Responding to the Chancellor’s Budget, Stuart Lisle, Senior Tax Partner, BDO LLP Southampton said:
“Many of the Chancellor’s Budget measures were leaked in the last week or two but there are some important new announcements embracing both increasing and decreasing taxation for individuals and businesses.”
Measures affecting individual tax payers
The 45 per cent top rate of tax
Stuart Lisle, Senior Tax Partner, BDO LLP Southampton said:
“Both the increase in the personal allowance to £9,205 in 2013/14 and the reduction in the 50 per cent top rate of tax to 45 per cent from 2013 were widely predicted. The new “mantra” that an audit by the OBR ends the discussion about how much the tax measure will cost is, in my view, nowhere near as clear cut as the Chancellor implies.
“The changes in tax rates have complex temporary and permanent behavioural aspects, which require consideration and reflection. Nevertheless, we welcome the reduction to a top income tax rate of 45 per cent. This top income tax rate and the headline tax rate are certainly influential considerations for global businesses looking to make foreign direct investment and the 50 per cent rate was certainly an own goal in economic terms.”
Uncapped income tax reliefs
“We do not support the proposed limit on all uncapped income tax reliefs, which will result in a more complex and haphazard tax system. Hopefully, the Chancellor will exclude both charitable donations, which should remain fully deductable, and genuine trading losses from these restrictions; otherwise desirable tax payer activity will be discouraged.”
Stamp Duty Land Tax (SDLT)
Stephen continued: “No one will be surprised by the stamp duty land tax proposals, although some of the detailed measures had not been anticipated. We consider the £2 million threshold for the new seven per cent rate on residential properties has been driven by political compromises – invariably undesirable in the long-term – rather than economic imperatives.
“Too many upper mid-range properties in London and the South East in particular will attract the seven per cent rate at this level, resulting in undesirable consequences for the mobility of key executives who will not wish to finance a £140,000 cost out of their own after-tax income for moving to the same sized property in another area.
“A more sensible threshold would have been £5 million, which would have focussed the increased SDLT rate on properties owned by oligarchs, top investment bankers, and the very wealthy. The Chancellor has become increasingly exasperated by the use of abusive schemes to avoid SDLT biting on a property purchase. A punitive rate of 15 per cent has been introduced for the transfer of residential property into a limited company, which will deter new transfers into limited companies. In addition, a consultation is to be opened on an annual charge upon residential property already held within a limited company.
“I am not surprised that the Chancellor has attacked these arrangements with such ferocity, as “Middle-England” has taken umbrage that modest properties attract SDLT but very high value properties in London have often escaped.”
Measures affecting businesses
General Anti Abuse Rule (GAAR)
Stuart Lisle, Senior Tax Partner, BDO LLP Southampton continued: “Although the proposed General Anti Abuse Rule (GAAR) is also targeted at individual tax payers, the consultation and the resulting legislation over the next 12 months will be keenly followed by business. It is imperative that GAAR is properly targeted at abusive tax avoidance schemes and does not reduce the scope for legitimate and genuine tax planning, which all business ought to consider.”
Corporation tax
“We predicted and very much welcome the reduction in the corporate tax rate to 24% from April 2012, 23% from April 2013 and 22% from April 2014. We trust that this is a pre-cursor to an ultimate target of a 20% tax rate at the end of the parliament, which is vital to UK plc as global corporations focus on the headline rate of corporation tax when considering where to locate new business activities. It is imperative that the UK stays ahead of the curve in attracting foreign direct investment and thereby creating much needed employment opportunities.
“Thankfully, the Chancellor has not made business pay a price for the lower corporation tax rates by further reducing capital allowances, which now approximate to economic depreciation in most cases.”
Small businesses
“The jury will be out on the proposals for a new system of taxation for very small business (with a turnover below £77,000) based upon cash flow. Reforms such as this invariably mean well, but can also create unforeseen glitches and anomalies in the tax code, particularly where a business’s turnover increases from just below the threshold to just above.
Responding to the Chancellor’s Budget, Stephen Herring concluded:
“The majority of these measures are favourable to most individual tax payers and businesses, but understandably will not be welcomed by the very small number of people who wish to indulge in overtly abusive tax avoidance.
“We welcome the proposals for a new personal tax statement from 2014/15, which will remind tax payers that there is no such thing as government money or public funding, only taxation receipts.”
