BDO unveils its predictions and hopes for Pre-Budget Report 2009

BDO unveils its predictions and hopes for Pre-Budget Report 2009 The most difficult backdrop to a PBR faced by a Chancellor since the 1940s. With the date for this year’s Pre-Budget Report now set for Wednesday, 9 December, BDO LLP today issue its predictions for likely moves by Alistair Darling in what will be his final chance to instil some confidence in the Government’s ability to balance the books ahead of next year’s General Election. Stuart Lisle, Tax Partner for BDO LLP in Southampton commented: “Alistair Darling is facing the most difficult set of economic circumstances for any Chancellor since the 1940s, with the projected substantial fiscal deficits for 2009/10 and 2010/11 likely to be revised upwards from £175 billion to well in excess of £200 billion. He must perform a delicate balancing act to secure the confidence of the global financial markets while protecting any fragile economic recovery and boosting public confidence”. The BDO Tax Team predicts that the Chancellor will use the last Pre-Budget Report before the election to increase the yield from income tax, national insurance, VAT and customs duties, which are the biggest revenue generators for the Government. The majority of the measures announced are likely to be deferred to take effect after the General Election. BDO’s key predictions for PBR 2009 include: Business Taxation Matters • Restriction or removal of corporation tax reliefs, for example tightening the UK’s relatively generous rules to restrict carrying forward tax losses against future trading profits. If the Chancellor takes this course of action, he should recognise the continued impact of the credit crunch by exempting losses accumulated up to March 2010. • Possible reduction in corporation tax from 28 per cent to 25 per cent to take account of the collapse in revenues and compete with other European countries for inbound investment. • Further measures to attack perceived tax avoidance by both companies and individuals. • Measures to encourage share options. This may include simplification of approved company share option schemes, financed by removing corporation tax relief available on such schemes. The Chancellor should resist popular demand for punitive tax rates to be applied to specific sectors such as banking. • A possible boost for the hard-hit construction sector by cutting Value Added Tax on repair and refurbishment of residential property to five per cent (or even to the nil VAT rate). Elsewhere in the sector, the Chancellor may challenge certain Stamp Duty Land Tax planning arrangements for very large commercial real estate transactions. He should also further clarify the anti-avoidance provisions as lobbied for by the real estate sector. • With the PBR taking place in the shadow of the Copenhagen summit, the Chancellor may use the green agenda as an opportunity to justify tax increases in areas such as passenger, fuel duties and landfill tax. Other measures could include corporation tax cuts to encourage inbound investment in designated Low Carbon strategic investment zones and increased tax credits to encourage investment in waste to energy projects, but he may well:- • Increase red tape for green business travel. The Chancellor may announce that HMRC has re-examined the tax breaks supporting the popular cycle to work and bus schemes. This review may bring in a stricter interpretation of the qualifying conditions, which may impact the use of these arrangements. Individual Taxpayers • The Chancellor is unlikely to change the basic and higher rates of income tax but may try to generate more revenue from national insurance by increasing the upper earnings limit or contribution rates or restricting personal tax reliefs for individuals paying income tax at the 40 per cent rate and the proposed 50 per cent rate. • He may also be tempted to attack planning arrangements attempting to secure the taxation of remuneration, dividends and interest in 2009/10 at the current 40 per cent income tax higher rate rather than in 2010/11 at the proposed 50 per cent highest rate. • Measures to deter individuals from distorting investment decisions in favour of paying capital gains tax at 18 per cent rather than income tax at 50 per cent. Possible options include raising the capital gains rate to at least 20 per cent and, possibly, in line with income tax rates for short term speculative gains. • Narrowing the range of businesses eligible for business property relief to enhance already rising inheritance tax revenues. However, this could well endanger entrepreneurial family-run businesses and should therefore be resisted. • While a major simplification of the recent legislation on non-domiciled taxation is already clearly needed, he may merely introduce a statutory residence test for individuals from April 2010. • Extension of the Stamp Duty holiday for residential property beyond 31 December 2009 to support the tentative recovery of the residential property market. • Announce an increase in VAT from 17.5 per cent to 20 per cent (or even more) but only to take effect from July 2010 0r January 2011. - Ends – Note to editors BDO LLP operates across the UK with some 3,000 partners and staff. BDO LLP is a UK limited liability partnership and a UK Member Firm of BDO International. BDO - Belfast, a separate partnership, operates under a licence agreement. BDO International is a world-wide network of public accounting firms, called BDO Member Firms. Each BDO Member Firm is an independent legal entity world-wide and no BDO Member Firm is responsible for the acts and omissions of another member. The network is coordinated by BDO Global Coordination B.V., incorporated in the Netherlands with its statutory seat in Eindhoven (trade register registration number 33205251) and with an office at Boulevard de la Woluwe 60, 1200 Brussels, Belgium, where the International Executive Office is located. The combined fee income of all the BDO Member Firms was $5.14 billion in 2008. The global network has 1,095 offices in 110 countries and more than 44,000 partners and staff provide business advisory services throughout the world. BDO LLP and BDO - Belfast are both separately authorised and regulated by the Financial Services Authority to conduct investment business. BDO is the brand name for the BDO International network and for each of the BDO Member Firms. Contacts Charlotte Freeman Snr PR manger, UK Tel:020 7893 3590 / 07854 115 154 Email: charlotte.freeman@bdo.co.uk