Budget 2007 - PWC Predictions on Business and Personal Tax

With the Budget less than a month away (21 March), PricewaterhouseCoopers LLP is predicting the odds for what might appear in the Chancellor of the Exchequer’s speech.

On business tax

Mark Schofield, tax partner at PricewaterhouseCoopers LLP, said:

“With the global attention that government policy on the environment is receiving, it is hoped that the Chancellor will use this Budget to demonstrate the UK government’s long term strategy for dealing with the environment and climate change. Businesses need greater certainty in this area so that they can plan ahead and play an effective role.

“A number of other ongoing initiatives and issues could lead to some interesting announcements in the Budget: moves to action the proposals set out in the Varney Review could be on the cards; several of the high profile cases currently going through the European courts may provoke change to the UK tax system; changes to the dividend taxation system seem necessary and it is quite possible that the Budget will see an initial consultation document published, indicating the direction of Treasury thinking.”

On personal tax

Leonie Kerswill, tax partner at PricewaterhouseCoopers LLP, said:

“Many people will be wondering how much of an impact the Chancellor will want to make in this, his eleventh, Budget. Now the date has been set for 21 March the race is on to predict and prepare for the changes that could be made to the UK tax system.

“Further environmental measures, progress on the tax simplification agenda and a continuation of focus on cutting red tape are likely to be high on the Chancellor’s agenda for this Budget. But despite rising house prices which is driving more and more people into the inheritance tax net, there is little sign of any significant changes here.”

PricewaterhouseCoopers LLP makes the following predictions:

Income tax thresholds rise in line with inflation 1 - 2 on

'Real' increases are unlikely so fiscal drag will bring more income into the higher tax bracket.

Capital gains tax simplified 3 - 1

Lots of scope for this as the tax is extremely complex. Streamlining taper relief could be a good starting point.

Further environmental measures 1 - 3 on

Something will happen; there are various possibilities:

- tax relief for personal purchases of carbon offsets 10 - 1

- lower VAT on low-energy light bulbs or other environmentally friendly products 2 - 1

- further increase in air passenger duty 100 - 1

- Further increase in duty on petrol/diesel 3 - 1

- incentives for green energy generation 2 - 1

- reform climate change levy 5 - 1

It seems highly likely that there will be some ‘green’ measures – just a question of how many and whether the Chancellor gives a clear policy statement (or the start of an inclusive debate) on how such taxes are going to fit into the fiscal framework.

Further simplification measures 1 - 2 on

A racing certainty that there will be a commitment to simplify the system and reduce red tape… but will the horse really run and deliver?

Changes to corporation tax to make sure our tax system is internationally competitive 2 - 1

The UK’s business tax system needs to be internationally competitive to attract and retain investment – there are signs that it is slipping and there are also pressures from the European Court of Justice (ECJ) judgments against the UK.

Corporation tax for smaller companies may be reduced 5 - 1

There’s a good argument that companies would prefer a reduction in the rate of tax rather than additional incentives which add complexity.

Employee car ownership schemes could be reviewed 2 - 1

There are signs that HM Revenue & Customs (HMRC) consider these are a way of sidestepping company car rules and that they are not in line with the environmental approach.

Changes to annual contribution limits for pensions 20 - 1

Reduction in annual contributions limit (currently £215,000) in the light of how much pension contributions have been put away this year by high earners.

Inheritance tax (IHT) thresholds rise in line with house prices 1000 – 1

Despite the pressures of rising house prices, there is every sign that IHT thresholds are only going to drift up modestly in the coming years.