Grant Thornton Unveils Pre-Budget Predictions

by Jason Gorringe, Tax-News.com, London

10 November 2006

Financial advisory and accounting firm, Grant Thornton this week suggested that the forthcoming Pre-Budget Report (PBR) is likely to contain "more showboating than simplification" from Gordon Brown, as he seeks to firm up his legacy as the country's longest-serving chancellor.

Ian Luder, tax partner at Grant Thornton explained that:

"The backdrop to this PBR means it will not be a predominantly revenue-raising announcement. Equally, we should not expect that the Chancellor will herald a range of tax cuts. Much of what has been done before has been raising the tax take by stealthy means. Doubtless, his emphasis will be on stability of the economy, a theme the Conservative opposition is also lauding as central to their policy."

He continued:

"Of perhaps greatest urgency to the Chancellor is tackling the VAT carousel fraud which is costing the economy and honest taxpayers billions every year. Environmental taxes have moved to the centre stage and Brown will be keen to put forward his green credentials despite the fact that green taxes have fallen proportionately under Labour."

"In addition, the thrust of the debate about whether or not tax cuts are affordable has led to politicking about the level of waste in the public sector, and whether taxpayers receive value for money. Given that the Gershon Review was announced two years ago and is expected to bring about £20bn of public sector savings by 2007-08, I would expect the Chancellor will need to expand on its progress. The public is currently under the impression that it is not achieving its aims."

With changes mooted to the self assessment filing dates in 2008, Grant Thornton suggested that further announcements can be expected to tighten the rules around the self assessment regime.

The firm also suggested that following the introduction last year of the EU Savings Tax Directive, the UK authorities are expected to further close the loopholes that have allowed tax evasion with offshore bank accounts and other offshore investment vehicles.

Speaking with regard to the government's possible plans relating to VAT, Paddy Behan, a VAT director at Grant Thornton, speculated that:

"The ever growing numbers of cheap flights and food products imported from around the world have brought this issue into sharp focus. I would not expect a new higher rate of VAT but would not be surprised to see a timetable for a consultation about how new tax measures could encourage the country to become more environmentally aware."

"What most of us expect but are reluctant to hear is that individuals are likely to bear the brunt of any increase in fuel tax, hence a nation of travellers will feel the hit in the pocket. The cheap trip to the Med or the elaborate city break may cost a lot more tomorrow."

The accounting firm went on to predict that:

"Following the ruling in June this year when TV presenters Richard Madeley and Judy Finnigan won at a Special Commissioner's hearing, Grant Thornton is expecting new rules to tighten the income tax rules for entertainers. The hearing revolved around the issue of what level entertainers could claim tax relief for their expenses on their income. This included their agents' fees."

"After a victory for the taxpayer, many celebrities could be in line for a large tax repayment as a result of the ruling running into millions pounds of claims, but this is a precursor to a planned move by HMRC to treat TV & radio entertainers as employees under PAYE."

Luder commented:

"The case was brought against Richard and Judy at a time when there is a growing pressure on the tax authorities to raise revenue. Given the subsequent ambiguity in the ruling of this case and the fact that HMRC lost, I don't think the
Chancellor will let this lie."

Speaking with regard to possible National Insurance changes, Luder observed that:

"When the Chancellor raised the rate of national insurance in 2003 and broke an election promise, he tried to pretend national insurance is a 'contribution' not a tax but there was never any logic for this argument. It has proved a difficult pill for business to swallow but more rises could be on the way."

The last increase was justified by a need to increase NHS funding, but Luder pointed out that there is no separate 'pot' for NI contributions, and that NI was originally intended to fund state pension entitlement. Luder expects that a new 'super rate' of 2% will be announced for higher rate earners (those currently with earnings over GBP33,540).

Luder concluded:

"The political battlefield is hotting up. We can expect more from the Chancellor in terms of attempting to steal the thunder from the opposition. He may find that attack is the best form of defence. He too is also preparing his legacy as Chancellor. One area that will require attention is the tax credits system."

"With his back to the wall over the continuing fiasco and heightened debate over the effectiveness of means-tested benefits, he will need to put up a vigorous defence of the system. Unless there is greater simplification of the system, his claims may ring increasingly hollow."

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