The Chancellor George Osborne laid out his first budget of the 2016 Parliament, setting out how the Government plans to reduce the UK’s deficit and lead the country back to economic recovery by 2020. As well as illustrating the economic and inflation growth forecasts for Britain in the year ahead, he announced further public spending cuts of £3.5 billion by 2020.
We outline the key points that are set to impact the accounting industry in the coming year.
Digital Tax Accounts
The last budget announced the transition to a digital tax system by 2020 which caused some concern for the accounting community, despite promises that accountants would still be necessary to ensure compliance.
George Osborne announced a wave of initiatives to kick-start the move to an online tax system by injecting £71 million in extra funding to HMRC so that it can provide a more accessible service to tax payers, opening seven days a week, with extended hours. The budget speech also included a pledge to reduce call waiting times by recruiting 800 call centre staff to boost the performance of existing telephone services.
Further consultation on the full implementation of the transformation of the tax system through digital technology has yet to take place, however, many still remain concerned that the Government’s track record in failed digitisation projects and tight timetable could mean confusion and mistakes when paper end-of-year tax returns are eliminated.
Despite apprehension that the audit threshold for companies was to rise again in 2016, audit firms can breathe a sigh of relief that they will not have to take emergency measures to diversify their services in order to rebalance the loss of revenue.
Last year’s budget also announced that the Capital Gains Tax (CGT) window would be cut from 10-22 months to three days by April 2019, which came as a surprise to many buy-to-let landlords.
The Chancellor announced that the higher rate of CGT will be cut from 28% to 20% while the basic rate will be reduced from 18% to 10%. However, this does not apply to sales of residential property, on which the old higher rates will still apply. This is bad news for landlords who have already been informed that they can no longer deduct the cost of their mortgage interest from their rental income and shows that the Government will continue to put pressure on buy-to-let property owners.
While there was much speculation on the possible reforms to pension regulations in yesterday’s budget, the Chancellor instead announced a ‘Lifetime ISA’ for the under-40s, with the Government subsidising £1 for every £4 saved for a home deposit or retirement fund until an individual turns 50.
Corporation Tax & Crackdown on tax avoidance for big businesses
The Government came down hard on big businesses and larger firms by announcing changes to corporation tax, seeking to raise £9 billion by closing corporate tax loopholes, ensuring that large businesses can’t artificially move profits out of the UK. While in the past, larger companies have used huge interest payments to reduce tax payments to the UK, this relief will now be capped at 30% of UK earnings, unless companies have legitimately high interest payments.
In a move by the Government to put the next generation first, the Chancellor announced that all schools will shift to academy status by 2020, or have official plans in place to transfer by 2022, and introduced additional funding for schools to stay open longer.
Currently schools are run by their local authorities, but once they change to academy status headteachers will receive greater power over budgets and staffing, and have more responsibility for their curriculum.
However, academies also have greater financial reporting obligations and will be required to produce their own financial reports detailing the accounts, budget allocation and funding. With such a small window for complete conversion, there will be many accounting and legal requirements for schools to follow to ensure total compliance.