The main tax change for large business announced at the Budget was the reduction of corporation tax to 24% with effect from 1 April 2012, with further reductions planned bringing the rate down to 22% from 1 April 2014. The 24% rate will bring the UK, effectively, to 15th in the EU league table of corporation tax rates – there is still some way to go before the UK has such a low rate as countries like Ireland. This rate reduction will be welcomed by business, enabling a greater proportion of their profits to be reinvested to enable their companies to grow.
The Chancellor also confirmed the details of the modernised controlled foreign companies (CFC) régime with a new gateway test to simplify the administration. This will enable British companies to invest overseas, whilst HMRC will maintain a close watch on multinational companies to prevent them diverting profits away from the UK.
The introduction from 1 April 2013 of a special tax system for Patents, with an eventual tax rate of 10% on patent linked profits, and also an above the line research and development tax credit will help high tech businesses, both profit making and start ups. Other specific business areas which will have focused tax assistance, from 1 April 2013, will be the video gaming and the high quality television production companies.
Business will also gain from a successful integration of the operation of income tax and the national insurance scheme.
The Government has also announced changes to the enterprise management incentive scheme (EMI) to double an individual’s maximum limit to £250k. There are also proposals to improve the position of capital gains entrepreneurs’ relief (10% tax rate) for individuals with EMI options.
Smaller business with turnovers of less than £77k will gain from the proposed cash basis for computing income tax profits with effect from 1 April 2013.
However, one big cloud on the horizon is the proposed introduction of a general anti avoidance rule (GAAR) aimed at preventing highly aggressive tax avoidance. Time will tell whether such a GAAR will impede business transactions, as the current intention is for no specific clearance mechanism to be available. This could well put the UK at a disadvantage compared with other jurisdictions which have a tax clearance system alongside their GAAR.
The main headlines from this Budget will be on the personal tax side with a reduction from 6 April 2013 of the 50% top income tax rate to 45%. The delay between the announcement and the implementation of this measure is going to create significant incentives for individuals to delay income receipts until after 6 April 2013. In addition, the restrictions on income tax reliefs also coming into effect from 6 April 2013 will bring forward claims before this date.
The Government has estimated that the immediate loss of tax revenue in 2012/13 as a result of these timing effects will be £2,400million, although this will be recovered over the next two years. This creates a significant cash flow impact to the Government’s finances as a result of early notice of these changes. Whilst charities may well have a bumper year of gifts coming up this may not be good news for them in the future.
The changes to stamp duty land tax on £2m properties acquired by companies, and the proposals for annual tax charges on such companies from 1 April 2013 will significantly affect how these expensive properties are held, but there will be some time to change structures. Whether it will affect the housing market in Kensington and Chelsea, where the majority of these properties are located, is another question.
The largest tax give away as part of this Budget is the increase in personal allowances from 6 April 2013 to £9,205, bringing a significant number of taxpayers out of income tax. In contrast, the largest tax take comes from the freezing of the additional personal allowances given to pensioners with effect from 6 April 2013. This is a direct shift in taxation from the retired to the working population.
So did the Chancellor meet his aims? In the main yes. The big disappointment though was there was no mention of specific tax reliefs given for infrastructure projects, which we have asked for in the past and could have facilitated the development of the much needed modernised backbone that Britain requires.