Stephen Hall, tax partner at Deloitte in Newcastle, considers what tax measures the Chancellor is expected to focus upon in the Budget.
March’s Budget will mark an important moment for the British economy as well as businesses, including those in the North East. The UK needs a growth generating shot in the arm. But with limited confidence in the private sector and an ever tightening public purse, where will the magic come from?
Following a particularly tough 2011, when growth was hampered by sharp rises in commodity prices and events in the Eurozone, George Osborne faces a challenging environment for his 2012 Budget.
The Chancellor is being urged by some to cut tax to stimulate the economy. The quickest way to get money into the hands of consumers is through a VAT cut; the second best is a cut in employer National Insurance contributions.
But what could the Chancellor announce and what does it mean for businesses?
Small business taxation – the Office for Tax Simplification has recently reported on its review of taxation of small businesses (defined as businesses with turnover up to £30,000). The OTS suggests there may be scope to simplify accounting for these businesses. One recommendation is the introduction of a disincorporation relief, equivalent to the relief available on the incorporation of a business, to enable small businesses to disincorporate without incurring significant tax costs.
50% Tax Rate – HMRC is due to report to the Chancellor before the Budget on the impact of the 50% rate of income tax. Although it is too soon to be able to effectively assess the impact this has had on tax revenues, our view is that it is likely to have raised a small amount. We support the abolition of the 50% rate, which is a factor in limiting business investment in the UK.
General Anti-Avoidance Rule (GAAR) – Graham Aaronson QC concluded a narrowly focussed GAAR would deter particularly abusive tax avoidance. The Chancellor is expected to announce his GAAR plans at Budget 2012 and political pressure may mean he proposes taking forward a GAAR.
Finance Bill 2012 will follow Wednesday’s Budget and it will legislate for several measures which will please local firms. As previously announced, the main rate of corporation tax will be reduced by 1% to 25% from 1 April 2012. The Chancellor is believed to have a long term ambition to reduce the rate to 20% - and so could announce how he plans to do so. It costs about £800 million to cut the rate by 1%, before allowance for other economic benefits.
The Patent Box was announced in Budget 2011 and from April 2013, it will tax income from patents and certain other qualifying intellectual property rights at an effective tax rate of 10%. Consultation on the draft legislation closed on 10 February 2012, so further amendments to the draft legislation could still be seen.
From 6 April 2012, a new Seed Enterprise Investment Scheme will be introduced. It will provide relief for investors subscribing for shares in small companies carrying on, or preparing to carry on, a new business in a qualifying trade, where the investor has a stake of less than 30% in the company.