Wednesday 21 March 2012
Commenting on the announcements made by the Chancellor in his Budget today, Gary Deans, UK Head of Family Business said :
"The headline grabber was of course the reduction in the top rate of personal tax to 45% from April next year. The reduction will be welcomed by many, but has potential political dangers of course. The one year delay in implementing the 5% reduction is perplexing however.
"The Chancellor stated that significant amounts of income were advanced to avoid the introduction of the 50% tax rate – a figure of some £16 billion was mentioned – with a corresponding decline in tax payments to the Treasury. It is almost certain that many business owners will assess whether to accept a bonus or dividend in the coming tax year, or should they delay this to 2013/14 to benefit from the new 45% rate?
"There is a sting in the tail however. The Chancellor also announced a cap on all currently unlimited tax reliefs which will amount to £50,000 per annum, or 25% of income, whichever is the higher. This won’t apply to areas such as tax relief for personal contributions and Enterprise Investment Schemes as these and others are already “capped”. So what does it catch? The detail isn’t there yet and the changes won’t apply until April 2013 so there will be time for the Government to consult to ensure this doesn’t adversely affect family businesses."
Family businesses will welcome the additional 1% reduction in corporation tax announced today, reducing the rate to 24% from this April. The Chancellor also stated that it was the Government’s intention to reduce the rate by 1% in each of the next two years, giving the UK a corporate tax rate of 22% from April 2014.
This compares very favourably with other G20 countries. Interestingly, the Chancellor also hinted at a longer term target of a 20% rate and a single rate applying to all companies regardless of their size. Of course, the small rate of corporate tax is already 20% so the rate reduction won’t affect businesses already paying this rate.
Certainty in tax
The introduction of a General Anti-Abuse Role (GAAR) was widely expected, so the announcement of this wasn’t a surprise, though further consultation and a start date of 2013 was. This should enable businesses and families to plan their affairs with more certainty, though it will be important to use the consultation process to ensure that the GAAR delivers this.
In a recent KPMG survey, business leaders highlighted the importance of attracting and retaining talented people. Employee share ownership is less common in family businesses, but the opportunity to award Enterprise Management Incentive options worth up to £250,000 to key individuals may mean that many businesses will reconsider this.
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