On Wednesday 16th March, George Osborne will deliver his first full budget of the parliament as he strives to bring the UK out of the red by 2020. The speech will set out the Government’s plans for the economy based on the latest forecasts from the Office of Budget Responsibility, plus any tax change proposals for the following financial year.
Having already delivered an emergency budget and Autumn Statement since the Conservatives came into power in May last year, Osborne’s next budget is expected to set out a plan that will generate a £10bn surplus by the end of parliament.
As budget day grows ever closer, we will be listening out in particular for updates on HMRC’s new digital tax accounts system. Of particular interest is whether there’s to be a further increase in audit thresholds and if the principle of advancing tax payment dates so that payment of a variety of taxes is due sooner than it is presently is extended to include more than just capital gains tax (CGT) on residential property, which is now due within a month of the transaction, rather than within 22 months as it was previously.
Digital Tax Accounts
On budget day, we will be interested in any further announcements in relation to HMRC’s new digital tax accounts scheme.
The last budget saw the Government drop the bombshell that was the announcement of digital tax accounts, bringing an end to the annual tax return and replacing it with an online system where individuals and small businesses can submit their accounts throughout the year.
While this may have been met with cries of joy by some of those facing the annual challenge of a self-assessment tax return, accountants were not so elated by the news. Osborne announced the new system as ‘a revolutionary simplification of tax collection’ with around 50 million individuals and small businesses expected to be online by 2020.
The reality, however, is that HMRC will not be able to automate everything and only those who have the most straightforward tax affairs will be able to manage them online easily.
Each year has brought with it news of an increase in audit thresholds; last year’s raise was the result of a new EC directive which was quietly passed into UK law. However, the understated manner in which the law came into force was in direct contrast to the disruption it represented for audit firms and practices. The directive allowed Member States to raise the thresholds of businesses not required to have an audit to those with a turnover below £10.3m and a balance sheet below £4.6m.
It is therefore unsurprising that audit firms will be anxiously waiting to find out if there will be a further increase this year. A higher threshold will mean more and more firms will have to diversify their service offerings to make up for the loss of audit-derived revenue. Plus, with each rise comes increased regulations for those companies still requiring the audit, making it even less cost efficient to provide auditing services.
Another bombshell dropped by the Chancellor during the last budget was the tax hike and CGT change that hit buy-to-let landlords. In his Autumn Statement, Osborne announced the Government would be cutting the CGT window from 10-22 months to 30 days, effective from April 2019.
He also removed landlords’ ability, when calculating the profit on which they must pay tax, to deduct the cost of their mortgage interest from the income generated from rent. Those who own buy-to-let properties on which they have a large mortgage will be amongst the worst affected.
Accountants have been assessing the ramifications so that they can best advise their clients on the potential impact of these measures and as March’s budget approaches, are forecasting that the principle of advancing tax payment dates will be extended more widely.
Finally, there has been a lot of debate around the possible reforms to pension rules. Initially it was believed that the Chancellor would be introducing radical changes to the British pension system in his 2016 budget. However, recent news would suggest he has reconsidered these reforms and will perhaps not announce them after all. Either way, businesses and employees alike will be listening eagerly as they wonder “will he or won’t he?” on Wednesday.