The UK budget for 2016/17 is to be announced on 16 March 2016. As the UK’s economic outlook is not as favorable as outlined at the time of the Autumn Statement this year’s budget announcements are expected to contain some revenue-raising measures as well as spending cuts.

Tax avoidance

In view of the interest of parliament and the public in curbing international tax avoidance there are likely to be some announcements in this area. The Chancellor may announce further civil and criminal penalties for tax evasion. There may be further penalties for taxpayers who persistently use artificial tax avoidance schemes that are successfully challenged by HMRC.

There is also likely to be a mention of the legislation being introduced in connection with the OECD recommendations on base erosion and profit shifting (BEPS). In particular there may be announcements in respect of further limitations on tax deductions for interest paid by multinational enterprises in certain circumstances.

Taxation of pensions

A major revision of pensions tax that was originally planned is reported to have been postponed in view of its potential complexity and the risk of denting public confidence in pension saving. The proposed pension revamp could have involved scrapping the tax relief for pension contributions and instead making pension income tax free when money is taken out. Alternatively the revised scheme could have involved restriction of the tax relief on pension contributions to a flat rate without giving relief at higher rates to higher income taxpayers.

There could however be smaller revenue-raising adjustments to pensions tax in the 2016 budget. The Chancellor could decide to reduce the annual limit on contributions into pension schemes by taxpayers; or reduce the lifetime allowance, the maximum amount that can be saved in pension schemes over a lifetime. The original plans to revise the system of taxation of pensions could be revived at some point in the future.

Capital gains tax

Although the rates of income tax, value added tax and national insurance contributions have been frozen for the lifetime of this parliament there is scope for revenue raising measures involving taxation of capital gains.

One possibility that has been discussed in the media is a possible cut to the entrepreneur’s relief. Under the entrepreneurs’ relief the rate of capital gains tax is reduced to an effective rate of only 10% on the sale of a business, up to the limit of GBP 10 million of lifetime capital gains. This helps entrepreneurs who have worked to grow a business and now wish to exit from that business and move on to another activity or into retirement. As a tax raising measure the Chancellor could decide to cut the lifetime limit.

Business rates

The Chancellor may make some announcements on business rates (local business tax based on property) resulting from a recent review of the system. This could result in simplification of the system and reduced opportunities for evasion, but any changes to business rates are likely to be revenue neutral.

Employment

The tax free amount available for termination payments to staff leaving their employment could be reduced to raise more government revenue. For example, the tax free amount could be linked to the number of years of employment, or the termination payment could be liable to deduction of national insurance contributions.

There could also be measures to prevent tax savings through salary sacrifice arrangements. Salary sacrifice schemes involve an employee receiving less salary in return for other benefits with the intention of saving national insurance contributions on the salary foregone. Legislation could be introduced to ensure that these schemes do not bring any tax or national insurance advantage.

Oil and gas

One area where some tax relief may be given is the North Sea oil sector. Companies in the sector are having problems as a result of the low oil price. A cut in their tax rate could encourage them to go forward with the investment that is needed in the sector.
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