Kerry McKeown, Director of Tax at leading business and financial adviser Grant Thornton UK LLP in Southampton, runs through his predictions for the Chancellor’s Budget on Wednesday 20 March 2013:
“Tax is the new political battle ground as we claw our way out of recession and the Budget announcements on Wednesday 20 March will see plenty of effort to promote growth with little room for manoeuvre.
“The key ways I see this affecting businesses in the Solent region are both positive and it’s likely that companies across Hampshire and Dorset will be upbeat, rather than hanging their heads, following the announcement on Wednesday.
“Firstly, a large proportion of businesses in the Solent area are paying the full rate of tax. This is something I have encountered in my dealings with hundreds of companies in the region. If the Chancellor marries the small companies’ and mainstream rate at 20% it will be welcome news and provide real relief for companies in the Solent.
“Secondly, a change to capital allowances could give businesses in the region the tools they need to grow. This area is a hub for marine manufacturing, but while there are opportunities for the companies within that industry to grow globally, they have previously found it difficult to invest in the plant and machinery they need to do so. A change to capital allowances to make it easier for boatbuilders and all manufacturers in the Solent to invest in equipment would be very welcome news.”
Below are Grant Thornton’s predictions for the Budget 2013
Anti-avoidance
“Barely a week passes without an anti-avoidance news story so it will be no surprise to see the Chancellor wanting to give the message that the Coalition is taking action. We already have the draft general anti-abuse rule (GAAR), which will take effect later this year, but expect minor amendments in light of the consultation that has been going on since last December.
“There is also likely to be targeted measures against known aggressive tax planning and a whole host of related tax changes are already signposted and well underway. There has been plenty of pre-Budget talk that the Government wants to turn the screw on larger corporates to cut down on offshore tax planning, but the danger here is that by acting unilaterally the UK may lose its competitive edge. International co-operation is a far stronger option and expect to see more news about how that might happen.
Business taxes
“With economic recovery continuing to be slow, we can expect some small measures in the Budget 2013 to help foster growth. The Chancellor will need to be imaginative as there is little spare cash available.
“We’re already seen a further cut announced to the mainstream corporation tax, bringing it down to 21% with effect from April 2014. Could the Budget provide the Chancellor with a chance to marry the small companies’ and mainstream rate at 20%?
“As part of the Government’s ambition to establish the UK tax system as the most competitive in the G20, the Chancellor has introduced various measures over the past couple of years aimed at encouraging the growth of business and enterprise, such as the recent changes to the controlled foreign company (CFC) rules and the introduction of the patent box regime and ‘above the line’ (ATL) tax credit from 1 April 2013.
“However, it’s likely there may be further announcements in the Budget illustrating the Government’s continued support of business and enterprise growth, possibly in the form of small changes to capital allowance rates, following the increase of the Annual Investment Allowance to £250,000 from 1 January 2013 for two years.
“In addition, the Prime Minister pondered the value of a flat tax when he was in Latvia last week. In reality the cost of moving to such a system can be very high for a developed tax system so again one would expect this to be put on a high shelf for some time to come.
“An update is also expected on whether State aid approval from the European Commission has been given for the new creative sector tax reliefs.
“The Government may also take the opportunity to encourage the adoption of ‘greener’ measures, such as the use of low emission vehicles.
“We already know that the 100% first-year allowance for businesses purchasing low emission cars will be extended for a further two years to 31 March 2015, albeit with a reduction to the carbon dioxide emission threshold set to take effect from April 2013. However, we could also see further incentives introduced to boost the manufacture and development of cars adopting electric and hybrid technology.”
Employment taxes
“The Budget 2013 is set to include several measures regarding employment-related share schemes, following a number of consultations into various aspects of this popular method of incentivising employees.
“The Government has already announced measures that will make it easier for private companies to repurchase shares from their employees when they leave employment.
“We expect to hear more about its plans to offer employees company shares in exchange for releasing some of their employment rights. In particular, how it intends to reduce the potential income tax and National Insurance contribution liabilities that are likely to arise when ’employee owners’ receive their shares.
“Additionally there should be a response to the Office of Tax Simplification’s recent report on unapproved employee share schemes that sets out a package of recommendations for simplifying this area of the tax system.”
Personal taxes
“Last month the Chancellor revealed that the inheritance tax (IHT) nil rate band will be frozen at £325,000 until at least 2019. This move goes against his announcement in the Autumn Statement 2012 that the nil rate band would increase by 1% for the 2015/16 tax year, so there are no guarantees that he won’t change his mind on other measures as well.
“Last year HM Revenue & Customs consulted on ways of reducing the complexity of the IHT charges on trusts and the outcome of the consultation may be given at the Budget.
“There has been some commentary that the Coalition should be more radical, for example scrapping capital gains tax. This is a tax that has been tinkered with over several years before reducing to 18% and then rising again for higher earners. It’s unlikely that we will see significant change in this area until considerable research has been undertaken to see what impact it would make. It is more likely we’ll see corporate tax changes.
“Also, throughout 2012 the Liberal Democrats were pushing for a mansion tax, which was dismissed in the Autumn Statement, so it is very unlikely that such a tax will be adopted by the Coalition particularly now that the Labour party has said it would introduce this measure if it gets to power.
“Draft legislation included in the Finance Bill 2013 confirmed, as announced in the Autumn Statement 2012, that:
the pension annual allowance will be reduced to £40,000 from 6 April 2014, and subsequent tax years
the pension lifetime allowance will be reduced to £1,250,000 from 6 April 2014, and subsequent years.
“This may be mentioned again at the Budget.”
