A new one per cent ‘mansion tax’ on property above £2m still remains on the agenda for Nick Clegg so we may finally see that.
From a personal tax perspective, we already know that the personal allowance will be raised to £9,440 from 6 April, but given the Government has pledged for no one to pay income tax until they earn £10,000, a £10,000 personal allowance from April 2014 is possible.
Less likely is the return of the 10 per cent starting rate of income tax.
An increasing number of taxpayers will face a marginal tax rate of 40 per cent on fairly modest incomes.
For that reason the VAT rate should stay at 20 per cent and is expected to do so.
Hopefully there will be no repeat of the failed attempts to address perceived VAT anomalies such as the ‘pasty tax” and ‘static caravan tax’.
Inheritance tax rates and the nil rate band of £325,000 are to be frozen for many years in order to fund elderly and social care - despite the Coalition Government’s pre-election pledge to increase the nil rate band to £1m.
Reductions in employers’ NIC rates are unlikely and indeed an NIC increase for the self-employed is a possibility as a result of changes to state pensions.
As with every recent Budget, there is always the risk of higher rate tax relief for pension contributions being eliminated, further cuts to the annual allowance or a new tax on pension lump sums, but hopefully the Chancellor will leave pensions alone this year and let taxpayers come to terms with the significant changes already announced.
As always there will be hundreds of pages of detail to digest, but overall we can’t expect many if any giveaways this year and the Chancellor is more likely to tinker at the edges rather than do anything radical.
Martin Bell is a tax partner at accountancy and business advisory firm BDO LLP in Glasgow