The backdrop to the PBR has not been entirely encouraging for business, and many are looking ahead to it with concern. Autumn headlines have focused on risk, tax avoidance and tax rises, and the CBI has called for stability, rather than change. HM Revenue & Customs has promised to stamp out tax avoidance by 2008.

The chancellor has acknowledged that the growth forecasts made at the time of the Budget in March will not be met. Tax revenues are below those anticipated, although the most recent receipts in October were well above forecasts. Nonetheless, overall tax receipts for the financial year are still below what was predicted. It is thought that the extra contribution from oil companies, due to the high oil price, led to the extra tax receipts in October.

What can we expect on 5 December?

It is likely that further tax rises on business will be announced, with the areas of focus expected to be international business, financing transactions and, following disclosure of Stamp Duty Land Tax planning, action may be taken against some of the more extreme examples. SDLT would potentially impact commercial property transactions. There has also been speculation that tax on oil companies could increase to take a larger share of the profits generated as a result of a high oil prices.

What about some good news? It is possible that the chancellor may finally introduce the new REIT (real estate investment trust) regime – a special tax exempt property investment vehicle. A REIT is most likely to take the form of a quoted company, but which is not liable to tax on its profits. Instead, it will be required to distribute most of its net income to its shareholders, who will pay tax on their receipts.

It is rumoured that the remaining issues for debate concern the treatment of overseas investors in REITs and the conversion tax charge when existing property companies convert into the new tax-exempt form.

Other areas for an update include:

- Leasing – the tax treatment of leasing is planned to change for long-term (typically over 5 years) leases. Many details have already been announced, but an update is possible. Long term leasing has benefited businesses which make substantial investments in plant and machinery – especially where they are loss-making, or in a start-up phase. They will be adversely impacted by this change.

- Pensions – most of the arrangements for the new Pension regime have been announced, although there is a stream of regulations still emerging from Revenue & Customs. An announcement may be made about the inheritance tax treatment of pensions, now relevant because it will be possible to pass retirement benefits to descendants. It is to be hoped that the existing treatment (broadly, an exemption where the pensioner dies before taking all pension benefits i.e. before age 75) will be retained. The chancellor may also take the opportunity to comment on the Turner review of Pension Policy, due to be released on 30 November.

- Trusts – the chancellor is expected to affirm the new tax regime for trusts, which is anticipated to place a requirement on distributing income to the beneficiaries (instead of retaining it within the trust), or face additional tax costs.

- British Films – the chancellor announced in the March 2005 Budget that he would replace the current system of film tax reliefs with a new system from 2006. It is quite likely that the final decision on the new system will be announced, together with draft legislation. The film industry will be concerned to ensure that there is an effective incentive system to encourage film-makers to make films in the UK and use the significant support services available here.

- HM Revenue & Customs Online Services - the Government asked Lord Patrick Carter to look at the uptake of online services, following his earlier report on PAYE filing. It is likely that his report will be published, with recommendations for further incentives to encourage the use of online services.

- Tax aspects of the Olympic Games - the London bid included the promise of various tax exemptions for the International Olympic Committee (IOC), the Olympic organising company, and for non-resident athletes. Draft legislation covering this may well be published.

- AIM – there has been speculation that the chancellor may restrict the tax benefits of AIM listings. At present, an AIM listing does not count as a full Stock Exchange listing as a result of which all shareholders are entitled to business asset taper relief (which reduces the effective capital gains tax rate to 10%, after 2 years) and inheritance tax benefits. This speculation has arisen following the listing of a number of larger companies have listed on AIM which do not satisfy the requirements for a full Stock Exchange listing.

- Capital allowances on Biofuels - The Budget 2005 announced that the Government was considering offering enhanced capital allowances for the cleanest biofuels processing plants, and that this would be a useful additional measure of support to the UK biofuels industry, subject to Commission approval. Since the Budget, further detailed work has been done on this issue and an update on the position reached to date should be announced in the PBR.

- Tax allowances and NIC rates - As usual, it is anticipated that announcements will be made detailing the tax allowance limits for personal allowances, married couples allowance, blind persons allowance and tax credits for 2006/2007. In addition, the National Insurance rates for 2006/2007 are expected to be announced.

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