Tax reforms expected
Chancellor expected to unveil tax changes
With the Government having pledged not to increase VAT, income tax and National Insurance rates in the current Parliament, and the political requirement to slow the pace of public sector cuts in the form of revised new tax credits rules, the Chancellor could use the Autumn Statement to consider a range of other measures to shore up public finances.
We may well see further detail on the new dividend tax rules applying from April 2016, which were designed, in part, to discourage many businesses from incorporating in order to benefit from lower tax rates on dividends.
There are winners and losers under the Government’s proposals announced in the summer and it may be that the Chancellor will fine tune these to squeeze a little more revenue for the Exchequer’s coffers.
The Chancellor may also take a further opportunity to increase tax charges on company car users, particularly in the light of the recent emissions scandal.
Further pension reform is anticipated, although we think it likely that the Chancellor will keep his powder dry in this area until the Budget in March 2016. This potentially gives people an opportunity to review their pension position and take action to utilise tax reliefs before they might change, or indeed disappear, following a further raft of new legislation.
No Budget or Autumn Statement would be complete without further announcements on new anti-avoidance tax rules and inevitable penalties for transgression, and we do not expect this Autumn Statement to be any different. There may well be announcements on further penalties for filing or paying tax late as well as completing inaccurate returns.
On the bright side, we may see further details on the proposed introduction of a personal savings allowance applying from April 2016. This will exempt from tax up to £1,000 of savings income for a basic rate taxpayer and £500 for a higher rate taxpayer. This is allied to the announcement that banks and building societies will pay interest without deduction of tax from April 2016 too and further detail on how this will all work will be welcome.
After nearly 20 years of Self Assessment tax returns, we expect the Chancellor to provide further detail on the introduction of digital tax accounts including a “roadmap” of proposals to reform tax administration for individuals and small businesses. Taxpayers will still have filing obligations under the new proposals but we are likely to see a whole new way of accounting for income, gains and tax reliefs to HMRC.
We should perhaps remember that once Westminster has spoken, it will then be time for the Scottish Government to make its own public spending and tax announcements in Holyrood.
Whilst it seems likely that the new Scottish Rate of Income Tax (applying from April 2016) will keep in line with the rest of the UK for now, the greater fiscal powers afforded to Holyrood under the Smith Commission proposals (and passing through Parliament in the form of the Scotland Bill at present) could result in a divergence in rates on different forms of income as soon as 2017/18. For those who thought tax was already complicated, you ain’t seen nothing yet!
Peter Young is Tax Partner in the Edinburgh Office of Johnston Carmichael