It was heralded as the Budget of the 3 ‘R’s – Rescue, Reform and Recovery. With many of the tax measures already widely trailed as part of the Government’s new approach to tax policy making, Wednesday’s Budget nevertheless contained several surprise tax measures aimed at making the UK a more competitive place to do business.
The Chancellor announced new enhancements to current reliefs designed to boost investment and innovation, an additional cut in the main rate of corporation tax and the introduction of some ‘new for old’ measures including the reintroduction of enterprise zones. These are all aimed at boosting support for new and growing businesses. There were also a number of unexpected moves in areas such as inheritance tax, REITs and investment allowances. And, although it had already been reported by the Office of Tax Simplification, the decision to consult on merging the income tax and national insurance systems will be welcomed, though this is likely to be some distance in the future. In the area of ‘Dishonest tax agents’, it was announced that further consultation and draft legislation will be published in July 2011 on HMRC’s approach in this area with a view to introducing legislation in Finance Bill 2012. Together with our fellow professional bodies, Chartered Accountants Ireland was a strong voice against the original draft legislation published in February 2010. It appears Government have listened to our concerns and are keen to get this legislation right from the outset, though there still remains a question to be answered if this legislation is needed at all.
Under the banner of creating the most competitive tax system in the G20 the Government announced that it will:
- Reduce the main rate of corporation tax by a further 1 per cent;
From April 2011, the rate will be reduced to 26% (and not 27% as announced last June) finally settling to 23% by 2014. But not all industries will benefit. As a result of this additional 1% decrease, the rate of the Bank Levy will increase to 0.078 per cent from 1 January 2012. And, having cut fuel duty on Budget day, the fuel duty escalator is being will be replaced with a fair fuel stabiliser that increases tax on North Sea oil production when oil prices are high. The Government also announced an increase to the Supplementary Charge on oil and gas production to 32 per cent from 24 March 2011.
- Implement the Corporate Tax Road Map announced last November;
This will include introducing new Controlled Foreign Company (CFC) rules in Finance Bill 2012 with the aim of allowing groups based in the UK to compete more effectively with those based overseas whilst protecting against the artificial diversion of UK profits.
- Consult on taxation measures surrounding the proposed “Patent Box”
The Patent Box will provide a reduced 10% corporate tax rate for profits from patents, which it is hoped will encourage UK businesses to retain high-value jobs associated with commercialisation of patents and to invest further in innovation.
- Continue and respond to the work of the Office of Tax Simplification (OTS);
This will include abolishing 43 tax reliefs deemed no longer valid (a list of the reliefs to be abolished, some of which will disappear from 1 April 2011, can be found on pages 66 to 68 of HM Treasury’s Budget 2011 document);
The Government has now decided to retain IR35 on the basis that its abolition “would put substantial revenue at risk”.
Start, grow, finance, innovate measures
The Government’s announcements were as follows:
- Reform is to be undertaken of the Enterprise Investment Scheme and Venture Capital Trusts;
The rate of EIS income tax relief will go to 30% from April 2011. From April 2012 the Government will increase the annual EIS investment limit for individuals to £1 million, increase the qualifying company limits to 250 employees and gross assets of £15 million (EIS and VCT), and increase the annual investment limit for qualifying companies to £10 million (EIS and VCT). All changes are subject to EU State aid clearance.
- Subject to EU approval, the SME rate of R&D tax credit will increase to 200% from April 2011 and 225% from April 2012
- A doubling of the lifetime limit for Entrepreneurs Relief to £10 million
Encouraging Investment and Exports
- The limit for capital allowances short life assets election will be extended from four to eight years from April 2011
- From 2012 the Business Premises Renovation Allowance scheme will be extended for a further five years. Readers should be aware that the entire Northern Ireland region currently counts as an assisted area for the purposes of this relief.
- 21 new Enterprise Zones will be set-up.
The Government has also confirmed that it will work with the various devolved administrations to explore opportunities for employing the new Enterprise Zone model, which will initially be limited to 11 named areas, followed by a further 10 later this year, across the UK.
Non-doms and Tax Residence
- The existing £30,000 annual charge will be increased to £50,000 for non-domiciled individuals who have been UK resident for twelve or more years and who wish to retain access to the remittance basis of taxation. The £30,000 charge will be retained for those who have been resident for at least seven years but less than twelve years;
- The tax charge will be removed when non-domiciled individuals remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses;
- Technical simplifications are planned to some aspects of the current rules to remove what is classed by Government as “undue administrative burdens” for non-domiciled individuals;
- The current rules that determine tax residence for individuals are deemed as being unclear and complex. The Government will consult in June on the introduction of a statutory definition of residence to provide greater certainty for taxpayers.
Miscellaneous measures of interest
Other measures of interest are listed as follows:
- Detail changes to the Anti Avoidance regime
- Reform of the stamp duty land tax rules applied to bulk purchases for residential properties will be undertaken (Finance Bill 2011);
- Measures to make Real Estate Investment Trusts easier to set up and more accessible to investors will be introduced (Finance Bill 2012);
- A reduced rate of inheritance tax to 36 per cent from April 2012 for estates leaving 10 per cent or more to charity;
- The annual exempt amount for capital gains tax will increase to £10,600, with effect from 6 April 2011;
- Single payment scheme and capital gains tax roll-over relief – following changes to the underlying EU legislation, the Government will restore entitlements under the EU Single Payment Scheme to the list of assets that qualify for capital gains tax roll-over relief (Finance Bill 2012);
- The inheritance tax nil rate band is frozen until April 2015;
- The list of designated energy saving technologies qualifying for enhanced capital allowances will be updated during summer 2011, subject to agreement with the European Commission;
- Reform of the associated company rules for the small profits rate. From 1 April 2011 the rules will be simplified to ensure that companies can only be associated, through an attribution of rights between connected individuals, when substantial commercial interdependence exists between the companies concerned (Finance Bill 2011);
- From 1 April 2011, the VAT registration threshold will be increased from £70,000 to £73,000 and the deregistration threshold from £68,000 to £71,000;
- The Government will also put forward regulations which, subject to consultation, will require all remaining VAT customers to file their VAT returns online and pay electronically from 1 April 2012 (Finance Bill 2012);
- Digital by Default consultation –The Government will consult in the summer on the implementation of mandatory online registration for the main business taxes by 2012-13;
To access HM Treasury’s extensive suite of Budget 2011 documents click here. The NI Rebalancing the Economy Press release and con-doc can be accessed at here.