Budget Summary 2007
Summary of Changes Affecting Business Clients
What is expected to be Chancellor Brown’s final budget has been billed as a tax-cutting budget, but for the smaller business in particular, it is probably one which will increase the total burden significantly. The cut in the mainstream rate of Corporation Tax is widely seen as a sop to big business and possibly a ‘knee-jerk’ response to the reports that Barclays are considering moving their head office to Amsterdam, if their tie-up with Dutch bank AVN goes ahead, to take advantage of the relatively beneficial tax regime in Holland.
For the client that is not a major multi-national, here is a summary of some of the issues that the budget raises.
There are improvements to the rates of allowance for research and development expenditure and the 50% first-year allowance for small companies is being extended for a further year until April 2008. Additionally, a new annual investment allowance for the first £50,000 of expenditure on plant and machinery will be introduced from 2008/09. That is the good news. On the other side of the coin, writing-down allowances are being reduced from 25% to 20% and Industrial Buildings Allowances (IBAs) and Agricultural Buildings Allowances are heading for the scrap-heap in four years’ time. One sting in the tail is that the Chancellor has already changed the system for using balances of allowances when a building subject to IBAs is bought, so check the new position. Budget Notes 5 to 8 refer. http://www.hmrc.gov.uk/budget2007/notes.htm
The headlines may trumpet the reduction in the rate of Corporation Tax (CT) for large companies, but this is being paid for largely by increases in the CT rates for smaller companies, increases in National Insurance Contributions (NICs) and changes to the capital allowances system. However, the large company rate of CT will be reduced from 30% to 28% in 2008/9. The small company rate will increase from 19% to 20% in 2007/8, to 21% in 2008/9 and 22% in 2009/10. This will make tax remuneration planning a crucial issue for the smaller business.
Landfill and Aggregates
Landfill tax is being increased by £8 per tonne from April 2008. Aggregates levy will also increase from £1.60 per tonne to £1.95 per tonne. This will mean that skip hire is on the way up again! See http://www.hmrc.gov.uk/budget2007/bn61.pdf for more details.
Landlords – Good News and Bad
First the good news…
The current relief for expenditure on energy efficiency has been changed so it is now limited to £1,500 per property, not £1,500 per building. This means an owner of a block of flats can claim relief of £1,500 per flat.
Now the bad news…
The relief from business rates for empty properties is being reduced to six months for commercial premises and three months for retail premises.
Commercial landlords should take note.
The maximum prize that can be paid on a gaming machine where the stake per game is more than 5p but not more than 50p is increased to £35. Changes to gaming machine categorisation and to the VAT on entry fees to bingo and the like are also proposed. See Business Notes 73 to 76 for changes to gaming regulations. http://www.hmrc.gov.uk/budget2007/notes.htm
The Chancellor has announced substantial increases in road tax for ‘gas guzzlers’ and cuts for the most fuel-efficient cars. The top rate of road tax for cars with carbon dioxide emissions of 226g and above will increase to £300 from April this year and to £400 from 2008. The rate for cars with emissions below 120g will drop to £35. These changes will make operating less fuel-efficient cars an expensive proposition, especially for fleet operators. Biofuel (E85) and biogas fuel discounts will be extended and a discounted rate of employers’ NI will be payable on the benefit in kind for biofuel cars from 2008. This may encourage the wider availability of E85, which currently is available from fewer than 20 petrol stations nationwide and only two manufacturers currently offer biofuel cars.
Stamp Duty Land Tax (SDLT)
Two welcome and important changes are to be found in the six Budget Notes dealing with SDLT. Firstly, SDLT will no longer be payable on the aggregate value of both properties on an exchange between associated parties, which will result in welcome savings. Secondly, SDLT will no longer have to be paid when the return is submitted where this is in advance of the due date. See Budget Notes 21 to 26 for more detail. http://www.hmrc.gov.uk/budget2007/notes.htm
There is a whole tax-advice industry which aims to circumvent the existing legislation which seeks to prevent payment of ‘tax-efficient’ bonuses – mainly involving schemes to prevent NICs being charged. The Chancellor has closed another loophole in the current legislation, this time involving the use of employee trusts.
He has also announced measures which will make the payment of dividends by ‘Managed Service Companies’ subject to NICs, thus effectively removing their attractiveness. This will apply for payments made from 6 April 2007.
Tax Enquiries and Penalties
Changes are being made both to the ‘enquiry window’ and the penalty regimes applying to incorrect returns. In respect of the latter it is not possible to say at this stage whether taxpayers will see this as an improvement or not.
The VAT registration threshold is being increased from £61,000 to £64,000 from 1 April 2007 and the de-registration threshold is increased from £59,000 to £62,000.