Deloitte preview of Budget 2016
Deloitte’s team of tax experts, its chief economist and public sector leader consider key potential announcements, the economic outlook and the state of public finances ahead of this year’s Budget.
Business rates are devolved taxes, so any reforms announced by the Chancellor would apply in England only. It would be open to the Scottish government and Welsh Assembly to make their own choices.
Bill Dodwell commented:
“Our expectation is that the government will retain the business rates system broadly unchanged – despite lobbying from major retailers for reductions. Around 70% of business properties do not pay the tax due to exemptions for small properties but for major retailers the cost typically exceeds their corporation tax bills. The government announced last year that more control over the system would be passed to local councils, including the ability to increase the rate where the locality has an elected mayor. We expect more details on how this will work.”
Business Tax roadmap
The previous coalition government set a corporate tax roadmap for the 2010-15 parliament, which was welcomed by business as it set out the government’s plans for tax changes. This government has promised to unveil the Business Tax roadmap at Budget 2016.
Bill Dodwell remarked:
“The most important part of this – given that we already know corporation tax will be cut from 20% to 18% by 2020 – is whether the UK will introduce a wide-ranging limitation on interest and financing deductions. The G20/OECD Base Erosion and Profit Shifting project recommended a limitation and so has the European Commission in its draft ‘anti-BEPS’ Directive. The difficulty for the UK will be to ensure that much-needed infrastructure projects can continue to get tax deductions for their borrowings, whilst potentially cutting back on possible base erosion elsewhere. The government has previously said that no change would be introduced before April 2017; we hope that more time would be given to allow businesses to adapt, if changes are to be brought in.”
The Treasury and HMRC have consulted on a number of measures affecting employment taxes and further news are expected at Budget 2016.
Mark Groom, partner in Deloitte’s Employer Service practice, said:
“An important area concerns whether to make businesses that engage workers who use personal service companies – so-called PSCs - liable to withhold PAYE and bear the cost of employer’s NIC on payments to those PSCs. The current rules place the onus on the personal service company to withhold PAYE and NIC where the worker is deemed to be an employee, as opposed to a self-employed person. However, HMRC believes that many PSCs do not apply the law properly, leading to a loss of tax and national insurance.
“It is possible that the ultimate engagers will be forced to withhold tax and NIC, leaving truly self-employed individuals to reclaim. This would be a major change – but could raise significant amounts. The proposals present many challenges but a consultation for change could be announced with a view to new rules applying from 2017.
“We would also expect a new strategy for company car taxation to be outlined at Budget 2016, no doubt supporting a move to low emission vehicles, including electric vehicles, and there could be further announcements following the work of the OTS on income tax and NIC alignment, employment status, and in relation to HMRC’s consultation on termination payments.”
Oil and gas taxation
The decline in the oil and gas prices has had a major effect on the North Sea, and at current prices many of oil fields will be loss making in 2016.
Roman Webber, head of Energy & Resources Tax at Deloitte, said:
“There have been calls for the Chancellor to make further tax changes, building on the action the Treasury has taken over the course of the last year. Firstly, he could encourage exploration by reducing the effective rate of tax for new discoveries. Secondly, he could facilitate a change to allow companies to sell field interests more easily. Decommissioning costs are tax deductible and the likely resulting losses can be offset against prior year taxes.
“However, an asset sale currently does not allow access to this corporate tax history – meaning it can be very hard to sell a field to a different, perhaps more efficient, operators such as late field life specialists. Allowing access to this tax history would help transactions and get the assets into the right hands. Finally, the Chancellor could consider cutting the main corporation tax rate on oil and gas from 30% towards the current 20% applicable to other industries.”
Air passenger duty
More information is expected on whether the Chancellor will devolve air passenger duty (APD) to local areas in England. APD will be devolved to Wales and Scotland and there is some concern that English airports could be disadvantaged if they were not able to respond to changes in duty rates.
Ian Stewart, Deloitte’s chief economist, said:
“Mr Osborne’s room for manoeuvre in this year's Budget is hugely constrained by weaker than expected tax receipts and slower growth. To meet his own targets for eliminating the deficit, he will require a run of good luck or further cuts in public expenditure.
“There will be less good news in this Budget than Mr Osborne might have expected ten months ago in the warm afterglow of the Conservatives’ election victory. Once again events are conspiring against the Chancellor, making the path of fiscal rectitude longer and more arduous than he had hoped.”
Mike Turley, global and UK public sector leader at Deloitte, said:
“Austerity may deepen again at this Budget. The Chancellor has warned that the public sector could face fresh cuts on top of those already planned if growth continues to fall short of assumptions in the deficit reduction plan.
“For Whitehall and the wider public sector, that could mean additional pressure as they continue to take costs out, collaborate to secure savings and make better use of technology. In the coming years people are likely to start seeing big differences in the size and shape of their public services alongside increased costs, as council tax is increased to pay for police and social care.
“Last March, the Chancellor set out spending cuts that would have been twice as deep as anything the public sector had seen in recent years. But in the months that followed, he scaled those cuts back by more than £80 billion. This Budget may just see some of those cuts returning.”