What lies ahead: Budget predictions 2011

Personal allowances

It is the general belief that the personal allowance will be raised again, perhaps by a further £1,000 to £8,475 for 2012/13. The premise behind this is the election pledge that no one will pay income tax until they earn £10,000. Hence it can be reasonably predicted a raise in the personal allowance as inability to deliver this would be another negative talking point of the coalition government.

Corporation tax

The Coalition Government has always sent out a strong message that it wants to simplify the UK tax system. It would be an excellent opportunity to align the income tax year with the corporation tax year to 1 April for both or suggest that in the move towards real-time data exchange. The Government is likely to re-announce the reduction of corporation tax to 27% on 1 April 2011 and 1% on each anniversary thereafter until the rate arrives at 24% in 2014.

Non-domiciles

The Chancellor faces a difficult dilemma balancing the tax treatment of non domiciles. He is torn between the pressure from the Coalition partners to restrict the benefits to non domiciles, but at the same time, increase the attractiveness of the UK as a location for entrepreneurs and key business executives. Hence, it can be predicted that given the legacy of cumbersome and obscure rules from the previous government, is that we won’t see any fundamental reforms.

VAT

It unlikely that the Government will further scrutinize VAT Standard Rate, after raising it to 20% on January 4 2011, and that there will be at least a full year’s review period during which the Treasury will monitor the increase effect on inflation and RPI.

VAT – Low Value Consignment Relief

Low Value Consignment Relief is intended to enable small value goods imported from outside the EU to be relieved from VAT. This is because it would be a disproportionately costly exercise if every small parcel from outside the EU had to be scrutinised and the payment of VAT collected from either the sender or the recipient. However, this presents practical challenges for the Government as the growth in online shopping has meant that the relief now benefits many more non-EU businesses than could have been predicted when it was introduced.

Capital Allowance

The Government may consider it appropriate to re-introduce some form of capital allowance to encourage industry or capital investments in particular geographic regions most in need of an economic boost. The old Enterprise Zone Allowance (EZA) regime, that allowed businesses to claim a 100% allowance on expenditure on certain types of building in an enterprise zone, ceases in April 2011 and the Government may consider it an opportune moment to announce a replacement initiative.

Office for Tax Simplification (OTS)

With the recent publication of the final reliefs and exemptions report from the OTS, this will be an opportunity for the Chancellor to show how the Government is committed to making tax policy simpler and better for individuals and businesses. We would expect to see the report welcomed and although it may be too soon for him to make announcements on certain reliefs there could be a clear indication that the more bizarre or unused ones have run their course.

Conclusion

Many aspects of the budget are widely being anticipated and many have already been pre-announced. However, it would be surprising if the Chancellor does not take this opportunity to offer some favourable but sustainable tax reforms to the public to clearly demonstrate his priorities.

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