Build-up to the Budget 2010
What won't be in the Budget?
There are of course lots of things that won't make it into the Budget - including the possibility of an increase in the VAT rate. The Chancellor has already told us that he won't be putting up VAT generally - although the Treasury reserves the right to do so in the future.
Three personal tax topics are unlikely to appear. The first is a Government plan to levy employers' national insurance contributions on a wider range of construction and building workers, than currently. Many workers in the sector are self-employed, which means that employers' national insurance isn't due. However, in an unhelpfully titled document - False Self Employment in the Construction Industry - HMRC set out their proposal to reclassify several hundred thousand workers.
There was considerable opposition to the plan - but HMRC have indicated they are still keen to go ahead. However, they recognise - no doubt because every respondent told them - that building and construction are deep in recession. As a result, the plan has been delayed. Additionally, the proposed definitions simply didn't work and so HMRC will consult further to limit the scope of their plans.
The second area is income splitting. Following their loss in the Arctic Systems case, the Government proposed reversing the House of Lords decision. The plan was to prevent spouses and others) owning jointly companies where the owners make disproportionate contributions to the activities. Again, the plan was far too complicated for very small businesses to operate fairly and the plan has been deferred. We do not expect it to re-appear on Wednesday.
What is really needed - for both these areas - is a proper examination of the taxation of the self-employed and small businesses. That is a major task for after the election.
Finally, there has been some debate in the press about a new statutory test of individual residence. It's clear, from several tax cases, including the well-known Gaines-Cooper case, that it's hard for some to work out whether or not they are resident in the UK. The tests of residence are set out in complicated tax cases and there is little doubt that the approach of HMRC has changed over the years. Some have therefore suggested that a statutory test would be helpful, through offering greater clarity. The problem is that it's not at all easy to set fair boundaries, that are easy for employers to apply, whilst limiting the opportunity for some to spend some of their working time here, but not being resident. We expect that the Treasury and HMRC will continue debating these challenges in the background, before deciding whether to bring a proposal for consultation later this year or next year.