Francesca Lagerberg, Head of Tax at leading business and financial adviser Grant Thornton UK LLP, runs through her thoughts on the Chancellor's Budget.
The way that this Budget was down played in advance made you wonder if the best policy was to stay in bed throughout the speech, with the duvet firmly over your head and the radio on low. Debt in the UK was rising. Youth unemployment remained high. The economy was stagnating and the longed for 'green shoots of recovery' were stubbornly dormant. The growth forecast for 2013 of 1.2 per cent was to be halved. Against this backdrop, the pressure was on the Chancellor to find something to make us peek out from under the covers.
Corporate and Employment Tax
The good news was undoubtedly in short supply but we did get a commitment to a further reduction in the mainstream corporation tax rate – down to 20% in 2015, making us one of the most competitive countries in the EU on this measure. It also removes the complexity of having a mainstream as well as a small companies rate at a stroke.
To promote employee ownership, there will be a consultation on a new capital gains tax relief on the sale of a controlling interest in a business. This measure will not see the light of day until 2014.
And for investors in fledging businesses there is a two year extension to the capital gains tax break if they qualify for the seed relief announced last year
A new employment allowance is being introduced to remove £2,000 reduction in employer's National Insurance Contributions. This will be implemented through the payroll process.
For smaller businesses there was little to cheer bar a few measures around access to finance. The main criticism to date has been that the various schemes in this area are obtuse and hard to access. The announcements today were aimed at addressing some of those complaints."
There was also the much-hyped commitment to a £10,000 personal allowance for those entitled to it. This means around 3 million earners fall out of the tax net. This measure was always in the offing being a manifesto pledge, but bringing it in by 2014 will be a useful aid to those who are on low incomes, who have little hope of significant pay increases.
In addition, home-buying received a tax break with the Government underwriting mortgages, not just for first time buyers. This also provides a boost to the house building industry, which has been in the doldrums for some time.
Fuel duty increases received a reprieve with the scheduled three pence rise in the autumn being shelved. This will be good news for motorists and any business that has fuel costs.
These measures are in part being paid for by savage public sector cuts amounting to £2.5 billion across everything bar health, education and overseas aid."
There was no surprise that the speech was heavy on rhetoric against aggressive tax planning. The General Anti-Abuse Rule (GAAR) comes in to effect in July (after Royal Assent to the Finance Bill 2013) and will change the face of tax planning in the UK. The detailed guidance that will run alongside the legislation will be out in the middle of April. Of course, the GAAR is not intended to address issues raised by the debate over the tax paid by multi-nationals like Starbucks, Google and Amazon. The solution there is around the international tax treatment of items such as intellectual property and it will require organisations like the OECD and cross-country co-operation to provide rules fit for the modern digital world.
The Budget did confirm that when it comes to bidding for Government contracts, a squeaky clean bill of tax health will be required.
So having trailed the Budget with Dickensian gloom – 'bleak' being just about the cheeriest adjective used – there were a few rays of light. Nevertheless, the message remains that things are tough. It won't get better quickly and as far as the Coalition goes, there is no Plan B. But I suppose we can console ourselves with a (1p cheaper) pint.
Thank you to Francesca and her colleagues at Grant Thornton for kindly providing Budget Day commentary for TW - there is more information on the Budget at Grant Thornton's Budget Page