By Daniel Hunter
PKF Accountants & business advisers expects the Chancellor to have learnt lessons from the Budget and be much more cautious in his choice of revenue-raising measures ahead of the Autumn Statement, which will be announced on Wednesday.
“When George Osborne was originally handed the keys to 11 Downing Street, I doubt he realised just how challenging his task would prove to be," Lisa Macpherson, national tax director at PKF, said.
“Given the widespread criticism of his Budget earlier this year, the Chancellor might well be tempted not to tinker with the tax system again in the forthcoming Autumn Statement. However, with growth patchy at best, spending above target and lower than expected tax revenues, Mr Osborne will have little choice but to announce new initiatives to help increase the tax take.
"The Chancellor’s room for manoeuvre will be severely limited, though, as he’ll be keen to keep the markets on side and avoid the kind of public and media backlash that we saw back in the spring.”
So what options does the Chancellor have available to him? Members of PKF’s tax team outline a number of possibilities below.
“Offering tax relief of as much as £25,000 each year on the pension contributions of high earners could be seen as something of an anomaly in the current political and economic climate," Andrew Penman, head of London private clients at PKF, said.
"Cutting the rate of tax relief back to the basic rate would hit too many middle class voters, so the Chancellor is more likely to reduce the annual contribution limit from £50,000 per annum to £40,000 or even £30,000.
“I’ve seen estimates suggesting that lowering the limit to £30,000 per annum could save the Treasury as much as £1.8 billion per annum; this seems optimistic if you only look at the small number of affluent individuals who can afford to save £50,000 into a pension each year, although the move will also affect many highly paid executives in company pension schemes.
“Individuals on final salary pension schemes would be particularly badly hit by such an announcement because their annual contribution, for tax purposes, is calculated as a multiple of the increase in their expected future annuity. We may therefore see the multiple, currently set at 16, reduced alongside the introduction of the lower threshold to help soften the blow.”
“The Government’s plans to allow businesses to offer shares to employees in exchange for giving up some of their employment rights are so riddled with problems as to be unworkable," Philip Fisher, head of employment tax and rewards at PKF, said.
"It would be great if the Chancellor listened to the negative feedback from the consultation exercise and either abandons the scheme or at least removes the shares element.
“HMRC fully expects that the introduction of Real Time Information (RTI) will drastically increase the efficiency of the tax and benefits system alongside the introduction of the Universal Credit, thereby saving billions each year. However, it currently looks as if the switch to RTI next year may be premature as the systems are not fully operational on either side. Therefore, a delay in implementation could be on the cards.
“The old chestnut of merging PAYE and NIC has re-emerged recently. In practice, however, any changes announced in the Autumn Statement are likely to be little more than cosmetic.
“It is time that the Chancellor gave significantly more support to HMRC rather than making it jump though an increasing number of hoops with diminishing staff numbers and a continuous brain drain. Constantly shuffling experienced staff into Task Forces and other new anti-avoidance teams is like using a second hand sticking plaster to heal multiple wounds. HMRC desperately needs to recruit high grade staff for these new anti-avoidance teams. The investment would pay for itself quickly without damaging HMRC’s failing ‘customer’ service performance.“
“Raising the rate of capital gains tax (CGT) is not a naturally Conservative approach to taxation, but extending the scope of CGT to all UK situs assets, no-matter where the owners are located, is a more realistic option for the Chancellor," Lisa Macpherson, national tax director at PKF, said.
"The new CGT rules on residential properties valued at more than £2 million (due to take effect from April 2013) may be designed to block Stamp Duty Land Tax (SDLT) avoidance by overseas owners but can be seen as a major step in this direction. Widening the proposals to cover all UK situs assets would not therefore come as a huge surprise, particularly as other countries have similar rules.
“Although changes to inheritance tax (IHT) are supposedly off the agenda for the rest of this parliament, it is not unheard of for cash-strapped Chancellors to suddenly identify a long established planning technique as unacceptable avoidance and change the law to clamp down on it. Removing certain unlimited IHT exemptions, such as the rules on gifts out of income or gifts that fall out of account after seven years, could raise future IHT revenues.”
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