The Chancellor, Alistair Darling has already given fairly clear notice of some of what he intends to include in his first Budget on 12 March.
As part of his plans to simplify the tax system, Mr Darling took the opportunity of his pre-Budget report last autumn to indicate a number of tax changes. Add in those published in the 2007 Budget and the total number of amendments could be as high as thirty. Some are insignificant, others major.
The economy
As well as readjustments of the tax regime, the Chancellor will have to conduct a delicate balancing act on the economy. The credit crunch, which is still making itself felt across the global economy, and the slowdown in domestic activity will limit Mr Darling’s options.
The UK economy grew by 3 per cent in 2007, but forecasts suggest the rate of expansion for 2008 could be significantly lower. Low enough to jeopardise the prediction made in the pre-Budget report that the public purse will balance by 2009/10. To achieve that now the Chancellor would either have to impose tax increases or introduce large-scale reductions in government spending. Mr Darling will probably seek to avoid both.
The Treasury may re-arrange the terms of its self-imposed ‘golden rule’ – the balancing of expenditure and income over an economic cycle – to accommodate the current downturn and any extra borrowing needed to tide over the possible shortfall in government income.
Taxes
The Chancellor has already pre-announced changes to tax. The Budget, of course, may contain further amendments to the precise details.
Income Tax
The basic rate of income tax is due to fall from 22 per cent to 20 per cent, while the 10 per cent start rate is set to disappear.
National Insurance
The upper earnings limit for National Insurance Contributions is to rise from £670 to £770 per week. The additional £100 a week in earnings will be subject to a NIC charge of 11 per cent rather than 1 per cent.
Inheritance Tax
Some of the changes announced in the pre-Budget report have already come into force. As from October last year, spouses and civil partners have been able to transfer unused inheritance tax allowances to each other. Allowances are set to increase to £312,000 per person as from April.
Capital Gains Tax
The subject of a huge fuss when the news was first delivered, the Chancellor plans to abolish taper relief and indexation on CGT and introduce a flat rate charge of 18 per cent on the sale of assets as from April 2008. Responding to the subsequent outcry from the business community, the Chancellor has since proposed a 10 per cent charge for lifetime gains up to £1 million on sales.
Non-doms
Until now non-doms paid tax on income earned in the UK but, provided the money was not brought into the UK, not on income earned overseas. Under new rules, non-doms will have to pay a charge of £30,000 after living and working for seven years in the UK if they wish to protect their overseas income from UK tax charges.
Corporation Tax
The main rate of Corporation Tax is set to fall from 30 per cent to 28 per cent.
However, the small companies’ corporation tax rate will see a rise to 22 per cent by 2009. By way of compensation for the rise there will be a 100 per cent relief on capital investments of up to £50,000, an environment tax credit and an increase in the tax credit of between 150 per cent and 175 per cent for R&D investments.
Fuel Duty
Given the rising cost of oil and the background of economic uncertainty, business and haulage groups have been lobbying the Chancellor to drop the increase in fuel duty planned for April. The rise of 2 per cent would see an extra 2p added to the price of a litre of fuel.
We will keep you fully up to date with the 2008 Budget. If you have any questions about the effects the Budget has on your business or personal financial planning, please don’t hesitate to contact us.
Date:10 March 2008
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