Deloitte preview of Budget 2013
13 March 2013
“Sluggish growth is keeping public spending up and tax revenues down. Many economists expect the deficit in 2012-13 will be similar to, or higher, than in 2011-12.
“For the wider economy the worst is probably past. The Office of Budget Responsibility and most other independent forecasters expect the economy to grow modestly in 2013-14. However, for now, at least, this looks like a choppy, fragile recovery. The Prime Minister is keen to point out the lack of magic money trees in his economic forest. He has been careful to dampen down public expectations about big tax giveaways in the forthcoming Budget.”
What could the Chancellor announce?
It is possible that we will see the completion of the reduction in headline corporation tax rates to 20%, following the cut to 21% which is to apply from 2014. The Chancellor has previously stated that a tax rate of 20% is an aspiration and it would simplify the tax system by having a single rate of corporation tax for all companies.
Whilst there has been considerable media interest in the taxation of international groups, substantive changes require international agreement. The Chancellor may give an update on the OECD’s Base Erosion and Profit Shifting project, where the UK is leading the Transfer pricing working party.
It is expected that we shall see a consultation on the reform of the loan relationship rules which are both complex and have been open to planning over the last decade.
Personal service companies
The Autumn Statement confirmed that plans to change the IR35 rules, and, in particular to introduce a new 'controlling person’ test, would not proceed. This affects individuals working through personal service companies (PSCs), in circumstances where they would be regarded as employees if engaged directly. In these circumstances, the PSC must operate PAYE and NIC when payments are made to the individual. The intention is to include changes in the 2013 Finance Bill to bring officeholders engaged via intermediaries within the scope of the IR35 rules for PAYE purposes. The effect of this would be to require the personal service company to deduct PAYE when making payments to the officeholder. There are however, still concerns that the proposed changes do not remove the PAYE obligation from the end user, and there may be amendments to clarify this matter.
We expect a new consultation to be announced at Budget Day, which is expected to consider the introduction of anti-avoidance provisions limiting the use of partnerships to reduce artificially overall tax liabilities. Potential areas for review may well include the use of companies in partnership with individuals and disguised employment arrangements.
Individuals - move to £10,000 personal allowance?
The personal allowance for 2013/14 has already been announced in the Autumn Statement at £9,440. This moved nearer to the Coalition Government's flagship goal of £10,000. It is likely that the Budget will include the announcement that the final increase to £10,000 will be completed from 2014/15. This will reduce the impact of the earlier decision to withdraw the higher age allowance for those reaching 65 from April 2013.
We already know that the increase in the higher rate tax threshold and the capital gains tax exempt amount will be kept at 1% for 2014/15 and 2015/16. However, whilst the personal allowance has been increased considerably over recent years, benefitting most basic rate taxpayers, the lower earnings threshold for national insurance has not increased at the same rate and has been set at £7,755 for 2013/14. Some movement towards narrowing this gap would be welcomed - although this would be an expensive policy.
Consultations - the final legislation?
Many of the changes that are planned for the 2013 Finance Bill have already been the subject of consultation over the last nine months. We expect to see the final outcome of the consultation process on many of these topics, with possibly some relaxations in some areas. Particular areas are:
Notes to editors:
Follow us online
Deloitte’s Budget coverage will be on our dedicated website www.ukbudget.com. You can also follow us on Twitter: @ukbudget where Bill Dodwell, head of tax policy at Deloitte, gives regular views.
The following experts from Deloitte are available now and on the day of the Budget for comment. From 12pm on Wednesday 20 March, please call the Deloitte Budget Press Hotline on 020 7007 3333, where you will be directly connected to one of our spokespeople:
Bill Dodwell - Business taxation and general topics
Daniel Lyons - Indirect and green taxes
Patricia Mock - Personal taxes
John Cullinane - Banking
Anne Hamilton - Insurance
Debbie Griffiths - Entrepreneurial businesses and SMEs
Mark Groom - Employer taxes
Phil Nicklin - Property taxation and REITs
Roman Webber - Oil and Gas
Nick Prior - Infrastructure
Ian Stewart - Economics
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
The information contained in this press release is correct at the time of going to press.
Member of Deloitte Touche Tohmatsu Limited.