For UK businesses, today’s announcement from George Osborne was something of a mixed bag. Some welcome initiatives, particularly around the planned reduction in corporations tax, peppered the generally gloomy outlook.
The big announcement for larger businesses is that corporation tax is to be cut by an additional 1% from rate set in April 2012 to 21% from April 2014. When this comes into force it will be the lowest rate of corporation tax in G8 countries. I have previously argued that UK corporation tax must fall in order to remain competitive, and so was very pleased to see this reduction announced.
The reduced tax rate will ensure that the UK remains a desirable destination for corporations and maintains its competitive edge in a time of global economic turbulence.
More interesting news for business was the tenfold increase of the Annual Investment Allowance (AIA) from £25,000 to £250,000 from January 2013. This is great news for businesses, reversing the announcement in April 2012 reduced AIA from £100,000 to £25,000.
Osborne also announced that the government will be pushing ahead with the controversial scheme that will allow employers to issue shares to employees in exchange for giving up many of their employment rights. This is likely to cause some turmoil when it comes into force, as it has already seen widespread media attention over the past few months.
For smaller owner managed businesses, the reduction in the cap for annual pension contributions from £50,000 to £40,000 will be unwelcome news. Smaller owner managed business often need to reinvest all their surplus cash during most of the life of the business. It is only in the run up to retirement that such owners can afford to make significant pension contribution, often by realising the value of their business. The old limit already severely limited their room for manoeuvre.
The new limit could well limit contributions to £160,000, which is unlikely to give an income over £10,000 a year, even if they opt for a fixed income.
The extension of the Small Business Rates Scheme for a further year will be welcomed by the micro businesses affected.
Interestingly, the chancellor also announced he will consult on allowing investment in SME equity markets like AIM to be held directly in stocks and shares ISAs, to encourage investment in growing businesses.
Given the recent media focus on corporate tax evasion, it’s unsurprising that the chancellor announced a greater investment in resources to ensure multinational companies pay less tax. He announced the closure of tax loopholes, which combined with a crackdown on tax evasion through Swiss bank accounts should bring in £2bn per year. The chancellor also announced a review on the abusive use of partnerships. What this means for professional services and other partnership structures remains to be seen.
More generally, some expected announcements did not go ahead. The 3p-a- litre escalator increase in fuel duty did not happen as expected, and the proposed annual tax on properties worth more than £2m has been abandoned, presumably as a result of the widespread criticism
Next week sees the publication of responses to 35 consultations on the tax policies announced in April for the 2012 Budget. We await these announcements with interest, as they should have more solid information that businesses can use to assist with future tax and financial planning.
David Mellor is London office managing partner and national head of corporate business, Crowe Clark Whitehill LLP.