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2010 Budget predictions
Practical Law UK Legal Update 6-501-6960 (Approx. 11 pages)
An update summarising the issues on which we anticipate the government will make announcements in the 2010 Budget.
Speedread
Alistair Darling will deliver his 2010 Budget on 24 March 2010 at 12.30 pm.
In this update, we summarise the tax issues on which we anticipate the government will make announcements. There is very little Parliamentary time available to consider the Finance Bill before the election. (For the process, see Practice note, How the Budget becomes law.) In practice, we anticipate that a short Finance Bill, containing some of the Budget announcements, will be enacted before Parliament is dissolved. This means that some Budget measures will not become law until after the election, if at all. The Conservative party has said that it will deliver a Budget within 50 days of a Conservative victory.
For full details of PLC Tax's 2010 Budget coverage, see Legal update, PLC Tax: 2010 Budget coverage.
Topics which may be covered in the 2010 Budget
Topic | What can we expect in the 2010 Budget? |
Anti-avoidance legislation | More anti-avoidance legislation. HMRC has indicated that it is considering legislating against some of the schemes highlighted in its "Spotlight on avoidance schemes" publications. In addition, it has been reported that Dave Hartnett, the permanent secretary at HMRC, has been conducting a review of the tax system with a view to closing loopholes. |
Anti-avoidance legislation: false self-employment in the construction industry | HM Treasury and HMRC published the consultation response document on 11 March 2010. It is confirmed in the response document that the government considers that a legislative test is the only viable option for dealing with false self-employment in the construction industry. However, in response to the "overwhelming view" that the current proposals would not achieve the aims set out in the consultation paper, the government has promised to reformulate the legislative test taking account of respondents' suggestions to improve the test and to make its operation more effective. Although the response document was only published on 11 March 2010, the consultation closed on 12 October 2009. Accordingly, the government may have had sufficient time to reformulate the legislative test. However, given the overwhelmingly negative response to the consultation, it is unlikely, for political reasons, that revised draft legislation will be presented at Budget 2010. |
Anti-avoidance legislation: simplification | At the 2009 Pre-Budget Report, HMRC published a response document to its consultation on simplifying the unallowable purpose tests. HMRC promised to redraft its framework and guidance to take into account the responses. It also indicated that it would expose the revised guidance by spring 2010 and share the redrafted framework and guidance with "key stakeholders". Accordingly, an announcement on these steps is expected together with confirmation of if, and when, HMRC will formally adopt the revised framework and guidance. At the same time, HMRC published a response document to its consultation on simplifying the "transactions in securities" rules. HMRC indicated that it would put together a package of measures with a view to, if possible, implementing changes in the Finance Bill 2010. However, particularly in the corporation tax context, it was unclear whether the package could be delivered in time for Finance Bill 2010. Further, on 9 March 2010, regulations were made to amend the Shadow ACT Regulations from 1 April 2010 to ensure that abnormal dividends falling within the scope of existing circumstance A of the transactions in securities rules will not be treated as franked investment income within the shadow ACT regime. This measure is consistent with the planned repeal of circumstance A for corporation tax purposes (see, Legal update, Shadow ACT regulations amended for transactions in securities changes). Accordingly, an announcement is expected and the publication of draft legislation is a possibility. Confirmation of whether the proposed simplification of the tax treatment of employment-related securities acquired for less than market value under Chapter 3C of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 is to be included in the Finance Bill 2010. (This measure was announced in the 2008 PBR but due to constraints on space, the draft legislation was not included in the Finance Bill 2009. HMRC has, however, indicated that it will be taking this measure forward with a view to inclusion in the Finance Bill 2010.) |
Anti-avoidance legislation: Tackling offshore tax evasion | The consultation period closed on 3 March 2010. A response document or announcement about the government's next steps is possible. |
Anti-avoidance legislation: Use of trusts | It was widely anticipated that legislation to counter the use of family benefit trusts would be announced in the 2009 Pre-Budget Report. However, such an announcement was not forthcoming and it is therefore possible that such an announcement will be made at Budget 2010. It was announced in the 2009 Pre-Budget Report that, in addition to the the closure of two schemes designed to avoid inheritance tax charges on relevant property trusts, the government would examine wider solutions to the problem of trusts being used to avoid inheritance tax charges. An announcement is expected. |
Bank payroll tax | Draft legislation. The 2009 Pre-Budget Report announced a new temporary tax, the bank payroll tax (BPT), which will apply to banks, building societies and certain other financial sector firms which pay bonuses (in any form) between 9 December 2009 and 5 April 2010. To accompany the 2009 Pre-Budget Report, HMRC published draft BPT legislation. On 18 December 2009 and 12 March 2010, HMRC announced changes to the scope of the BPT. Accordingly, draft legislation is expected to reflect the revised scope of the BPT. |
