The Chancellor, George Osborne, warned that 2014 would be “a year of hard truths”. So, while his budget speech on 19 March will have moments of optimism, Mr Osborne needs to make further savings of £25bn to address the deficit and it’s expected that this will come from the welfare budget.
It’s hard to say whether we are in for any major surprises. If we look back to the 2012 Budget, the Chancellor delivered a bombshell in the form of the pasty tax! So, you never know…
I can confidently predict that the tax-free personal allowance will, at least, increase from £9,440 to £10,000. Furthermore, in line with recent years, the higher rate threshold will be reduced from £34,370 to £31,865. The latter is not good news for households with only one breadwinner.
Employer related changes
The Chancellor is likely to announce that employers can spend up to £500 per employee on recommended medical treatment to help them return to work after a period of ill health or injury. This is an initiative to which I give a cautious thumbs-up, but it’s not one that will get employers wildly excited.
Employee share schemes
The Government will be seeking to encourage further employee share ownership by increasing the maximum value of shares that an employee can hold in their Share Investment Plans.
Another likely piece of good news is that disposals of shares to a new kind of trust for the benefit of all employees of a company may be wholly relieved from Capital Gains Tax (CGT).
In response to an Office of Tax Simplification recommendation, the rules around employee share schemes are to be simplified and their processing modernised.
This is another positive step in the right direction, but don’t expect there to be legions of new employee shareowners.
Pensions will be under attack, again, with the lifetime allowance for gross contributions being further reduced from £1.5m to £1.25m. While, for many, this is not going to be an issue, increasing numbers of higher-paid executives could find funding to be an issue in the future.
The pre-announced halving of the time for individuals to sell a former residence after moving, from 36 to 18 months, without incurring an exposure to CGT, is to stop abuse. This proposed change made me smile, because, it’s often been politicians who have been guilty of ‘flipping’ their principal private residence relief.
It’s already been announced that the current £325,000 inheritance tax (IHT) nil rate will remain frozen until 2017-18. I’m concerned that fiscal drag coupled with a recovery in the housing market could lead, on death, to many ordinary UK homeowners once again facing a charge to IHT in coming years.
One piece of good news arising out of the planned convergence of the two corporation tax rates from April 2015 is the likely introduction of a measure to remove the onerous existing associated companies rules for most companies on tax in 2015. This is, indeed, a welcome simplification.
Expect a whole raft of anti-avoidance measures. In particular, there is likely to be further challenges to marketed avoidance schemes, mixed partnerships (ie involving individuals and limited companies) and employment intermediaries. While wholly supportive of any appropriate initiative to reduce evasion and abusive avoidance, many are concerned that HMRC fails to make sufficient use of the existing legislation.
From January 2015, the place of supply rules affecting intra-EU supplies of Broadcasting, Telecommunications and E-services (BTE) to consumers will change. In essence, the place of supply will become where the consumer of BTE services belongs, regardless of where the supplier belongs.
Blog supplied by Brian Palmer, Tax Policy Adviser at AAT, the professional body for accounting technicians. He will be providing live commentary via the AAT Twitter feed throughout the Chancellor’s speech on 19 March.