Budget 2012 predictions

aat comment

It is under a week until George Osborne unveils this year’s Budget. In an exclusive post, Michael Steed MAAT predicts what we can expect to hear come next Wednesday.

(Update: listen to Michael Steed MAAT’s podcast to hear whether his predictions were accurate)

This is probably the most publically debated Budget ever and is caused by tensions within the coalition Government, as well as the usual carping from the opposition benches. Both the Conservatives and the Lib-Dems are playing to the gallery of their own backbenchers and activists.

The bookmakers are even taking bets and giving odds on the most likely outcomes. So what do we know already and what don’t we know?

We do know a bit about the budget already – this is the first Government that publishes draft clauses for the Finance Bill the previous December, giving three months for feedback and debate.

Personal tax measures

The personal allowance for the under 65s will be £8,105 and the basic rate limit will be £34,370 for 2012/13.

Commutation of small personal pension funds

The Government announced that it had published for consultation draft secondary legislation to enable individuals to access savings held in small personal pension schemes i.e. £2,000 or less, by way of lump sum payment (commutation). The consultation ended on 31 January 2012.

Non Domicile Taxation

The Government has published further details on non-domicile taxation and the statutory residence test. This will now be put off for at least one year (it was expected in April 2012).

Working with Tax Agents

HM Revenue and Customs published the responses to the consultations on the relationship between the tax agent community and HMRC.

Office of Tax Simplification – Review of Tax Reliefs

As announced at last year’s Budget, and following consultation over the summer, legislation will be included in Finance Bill 2012 to abolish some old and out of date tax reliefs commencing in April 2013.

Extra Statutory Concessions review

The Government also announced the withdrawal of five extra statutory concessions and a consultation on supplementary legislation for two concessions. The withdrawals will have effect from the beginning of the 2013/14 tax year. (We’ve already heard about ESC C16 and I will be covering that on the tax update series)

The Seed Enterprise Investment Scheme (SEIS)

Legislation will be included in Finance Bill 2012 to provide for a new tax advantaged venture capital scheme. This will  apply to smaller companies, those with 25 or fewer employees and assets of up to £200,000, which are carrying on or preparing to carry on a new business;

The scheme gives income tax relief worth 50 per cent of the amount invested to individual investors with a stake of less than 30 per cent in such companies, including directors who invest in their companies (I like this one!);

So what’s likely to happen in the Budget; after all any Chancellor likes a few rabbits out of the hat?

An increase in the personal allowance?

Many experts, anticipate an increase in the personal allowance as a carrot to the lowest paid. This would be very popular with the Lib-Dems.

There are already plans to increase this allowance – the income that you can receive before you start paying any income tax – to £10,000 by April 2015, but this could be fast-tracked.

However, the cost of implementing it is high – it’s a lot of lost tax.

Fifty per cent tax rate scrapped?

The top rate of income tax for those earning more than £150,000 was introduced as a ‘temporary measure’ by Labour chancellor Alistair Darling in 2010. While the Conservatives say that they also view the 50p band as temporary, only a very brave punter would take a bet on it being abolished now – the political backlash would be huge!

Tax relief on pension contributions

There has been loads of talk about a possible reduction in pension tax relief for higher rate taxpayers.

At present, you can receive tax relief on up to £50,000 of pension contributions, and those who earn more receive more tax relief because they pay a higher rate of tax. The cost to the government is enormous.

The mostly likely thing that could happen in the Budget is that those earning £150,000 or more get only 20pc tax relief, although some politicians are calling for  higher-rate relief to be removed altogether.

Mansion tax

This is a hot topic, especially for the Lib-Dems. Vince Cable’s proposal was that anyone owning a house worth more than £2m should pay a mansion tax of 1 per cent a year. This is unlikely to happen in my opinion. How do you accurately value houses that haven’t been sold recently?

Reduction in fuel duty

The price of fuel is damaging both the economy and ordinary households. Could it be that the planned fuel duty rise (in August this year) will be scrapped?

NIC holiday

There has also been some comment about a possible extension of the regional ‘NIC holiday’ for start up companies too. The take-up on this has been disappointing, so the Government will be keen to see it succeed.

What do you think? I think the personal allowance could well be increased to say £8,500, but this will be balanced by a reduction in tax relief for higher earning taxpayers for their pensions.

Michael Steed MAAT trained and qualified with Coopers and Lybrand (now PwC). He’s spent 20 years in practice, advising a wide range of clients in tax matters. He was awarded AAT’s Past President Award in 2004 for services to membership, and is now a specialist presenter with Kaplan Hawksmere. Michael has a long standing interest in SME taxation and has written articles for Tax Adviser and is an editor for CCH’s tax publications.

Michael Steed MAAT is a speaker at the 2012 AAT Members’ Weekender.

Learn more about AAT’s Members’ Weekender and buy tickets

Were Michael’s predictions correct? Find out by listening to his exclusive Budget 2012 podcast

Michael Steed is co-chairman of the ATT's tax Technical Steering Group and columnist for Accounting Technician magazine.

Related articles