The countdown to the 2011 Budget has begun. Osborne is dusting off his red briefcase as we speak. Here's a quickfire summary of our predictions:
Last week, the Institute of Directors (IoD) called on government to slash the current rate of corporation tax from 28% to just 15%.
Osborne will bow to pressure from lobbying groups and make a concession, but it will be small. Smarta predicts that we will see a 1% drop in corporation tax to 27%.
New anti-avoidance legislation will be introduced in the Finance Bill to prevent firms awarding bonuses, pension schemes or other forms of remuneration (like season tickets, for example) through third parties without handing over a wedge to HMRC through PAYE. The new measures are set to boost HMRC tax receipt by an additional £1bn.
To be fair, the current legislation is pretty vague, so the rules do need further explanation and the chancellor plans to introduce a number of exemptions to make it far clearer to companies if they are falling foul of the law.
Ah, the dreaded pensions. Firstly, the default retirement age is being phased out, despite huge opposition from within the business community. Automatic enrolment in pensions schemes could be on the cards; people will begin saving for their retirement without making an active decision to do so. Tricky. Tax relief on pensions will drop from £255,000 to £50,000.
The 50% Tax Rate
The CBI has been fighting tooth and nail to abolish the 50% tax rate for high-earners, claiming that it damages the culture of entrepreneurship in UK. Osborne is highly unlikely to cave to these demands. Indeed, it is conceivable that the threshold at which this prohibitive tax rate kicks in will actually be lowered to boost HMRC earnings. But, as usual, the government gives with one hand while taking away with the other: the point at which income tax starts to be paid - or 'personal allowance' - will rise by £1,000 to £7,475, enriching low-earners.
Self-employed folks take note: stricter penalties will be introduced for those who are late in filing tax returns. Expect a £100 fine for tardy filings.
The government will increase National Insurance rates, hiking employee contributions up from 11% to 12%. For all those who pay a contribution over the upper earnings limit (anyone who earns more than £817 a week) this will go up too, from 1% to 2%. Staff may begin clamouring for pay rises in line with lighter pay packets to compensate.
Barry Murphy, partner at PwC, sums up the sitch for small businesses: "It will be a relatively quiet business tax Budget, and that may be just what business wants at this time."