BR Blog: Budget Predictions
Blick Rothenberg partner Genevieve Moore shares her thoughts on what the Chancellor might and should do at the upcoming Budget.
What the Chancellor might do:
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- Introduce legislation that makes it a requirement for companies to publish their corporation tax returns along with their financial statements, providing transparency to the general public on the tax paid by each company.
This would probably be well received by the general public and for many companies who aren’t up to anything “dodgy” they would probably be quite happy disclosing this information and proving they are paying their fair share of tax.
The only ones that might dispute it are the ones who are being ‘naughty boys’ – and perhaps the tax advisors who suddenly find their technical analysis on public record…. And of course people who think some things should be kept private!
- The Chancellor might look to increase both employees and employers NI on salaries in excess of say, £150k – so only the “very rich” pay more, and companies are provided with a deterrent to paying their top executives more than £150k.
- Currently employers NI is set at a rate of 13.8% regardless of the level of salary paid to an employee (note there is a weekly/ monthly amount on which no NI is paid but this is being ignored here). The Chancellor could introduce a new rate which applies to employees earning over £150k.
If the new rate was 20% on amounts paid in excess of £150k then a company paying an executive £200k a year would therefore pay an additional £3,100 in employers NI. As the cost to the company is higher their corporation tax liability would decrease by £620, but overall the company would be paying a net increase in tax of £2,480.
- The rate of employees NI is currently 12% up to a certain amount (around £40K) and then 2% on all earnings above this amount.The chancellor may introduce a new rate of say 5% on earnings over £150k. This would cost an individual earning £200k a year an additional £1,500 in national insurance each year.
- Other possible NI changes – aligning the rates of employed and self-employed NI so everyone pays the same, currently self-employed people pay less than employees – although there are reasons for this!
- Raise fuel duty – whilst prices a low the increase is unlikely to be noticed by many.
- Reduce the entrepreneurs relief lifetime allowance, or make this a “once in a lifetime” relief, so serial entrepreneurs do not benefit on the second/subsequent disposals.
What the Chancellor should do:
- Get rid of the Inheritance Tax (IHT) property nil rate band and make it a flat £1m nil rate band for all (!)
- Change the current thresholds over which certain income tax reliefs and benefits are phased out.
For example, rather than phasing out the personal allowance over £22k, increase this so it phases out over £44k (i.e. 25p reduction in allowance for every £1 earned, rather than 50p for every £1 earned over £100k). However, rather than raising the threshold, he may reduce it – e.g. so between £86k and £130k you would lose your personal allowance, rather than between £100k and £144k (currently for 2016/17 I think it’s £100k - £122k).
- The same approach should be adopted to the phase out of child benefit and pension contributions, in order that the effective tax rates for people in these small income brackets are not as high as they are currently.
- Make entrepreneurs relief available to all employees who own shares in their employer, rather than only the ones which hold EMI shares.
- It would be nice to see the Chancellor align the current income tax and national insurance thresholds, which would remove the lowest earners from the liability to pay national insurance, saving potentially up to £352.80 per year.However, a blanket approach to aligning the rates would mean all earners would benefit – even the highest earners, from this saving so he would need to tinker with the upper earnings thresholds to combat this if he wasn’t feeling that generous!
- The Chancellor should make interest received on bank and building society accounts free from income tax.
Whilst interest rates are low the new “savings allowance” being introduced on 6 April this year will mean the vast majority of people in the UK will not have to pay any income tax on interest earned on their savings. In addition, changes to ISAs mean that more people will be able to access tax free savings in the form of ISA’s without having to tie their money up for years on end (subject to the T&Cs of the ISA providers). However, the changes do not go far enough and there will still be situations where people have to register with HMRC and file a tax return (or digital tax account) in order to pay income tax on their savings. Savings are savings – abolish income tax on savings income and dispense with this extra complexity.