South East: EY’s Budget 2016 predictions – 'targeting tax revenues to balance the books'

Faced with a slowing economy and challenging public finances, the chancellor is expected to focus on revenue-raising measures to help him deliver his fiscal mandate, says EY.  

Gareth Anderson, tax partner across the Thames Valley & South Coast, commented: “The chancellor chose March 16 to deliver this year’s Budget, missing the Ides of March by one day. With a deterioration in the public finances since the Autumn Statement, the austerity that was expected then may well appear this time around. 

“As the chancellor will be looking at his options to help him balance the books, this can be expected to be a tax raising and tax generating Budget with the state of public finances giving little wiggle room for any largesse. The chancellor will have his focus fixed on achieving a surplus in 2019/20.”

The following is a selection of measures that EY says the chancellor could be considering:

Business tax predictions

Anderson commented: “For a while, businesses have been asking for a ‘roadmap’ providing a clear indication of where the chancellor will take the tax system. The business tax roadmap is expected to encompass a whole series of taxes from the next steps on the implementation of OECD’s Base Erosion and Profit Shifting (BEPS) recommendations, to business rates, energy taxation, next steps on the digital initiative that was announced in the Autumn Statement, as well as a redesigned tax policy framework. 

“Bringing all this together into a coherent plan is quite a challenge, but it is something businesses have been looking forward to. The Corporate Tax Roadmap introduced at the start of the last Parliament will be a hard act to follow given its popularity among businesses. There will need to be some proposals of real substance in this document if it is to result in the same level of certainty and added investment.” 

Business rates: “With the reduction in corporation tax, the relative burden of business rates has increased substantially. At the time of the Autumn Statement we were expecting the Government to announce where it had got to after the consultation on business rates closed. Instead we got an update on the tax administration side of business rates. This time, as part of the business tax roadmap, we’d expect more substantial announcements. The Government’s intention to ensure that any new system raises the same amount of money could constrain reform. However, given that this tax doesn’t change with profits, it can be one of the most onerous particularly for retailers and manufacturers and now could be a good time to modernise it.”

Update on OECD’s BEPS project: “The consultation on interest deductibility has closed and an announcement by the chancellor is likely. The potential impact on businesses is large, particularly for infrastructure projects, so the chancellor’s decisions on the exemptions from the OECD’s model will be of critical importance. We expect that the Government will heed the warnings from the consultation and temper the impact of a raw implementation of the BEPS proposals. We may also see a reference to the Government reviewing the case for requiring Country By Country Reporting (CBCR) information to be publicly available as currently discussed within the European Union.”

Next steps on HMRC going digital: “Following the announcement at the time of the Autumn Statement about HMRC going digital, there is a certain amount of uncertainty over both time scales and ultimately whether this move to the digital world will make the life of taxpayers easier or add one more burden in their relationship with HMRC. A leap into the digital world will benefit the UK’s tax administration, but it needs to come with a plan attached to it.”

New tax policy making framework: “The tax policy framework was introduced back in 2010. The expectation now is that as part of the new business tax roadmap it is going to be updated and made fit for the tax landscape of 2016.”

Customer relationship management: “The days of referring to ‘the inspector’ and ‘the taxpayer’ are gone. For a while now HMRC has been talking about the customer and the relationship manager. A decade on from its introduction we are likely to see announcements of a new vision for the relationship manager as part of the Business Tax Roadmap.

“As part of that vision HMRC has been working to develop a new framework for working with large businesses. Keeping the UK ‘open for business’ rests not just on the attractiveness of the tax system but also on the certainty, stability and predictability of its administration. It is crucial not only to get the framework right but to also ensure that the way it is applied works for tax payers, the tax authority and the country as a whole.”

Fuel duty: “The extent of the decline in petrol prices coupled with the fact that fuel duty has been frozen in cash terms since April 2011, may mean that the chancellor is gearing up for an increase. The chancellor could raise fuel duty in line with inflation arguing that the election manifesto pledge was for a real-terms freeze.”