Tax: Hope is that Budget will not burst the euphoric G20 bubble
Channel Islands, April 09 - Graham Parrott, Partner You will probably be aware by now that this Wednesday Alastair Darling will deliver his 2009 Budget speech. Indeed, I cannot remember there being as much pre-budget interest as there has been this year which reflects the fact that, unfortunately, the economy has been the major news story in the UK for the last few months, which makes the Budget statement all the more important.
Making Budget predictions has generally been made less difficult in recent years, due to a combination of judicious leaking and some measures being announced in advance. To an extent that is the same this year.
Because of the difficulties facing the UK economy there is a general expectation that the Chancellor will try to balance the conflicting demands of appearing to have the economy under control, hence the likelihood of stringent public spending cuts, but at the same time not to choke off a recovery before it has already begun. We may therefore see a number of future tax rises announced.
It has been billed as a Budget for jobs. So we are likely to see measures such as financial support for retraining and encouragement to employers through deferred rises in National Insurance costs, particularly for the lower paid.At the same time there is expected to be another “raid” on pensions, by removing higher rate relief for contributions. This may have a limited knock on effect here as the Island seeks to enhance its own international pensions offering. But what else could be in there that affects us here?
One thing we should be looking out for is the promised initial report of the review into the dependent territories, announced in the pre-budget statement and led by Mr Michael Foot. Listening to some of the euphoric statements surrounding the announcement of the G20 white list, you could have been forgiven for thinking that the fat lady had not only sung, but gone back to her dressing room and had a cup of tea. Not so.
The G20 outcome was certainly a positive one, but the challenges we face did not end there. And whilst it would now be difficult to receive anything other than a positive report as far as transparency and cooperation are concerned, there is more to it than that, as was made clear in Gordon Brown’s subsequent letter to the Chief Minister.
One focus of the review is regulation, no surprise given Mr Foot’s previous role at the UK Financial Services Authority, and the background to the review. Again we should be OK there.
However the UK Government is pushing hard the concept of tax morality, encouraging UK taxpayers to act within the spirit as well as the letter of the law. This will be difficult to enforce, but if the debate has moved on from transparency and regulation to avoidance, this will present further challenges.
There has been talk of “principles-based” anti avoidance rules, and a voluntary code that banks will be asked to adhere to, which may include restrictions as to what can be done offshore. I am not sure this is good for the UK economy or ours, but we will have to wait for the details on Wednesday to know more on this.
We can also expect more details on how the UK intends to change the taxation of foreign profits, which could be relevant to some structures based here.
I would expect most of the significant measures therefore to be company related. For individuals, there were significant changes last year to residence and domicile. An increase in the higher rate of tax to 45 per cent from 2011 has already been announced. Could that be increased to 50 per cent?
Something that hopefully will not be in the Budget is a change to tax non UK residents on the disposal of a property there. The UK is one of the few countries not to do so, and long may that continue. This would certainly be curious timing for such a change.
As far as indirect taxation is concerned, one of the big pre-Budget measures was the reduction in VAT from 17.5 per cent to 15 per cent, which was to run through to the end of the year. I was far from convinced by the benefits of this and we are now seeing suggestions that it may be extended, or alternatively increased to 20 per cent!
And, on a positive note, it has been suggested that rebates of up to £5,000 could be available on the purchase of electric cars. Could this be good for us?
All will be revealed on Wednesday. What is clear is that whilst April 2, the day of the G20 announcement, was an important day for Guernsey, April 22 will be as well. Let us hope Mr Foot treads carefully.
