Budget 2015 – business wish list

The final budget before May’s General Election will take place next Wednesday. Chancellor George Osborne will unveil the Government’s plans for Britain’s economy over the next year. Here’s what we can expect and would like to see in the budget to help businesses.

1.     Closing “loopholes”

The main place to expect any big measures is around tax avoidance. Tax avoidance is an issue high on the public agenda at the moment, due to stories such as HSBC’s Swiss accounting scandal, and celebrities being outed for using avoidance schemes. Many schemes are technically legal at the moment because of the UK’s complicated tax code, but this budget will probably work on closing yet more “loopholes” and creating some positive headlines, as this is something all parties should be able to agree on.

2.     Class 2 National Insurance

AAT would very much like to see more SME (Small and medium enterprises) friendly changes in the budget. We anticipate that there will be changes to employee benefits and expenses, with some simplification in their administration. This can only be positive as it will cut red tape and help make life a little easier for SMEs.

We expect to see that the collection of class 2 National Insurance (National Insurance for the self-employed) will be aligned with the collection of income tax under the self-assessment regime. This is a change that will make life easier and was previously endorsed by AAT when it was originally proposed by the Office for Tax Simplification.

 3.     Direct Recovery of Debt

Direct Recovery of Debt (DRD) proposals (pre-announced at the time of the last budget) are expected, to give HMRC powers to recover debts from tax payers’ bank and building society accounts. AAT made counter recommendations to the original proposals, asking for greater consideration to be given to:

• Introduction of independent oversight into the process
• Banks receiving notices to apply freezing orders being required by law to notify the taxpayer concerned
• The design of a more formal approach to how warning letters are sent, and a final warning letter sent by registered post.

We’re pleased to note from our review of the draft finance bill, that our recommendations for change to DRD have been taken on board.

4.     Benefits in kind

We also anticipate the abolition of the £8500 threshold for reporting benefits in kind. Up until now businesses normally didn’t have to report benefits in kind if an employee’s earning and benefits were below £8500; instead they had to send in a separate form. With the changes ahead it will be necessary to submit a P11D form. The change won’t be brought in until 2016, so there’ll be sufficient time for employers to get ready for it.

Whilst we welcome this change, we’re disappointed to learn that the ceiling for trivial benefits is likely to be £50. AAT previously had recommended £200 as this higher threshold would have helped cut red tape and reduce the administration burden for many more SMEs

5.     Good will transfers

A restriction on internally-generated good will transfers is another measure that was pre-announced in the autumn. This was where if you had your own business as a sole trader and decided to transfer it to a limited company that had an arms-length goodwill value of say £50,000, you’d be able to claim the value of the goodwill created on incorporation as the proceeds of a disposal of the sole trader-business to the newly formed company as the price paid to you in order to acquire your business from you.

The former “tax advantage” was that the £50,000 transfer value would only be subject to a relatively modest charge to Capital Gains Tax.  AAT is concerned that a former legitimate practice encouraged by successive governments since 2002 has now been withdrawn and that this action may stifle entrepreneurship through making it less attractive for entrepreneurs to grow their businesses.

Wash-up budget

Because of the election in a couple of months, this budget will be what’s known as a wash-up budget; there probably won’t be any ground-breaking, contentious issues, as there won’t be enough time to agree them before the election, and all parties need to agree on everything ahead of a possible transfer of power. It’s worth noting that if there is a change of government in May another budget in June will be highly likely. Still, we’ll be watching with interest for any surprises and any indication of where the Government hopes to take the UK economy in 2015.

Brian Palmer is Tax Policy Advisor at AAT, (Association of Accounting Technicians), the UK’s leading qualification and professional body for vocational accountants

Brian Palmer , former tax policy adviser for AAT..