UK government budget predictions 2014
Article 3 minute read

UK government budget predictions 2014

14 March 2014

Director of UK Private Client Services Vince Cheshire looks at what next week’s UK annual budget might hold in store for business.

The UK’s Chancellor of the Exchequer (Finance Minister), George Osborne, presents his annual budget on Wednesday 19 March 2014, comprising the government’s plans for income and expenditure for forthcoming years. This will then be followed by the publication of the annual Finance Bill of taxation measures, which will then be debated in the House of Commons and, if passed (which is likely), will become the Finance Act 2014.

This will be the last substantial Finance Act before the 2015 General Election and so it is likely to be a political budget. The government finances are still in a poor state and any budget changes will probably be fiscally neutral.

The most likely announcement in the budget is probably money for flood defences, given that the recent severe flooding occurred in areas which have MPs from the governing parties.

On indirect taxation, there will probably be increases in the duties on tobacco and alcohol, but whisky may escape any increase, given the September 2014 Scottish independence referendum.

The Labour opposition’s campaign on the “cost of living crisis” may mean no increase in petrol/diesel duty before the election. For the same reason, Mr Osborne may go further than the Low Pay Commission has recommended and raise the minimum wage by more than 3%.

Any direct tax changes are likely to take effect in April 2015, a few weeks before the general election. The coalition has previously targeted any tax cuts on the low paid by increasing the personal allowance (the amount that can be earned free of income tax) and may increase this again. The Chancellor may link this with the minimum wage increase so that no person working 30 hours per week on the minimum wage pays income tax.

Any changes in the rates of income, capital gains or inheritance tax seem unlikely.

The Office of Tax Simplification has recently been reviewing the taxation of employee benefits. There are two simplification measures here that would be welcomed by business and raise money for the government:

  • Firstly, certain benefits-in-kind are not taxable on employees earning under £8,500 per annum. Scrapping this rule would affect few people, as such employees do not generally receive benefits in kind – those that do are often spouses and children of a private company shareholder
  • Secondly, the first £30,000 of any ex-gratia payment on redundancy is tax-free. This does not apply to contractual payments and leads to employers spending money on tax advice.  The main beneficiaries of this relief are higher earners so abolition is a possibility.

There will no doubt be talk of anti-avoidance measures. The Chancellor will probably mention transfer pricing/profit shifting by groups of companies and tax base erosion.  However, unless he adopts an uncharacteristic radical approach, there is little he can do in this area without international cooperation. Following a parliamentary select committee report heavily critical of business rates (a tax on commercial property) and particularly their effect on the High Street, he will probably freeze business rates or raise them by less than inflation and promise a review of them, thereby kicking the can down the road beyond the general election.

The Chancellor will boast that the UK has a lower corporation tax rate than its larger competitors, but any further reduction here seems unlikely as companies don’t vote. Last year, Mr Osborne introduced a flat rate reduction in national insurance contributions (social security taxes) per employer of £2,000 and he may announce an extension of this on 19 March so even more small businesses do not make these tax payments.

Finally, the Annual Tax on Enveloped Dwellings (ATED), a tax charge on expensive residential properties owned by companies and unit trusts, has raised more money than expected in its first year. Given continuing economic concern over the London property boom, an increase in the tax payable under the ATED seems highly possible.

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