The Chancellor’s Budget this year was set in the context of mixed economic data and business confidence reports. The economy continues its sluggish course, aided by a softening of the emergency klaxon sounding over the Euro… although for how long remains to be seen, allowing the Chancellor to lead off with a discussion of the problems the Euro crisis poses for the UK economy. With uncertainty abounding, the Budget was never going to be radical and was always destined to be something of a box of bits.
Although careful leaking of some of the major measures ensured that surprises were few and discussion beforehand was dominated by the political controversy surrounding the 50p tax rate, the devil (and interesting bits) are, as always, in the detail.
Before you undertake any tax planning or mitigation exercise, take professional advice.
Summary of Changes Affecting Business Clients
Tax Avoidance and Evasion
The Chancellor called tax evasion and aggressive tax avoidance 'morally repugnant’ and has clearly set his stall to limit both, to the extent of giving HM Revenue and Customs (HMRC) officers generally the search and seizure rights which used to be reserved for those on the ‘Customs and Excise’ side of HMRC.
The Overview of Tax Legislation and Rates was replete with anti-avoidance legislation in advance of the introduction of a General Anti-Avoidance Rule (GAAR), which is scheduled for 2013. There are several detailed anti-avoidance measures, especially relating to schemes making use of capital allowances.
Clearly worried that a Budget measure had been leaked, the Government announced yesterday that, with immediate effect, it was taking measures to prevent two schemes, one involving property losses where there are agricultural connections and the other involving the misuse of post-cessation relief.
Also, the Disclosure of Tax Avoidance Schemes regulations are to be beefed up. A consultation is being launched to extend the ‘hallmarks’ which set out when such schemes must be notified to HMRC.
From 2013 the identities of dishonest tax agents will be subject to publication, as well as penalties being levied.
Corporation Tax (CT)
The Chancellor’s long-term intention is to harmonise tax rates for companies and individuals. For many individuals, this will remove the tax benefit of operating as a company.
The CT rate is being cut to 24 per cent from 1 April 2012, with further reductions of 1 per cent in 2013 and 1 per cent in 2014 (to 22 per cent). The Bank Levy is being increased to stop banks from benefiting from the general CT reduction.
Employee Management Incentive (EMI) Share Schemes
The limit on the value of shares over which options may be held by an employee under EMI will be increased from £120,000 to £250,000. This will be introduced ‘as soon as possible’.
Small Business Tax
The Chancellor has initiated a consultation to create a ‘radical tax simplification’ for very small businesses (those with a turnover of up to £77,000) by which they will be taxed, it seems, on cash passing through the business.
Tax Relief Exploitation
The Government will introduce a limit on all uncapped income tax reliefs. For anyone seeking to claim more than £50,000 of reliefs, a cap will be set at 25 per cent of income. This will not be extended to those reliefs that are already capped, as to do so would reduce the amount of support the tax system gives, for example, to enterprise and pension contributions. This will apply from April 2013.
Company cars are set to lead to yet higher assessable benefits in kind, with increases to the percentage of the list price that is taxed. The differential for diesel cars is being abolished so a company car becomes more expensive, but one running on petrol relatively more so. The car tax changes mean that the average user of a company car will pay around an extra £700 in tax over the next three years for a petrol car, and £500 for a diesel car.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts
The EIS annual investment limit for individuals will be increased to £1 million from 6 April 2012. ‘Business angels’ are the likely beneficiaries of this change. The maximum amount an individual company can raise under both schemes, and the maximum size of a qualifying company, will also be increased.
The standard rate will increase to £72 per tonne (an increase of 11 per cent) from 1 April 2012. Empty your skip fast!
Boosts for Business
A number of changes (mainly small) to the capital allowances regime have been announced. Some are designed to stimulate investment and some to limit abuses of the current system. The ‘patent box’ regime has also been enhanced.
Rental of hairdressers’ chairs will always be a taxable supply.
From 1 October 2012, hot takeaway food will include all food that is above ambient room temperature when sold.
Sales and Alterations to Listed Buildings
Alterations will become subject to VAT at the standard rate. The sale of a protected building will only be zero-rated when it has been reconstructed from a shell.