The Budget on March 8, follows hot on the heels of the Autumn Statement on November 23. It is also the first of two Budgets we can expect this year as the UK transitions to an autumn rather than spring budget timetable. Usually it’s only election years during which two Budgets are delivered, but this year is an exception.
An obvious and recurring question from the oil industry is “Can we expect any fiscal measures targeted at the oil and gas sector?” The answer to that is exactly the same as the answer in the lead up to the Autumn Statement and is an unequivocal “no”. Put less succinctly HMT remain unconvinced by the benefits of any special fiscal stimulus for exploration, and the stabilisation of the oil price in the $50-$60 range rules out any further reductions in the overall tax burden for the sector. The case for further changes with regards to decommissioning tax relief remains a work in progress, and may be a potential candidate for the autumn Budget, and there is little prospect of any further changes to investment allowance. On the investment allowance we still await the secondary legislation which will enable its broadening to include certain non-capital expenditure – that broadening was announced on 8 October 2015 so has been a long time coming – and the outcome of HMT’s deliberations in respect of the inclusion of tariff income.
So with no prospect of oil and gas changes what else may be in the Chancellor’s mind on Budget day?
For general corporation tax April will see the rate reduced to 19%, and of course it is due to continue on that downward trajectory to 17% by 2020. Therefore it is unlikely, despite rumours, that a further rate reduction will be announced. However, the race to lower rates continues in some countries with Ireland at 12.5%, Hungary at 9%, and proposals in the US to move it to 20% or even 15% from a top rate of 35% at present. Rates are of course only half of the story. What is included in the tax base is also very important, which is illustrated by the fact the UK’s corporate tax receipts are predicted to rise rather than fall. In the UK there has been no tax relief for industrial buildings for many years and manufacturing companies are increasingly concerned about the artificial increase to their taxable profits from the exclusion of costs vital to their activities. Could the Budget see a change to relief for such buildings in order to promote further investment as Brexit looms closer?
Another area perhaps ripe for reform is the taxation of employment, self-employment and private service companies. However, these are complex matters where unintended consequences can arise from precipitous action, and any changes here need to be the subject of consultation.
One could speculate about possible changes in other areas such as capital gains tax; simplification of reliefs across the tax system generally (currently there are over 1,000 reliefs); and perhaps tinkering with inheritance tax – but it would be idle speculation. Perhaps a more likely outcome is that the Budget will be fairly low key with more focus on the latest OBR projections than tweaking of the tax system.
In any case Scotland is starting to drift from the UK from a fiscal perspective with the introduction of the Scottish income tax powers. From the 6th of April taxpayers in Scotland will start paying tax at 40% when their income exceeds £43,000 whereas in the rest of the UK it will be £45,000. Could this be the shape of things to come?
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