2016 Budget Summary
GDP grew last year by 2.2%. The Office for Budget Responsibilities (OBRs) new forecasts are as follows :
Growth of 2% this year
Growth of 2.2% in 2017
Growth of 2.1% in each of the three years after that.
With regards to public spending, the Chancellor said that tax revenue will fall from its current level of 40% to 36.9% by the end of the decade, at which time the country will theoretically be spending no more than it raises in taxes. These figures mean that the Chancellor needs to be cutting public spending by an extra £35bn a year by 2019/20. There are no details yet on how this is going to be achieved.
Measures to cut tax avoidance and evasion include:
- shutting down disguised remuneration schemes;
- ensuring that UK tax will be paid on UK property development;
- changing the treatment of freeplays for remote gaming providers;
- limiting capital gains tax treatment on performance rewards; and
- capping exempt gains in the employee shareholder status.
In addition, public sector organisations will have a new duty to ensure that those working for them be taxed as employees rather than giving a tax advantage to those who choose to contract their work through personal service companies. Further, loans to participators will be taxed at 32.5% to prevent tax avoidance; and the rules governing the use of termination payments are to be tightened. Termination payments over £30,000 are already subject to income tax. From 2018, they will also attract employer national insurance.
The controversial ‘sin tax’ – the sugar levy – will be introduced in 2018. The levy will be assessed by reference to the sugar contents in soft drinks.
The annual ISA limit will be rising from just over £15,000 to £20,000 from April next year. In addition, a new lifetime ISA will be introduced from April 2017.
George Osborne announced that corporation tax was to be to cut to 17% on 1 April 2020 in a move that the Treasury estimates will benefit one million companies. The Chancellor labelled CT as “one of the most distortive and unproductive taxes there is”, and instead of the planned reduction to 18% by 2020, declared a reduction to 19% from 2017 then 17% in 2010. This would leave the UK with the lowest corporation tax rate in the G20, if all other countries maintained their current rates. Commenting on the measures John Cullinane, tax policy director at the Chartered Institute of Taxation (CIOT), evoked Mark Twain, stating that "rumours of the death of corporation tax have been much exaggerated". “Although he [Osborne] announced a reduction from 20% to 17% with effect from 2020/21, over the next five years companies will be paying over £7bn extra as a result of the decisions announced today”.
This summary of the key tax points from the 2016 Budget Statement is based on the documents released on 16 March 2016. It is possible that changes will be made between now and the publication of the Finance Bill, which is expected on 24 March 2016. We will keep you informed of any significant developments.