Bank Tax | It has been reported that the Chancellor will use his Budget speech to give detailed backing to an international bank tax and will rule out using the money raised to create an insurance fund against future bank failures. |
Benefits in kind and expense payments: inclusion in the payroll | While the majority of the respondents to the consultation were against the idea of payrolling benefits and expenses, HMRC has nevertheless embarked on further informal consultations with particular respondents and is about to embark on a three to six month "shadow trial". HMRC has confirmed that the payrolling of benefits will require a new statutory framework. An announcement is possible. |
Charities: substantial donors anti-avoidance | At the 2009 Budget, the government announced that it would consult with the charitable sector about the substantial donors anti-avoidance rules before amending the existing legislation. An informal consultation took place over the summer 2009. An announcement is expected, possibly with draft legislation. |
10% corporate tax rate on income from patents | Although this new measure will not take effect until April 2013, given the announcement has been roundly welcomed, the consultation on the draft legislation to implement the new measure may be announced at Budget 2010. |
Corporation tax for related companies | As part of PBR 2007, the government launched a simplification review on corporation tax for related companies. The review identified a number of areas where simplification could have a significant impact for UK companies including:
The Finance Act 2008 enacted a partial simplification of the associated company rules for the small companies' corporation tax rate. A consultation on further simplification measures has also been published (as to which, see Legal update, Consultation on ignoring rights of associates for small companies' rate of corporation tax). The consultation closed on 22 January 2010. Accordingly, an announcement on whether the draft legislation will form part of the Finance Bill 2010 together with confirmation of the commencement date of the legislation is expected. The consultation on the group aspects of the chargeable gains regime does not close until 17 May 2010. Accordingly, no announcement is expected in respect of this simplification measure. An announcement on the remaining two simplification measures is overdue and is therefore possible. |
Disclosure of tax avoidance schemes | The consultation closed on 19 February 2010. A response document is expected. |
Foreign profits taxation: CFC reforms | Nothing is expected in the 2010 Budget as the consultation period for the CFC consultation document does not end until 20 April 2010. The government's intention is to publish more detailed proposals and draft legislation later this year and to include the legislation in the Finance Bill 2011. |
Higher earners: tax changes | The consultation period for the consultation on implementing the restriction of pensions tax relief closed on 3 March 2010. Accordingly, it is unlikely that any substantive announcements will be made but a response document may be published. |
HMRC's powers: tax agents, bulk and specialist information and independent business reviews as part of time to pay arrangements | The consultation period for the deliberate wrongdoing by tax agents consultation does not close until April 2010. Accordingly, no new announcement is expected. However, following on from the consultation on bulk and specialist information powers, we are expecting the draft legislation, promised in the 2009 Pre-Budget Report, "shortly". HMRC has indicated that it has sought legal advice about various aspects of the new requirement (intended to take effect from 1 April 2010) for an independent business review when a business with debts of more than £1 million seeks a time to pay arrangement. An announcement on that advice is expected. Response documents to consultations on the following are expected:
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Legal professional privilege | Following the High Court's decision in the Prudential case, there have been calls for the government to establish a consultative body to review LPP as it affects tax advice. Recent press reports suggest that HMRC has its own concerns about LPP. Accordingly, an announcement is possible (although it is understood that the Prudential decision is being appealed and, therefore, the government may await the outcome of the appeal before considering its approach). |
New disclosure opportunites | Following on from the Tax Health Plan disclosure opportunity (as to which, see Legal update, Dentists added to Tax Health Plan for medical professionals, HMRC is expected to announce other disclosure opportunities aimed at professionals, possibly at Budget 2010. |
Statutory individual residence test | Although HMRC has indicated that it is not going to be possible to legislate a complete statutory residence test in the Finance Bill 2010, an announcement of progress on the issue may be made. |
Venture capital and EMI schemes: changes to the VCT, EIS and EMI qualifying conditions | A response document to the consultation on the draft legislation announced at the 2009 Pre-Budget Report is expected (although this is unlikely to include responses to the draft legislation intended to implement the new small enterprise condition as the consultation period in respect of that draft legislation was extended to 12 March 2010). |
Other predictions
A number of other predictions have been widely reported including:
- Increasing the rates of capital gains tax (possibly only for those in the 50% tax rate band) and or VAT. However, HM Treasury appears to have ruled out further tax rises in the Budget (see, No new tax rises to meet pledge, Alistair Darling will say at Budget - Times Online, 12 March 2010).
- Increasing certain penalties (to 200% of the unpaid tax).
- Restrictions on the way that losses can be used (for example, limiting the number of years losses can be carried forward).