Are you ready for the Summer Budget?

Tomorrow’s Summer Budget is the first real opportunity for the Chancellor to put his mark on the nation's finances, unconstrained by coalition negotiations.

This is the time to set any major reforms in train so they can bed down before the next election. If the Chancellor wants to be brave, there's scope to transform the tax system and improve how it works, boosting tax revenues in the longer term.

It’s also the best time for any less palatable measures. So called ‘emergency budgets’ traditionally bring tax rises, but this time we could equally see tax cuts that favour some, not others. Overall the Chancellor will likely be looking to raise tax the big question is where from, given the lock on rises to income tax, national insurance and VAT.

Where tax revenues could come from?

Widening the tax base - While the lock on rises to income tax, national insurance and VAT narrows the options, there's still plenty of scope to change with changes to reliefs and exemptions the likely targets.

Property - Mansion tax is off the table but there are a number of ways the Chancellor could tap into real estate for revenue.

Pensions -Pensions have dominated recent budgets and this looks set to continue. Restricting pension’s tax relief for additional rate tax payers is part of the Conservatives' manifesto - the move would fund an increase in the inheritance tax threshold for main homes to £1million.

Anti-avoidance - The Government's manifesto pledged to raise £5bn from tackling tax avoidance and evasion through measures including potential changes to the ‘non dom’ rules. The Government are also likely to increase powers to HMRC and introduce new penalties for breaching the General Anti-Abuse Rule. A £5bn target is not an insubstantial sum so we could well see further anti-avoidance measures, beyond what’s in the manifesto.

Businesses will be watching to see whether the Chancellor pre-empts proposals put forward by the OECD as part of the BEPS workstreams that could result in a limit on the tax deductibility of interest, any such move would likely be bad business, rather than making another pre-emptive move it's more likely he'll hold off until Autumn when the OECD's final recommendations are released.

In a bid to maintain the credentials of having the most competitive tax regime in the G20, the Chancellor could look to reduce the main rate of corporation tax – this though would be a bold and largely unexpected move.

A memorable budget?

This budget has the capacity to have a broad range of measures that could affect lots of different areas of taxation. We expect to see some revenue raising measures but potentially also some give-aways. History also dictates that the first budget after an election can often give rise to more radical proposals..…what do you think this Chancellor’s surprise move will be?

Follow our commentary to make sure you stay up-to-date on what comes out of the announcement and what you need to be thinking about next or speak to myself or your usual PwC advisor.

Stella Amiss - +44 (0) 207 212 3005 / [email protected]