Our 2011 Budget predictions for business

Tuesday, March 15, 2011 | Posted by: Francesca Lagerberg
Categories: Tax | Tags: tax, investment, economy, UK, pensions, VAT, budget, tax avoidance, relief, corporation tax, deficit, planning, Office for Tax Simplification, enterprise, predictions, GAAR, Low Value Consignment Relief, fuel duty, enterprise, investment, UK, economy

What changes lie ahead for entrepreneurs and privately held businesses (PHBs) in George Osborne’s Budget next week? Francesca Lagerberg, Grant Thornton’s Head of Tax, makes a few predictions…

1. Corporation tax
We are expecting modest changes regarding the Controlled Foreign Companies (CFC) regime. The draft legislation has already been published and includes provisions regarding Intellectual Property (IP). It would be helpful to see changes in current draft law to make it easier for groups to use and own IP overseas without inadvertently tripping up on the UK CFC rules.

The Government is likely to re-announce the reduction of corporation tax to 27% on 1 April 2011 and 1% on each anniversary thereafter until the rate arrives at 24% in 2014.

It would also be helpful to see the abolition of the Debt cap rule. As it currently stands it is overly complicated and is unlikely to increase Treasury revenue. Reducing some complexity in the tax law would be a good signal to send as part of the Government’s plan to make the UK a great place to be for business.

2. Possible alignment of corporation tax year with income tax year
The Coalition Government has sent out a strong message that it wants to simplify the UK tax system. It would be an excellent opportunity to align the income tax year with the corporation tax year to 1 April for both or be really brave and suggest that in the move towards real-time data exchange, it is time to reconsider such emphasis on annual tax cycle dates.

3. Fuel Duty
The planned duty increase is likely to be deferred partly because the Chancellor will be concerned about the impact of the higher oil price already on motorists.

4. VAT – Low Value Consignment Relief
Low Value Consignment Relief is intended to enable small value goods imported from outside the EU to be relieved from VAT. This is because it would be a disproportionately costly exercise if every small parcel from outside the EU had to be scrutinised by the Royal Mail and the payment of VAT collected from either the sender or the recipient. At the moment, the UK has a limit of £18, below which the VAT on such imports is not collected.

The sale of CDs and DVDs has particularly benefited from the relief – 90 per cent of all CD sales in the UK are said to be affected.

The difficulty for the Government is that the growth in online shopping has meant that the relief now benefits many more non-EU businesses than could have been predicted when it was introduced. The relief is clearly having an effect on UK retail sales and the latest estimate of its annual cost to the Exchequer is £130 million for the 2010 calendar year.

That is a large amount of revenue that the Government can ill afford to lose. The Treasury and HMRC are therefore examining what can be done and it is likely that an announcement relating to the relief will be made in the Budget.

5. General Anti-Avoidance Rule (GAAR) and other anti-avoidance measures
The Government is already committed to consulting on a GAAR and the resulting report will be published this autumn. Meanwhile, cracking down on known avoidance ideas will continue apace. The already announced attack on ‘disguised remuneration’ shows how seriously the Coalition is taking this issue and we will expect to see other targeted measures.

6. Office for Tax Simplification (OTS)
With the recent publication of the final reliefs and exemptions report from the OTS, this will be an opportunity for the Chancellor to show how the Government is committed to making tax policy simpler and better for individuals and businesses. We would expect to see the report welcomed and although it may be too soon for him to make announcements on certain reliefs there could be a clear indication that the more bizarre or unused ones have run their course.

7. Enterprise
Following on from the OTS report above, there will be a push to show how business can better benefit from reliefs and exemptions to encourage investment. The concept of revisiting the old Enterprise Zone idea has already been floated and this could be tied in with a range of potential measures to help entrepreneurs.

8. Pension tax relief and other announcements
These will include detailed rules to be introduced on changes to pension tax relief and child benefit. Detailed consultations have been conducted over the last few months and we will expect the Chancellor to spell out his intention in these areas. However there is likely to be little surprise in these measures but hopefully more detail.

For questions on any of these areas, contact your local Grant Thornton adviser – or read on for further information on relevant services. 

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