Budget 2016: What CA students should be watching out for

By Lecturer Duncan McKellar

11 March 2016

In March each year, the UK tax system undergoes a ‘refresh’ as the government of the day announces the annual Budget.

This week, we will hear the Conservative government’s plans for the year ahead when George Osborne delivers the Budget Statement to Parliament on Wednesday.

Once the statement is released, the Finance Bill 2016 will go through various stages of scrutiny by committees, the House of Commons and the House of Lords before receiving Royal Assent in the summer at which point it becomes the Finance Act 2016 (FA16).

Students studying Test of Professional Skills (TPS) in summer 2016 will be working on FA15 (the prior year) notes. This is because all of the 2016 TPS exams have a technical cut-off date of 30 November 2015. For students starting their tax studies for the first time in Autumn 2016, the rules in FA16 will form the basis of their Principles of Taxation (PoT) notes.

Changes that affect you

Regardless of which set of notes you are studying from, the changes announced this week should be of interest to you as they may affect the work you are doing in the office and they will affect you personally.

We already know some of the planned changes for FA16 as these were announced in the Autumn Statement at the end of last year. These include:

  • The way in which savings income and dividends are taxed will see significant changes with the majority of individual taxpayers paying less income tax than previously on their investment income.
  • The Annual Investment Allowance, which gives relief for qualifying expenditure on plant and machinery, has been reduced from £500,000 per annum to £200,000.
  • The Scottish Rate of Income Tax will apply to Scottish Taxpayers as of 6 April 2016.
  • A 3% Stamp Duty Land Tax/Land and Buildings Transaction Tax (SDLT/LBTT) supplement will be levied on purchases of second homes.

There is always a degree of speculation about what other changes the chancellor will announce. In this article on the 2016 Budget tax author Donald Drysdale gives us his views on what we are likely to see next week, with the main focus being on tax avoidance and evasion.

Minding the tax gap

He raises the interesting topic of the ‘tax gap’ – the difference between the amount of tax actually collected and the sum that should have been collected.

The gap can be put down to tax evaders, certain tax-avoidance schemes and failures in collection systems amongst other things. Closing this gap could significantly increase the Treasury’s income without the need for any headline changes in tax rates.

Government revenue, based on 2014/15 figures, is shown in the following infographic.

budget predictions

If you look closely at the pie chart at the bottom of the image you will get a feel for the significance of each of the taxes in our course – income tax and NIC represent just over 40% of government revenue, VAT and other Indirect taxes represent 27.5% with Capital taxes (Capital Gains Tax and Inheritance Tax are included here) accounting for just under 4% of the government’s income.

Corporation Tax is one of the Business taxes which represent 11% of government income although it should be remembered that Corporation Tax is due on ‘profits’ after wages, salaries and benefits have been paid hence the reason personal taxation tends to outweigh business taxation.

Follow Budget Day events at ICAS.com.


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