Five Budget 2012 predictions affecting companies

Tuesday, March 13, 2012 | Posted by: Francesca Lagerberg
Categories: Economy, Tax | Tags: business, tax, investment, tax planning, Francesca Lagerberg, UK, budget, tax avoidance, GAAR, predictions, CFC, patent box, UK economy, competitive, budget2012, non-doms

What will Chancellor George Osborne’s 21 March Budget hold for large corporates, privately held businesses (PHBs) and entrepreneurs? “A whole raft of measures around competitive UK,” says Francesca Lagerberg, Head of Tax at Grant Thornton. Here are five Budget predictions on how companies are likely to be affected.

This Budget will focus entirely on growth and galvanising the corporate world into pulling the UK away from a double-dip recession.

George Osborne is unlikely to set out any immediate bold tax changes but instead I suspect we will see rewards for innovation and making it more attractive to base a company on British soil. This may include a promise of a much reduced (20%) mainstream corporation tax rate in the future.

The Finance Bill, which will follow the Budget, is likely to be scrutinised closely to see how it will help retain our ‘AAA’ credit rating and how it will placate the British public, who are desperate for a spot of light at the end of a very dark economic tunnel.

Five Budget 2012 predictions affecting companies:

1. Tax avoidance clampdown
Following the Barclays bank tax avoidance story, we can be confident that the Chancellor will mention tax avoidance and the need to close down perceived tax loopholes, especially focusing on higher rate tax payers and large corporates. I suspect that George Osborne will say the Government plans to adopt a general anti-avoidance rule (GAAR) along the lines outlined in the recent independent GAAR report by Graham Aaronson QC.

2. Non-dom investment in UK business
As already announced, the statutory test of residence will be deferred until 2013 but it’s likely we’ll hear a commitment to press ahead with establishing the test. I also expect George Osborne to give more details about the plan to encourage wealthy non-domiciled individuals to invest in UK businesses. Considerable detail about this was provided last December.

3. Support for green initiatives
Perhaps to round off his speech the Chancellor could give a nod to the Green lobby by announcing support for green projects, but at the same time say that the fuel duty escalator will be frozen for the time being as a help for motorists. We’re likely to have an update on the Green Investment Bank, either hearing of the first projects it will support or a projected timeline for the projects commencing.

4. Competitive UK
The Government will want to continue making the UK an attractive place to do business and in order to do that it has already set out a corporate tax road map around controlled foreign companies and the patent box regime. The Chancellor will reiterate these changes but may announce minor tweaks in response to consultation.

5. Help for SMEs
For small and medium-sized businesses, expect more information about seed investment relief to encourage new businesses to get going; about employment taxes and real-time information exchange; and also confirmation of the retention of a 50p tax rate that will encourage employers to think clearly about how they want to remunerate their employees.

For predictions affecting individuals and private clients, see Francesca Lagerberg’s eight Budget predictions affecting HNWIs and high earners on our Bespoke blog.

For questions on any of these areas, contact your local Grant Thornton adviser.