Feel like we’ve been subjected to wall-to-wall electioneering for the last few weeks?
Then prepare yourselves for more of the same and then some in the next few days. Next week will see Chancellor, George Osborne, present his final budget of this Parliament. Why is this important? Well, as any accountant or follower of the politics will tell you, whatever features in the next Finance Bill will more than likely have a strong bearing on the upcoming General Election.
So what potential changes is the Chancellor likely to announce?
What we are likely to see should be the Conservative party either win an overall mandate, or form part of a new Coalition in the next Parliament. Well, here are some of the potential changes that accountants feel are likely to feature:
Basic personal allowances and income tax thresholds.
During the current Coalition, the basic personal allowance, (the threshold of income in a tax year that can be earned before tax is payable) has increased from £6,475 to £10,000. In the 2014 Autumn Statement the Chancellor announced this would increase to £10,600 in 2015/16. There’s a strong possibility that the Chancellor may opt to use Budget 2015 to reiterate his commitment to raising the basic personal allowance to £12,500, should he remain a part of the forthcoming Parliament of course.
The Chancellor has previously been clear about his intent to raise the 40% tax threshold so that it applies only to incomes in excess of £50,000 – having taking into account the basic personal allowance. He may well have plans to bring about this change in the next Budget.
Action on tax evasion.
The current Parliament has taken an increasingly tough stance against tax evasion and tax avoidance and it’s believed that the Chancellor will announce new criminal sanctions to penalise not only tax evaders themselves, but also those who provide them with avoidance advice.
The Prime Minister came to power on the back of a commitment to protect pensioner benefits. Throughout this current Parliament he has stood by this pledge. However, there could be changes to tax arrangements for future pensioners. Tax relief for pension contributions could mean a reduction in the amount of annual contributions which can qualify for tax relief.
The Parliament increased the Annual Investment Allowance to £500,000, but the likes of the Institute of Chartered Accountants in England and Wales (ICAEW) have criticised the complex calculations needed during each transition and the complexity regarding the frequent changes.
It’s possible the Chancellor may promise to leave the Allowance at £500,000 if the government is re-elected in May – at present the Allowance is due to fall back to just £25,000 on 1 January 2016.
A lack of resources has meant the Office of Tax Simplification (OTS) has had too much to do in too little time prior to the General Election. The Chancellor could consider making the OTS a permanent fixture in the event the Conservatives win the election outright in May.
The actual cost of Entrepreneurs’ Relief (ER) in the 2013-14 Tax Year was £2.9bn, (three times HM Revenue and Customs’ (HMRC) forecast) In the 2014 Autumn Statement, the Chancellor stated ER can no longer be claimed on the transfer of goodwill on incorporation. Mr Osborne may announce new ways to cut the cost of ER in his Budget.
There is a possibility that the Chancellor may pledge to raise the inheritance tax nil rate band to £1m, setting a time-limit for its introduction and clarifying if this figure is per person or per married couple/civil partnership.