Budget Alert 2014
This Budget Alert is based on the Budget Speech presented to the House of Commons by the Chancellor of the Exchequer, the Rt Hon George Osborne, on Wednesday 19 March 2014 and on related Government announcements.
In common with our practice in recent years, we conducted a survey of business leaders and Tax Directors in advance of the Budget. 65% of the respondents listed the low mainstream rate of corporation tax as the factor that has most improved the competitiveness of the UK, although other elements of the corporate tax roadmap, in particular the changes to the rules for controlled foreign companies, the patent box and the above the line R&D tax relief, were also mentioned. Unsurprisingly, 80% of the respondents listed certainty as one of the top three factors that should be driving the UK’s tax policy choices, with 44% ranking this as number one. The commercial risk posed by uncertainty was a theme running throughout our survey results, with mention being made of the general election in 2015, political tinkering generally, the OECD’s action plan on base erosion and profit shifting (BEPS), the influence of the OECD and EU more generally, the complexity of the UK tax system, the prospect of Scottish independence, and personal tax rates (in particular the prospect of a 50% rate). Some of these items are clearly outside the Chancellor’s control. However, the broad thrust of our survey pointed to a desire for a period of stability as far as corporate tax was concerned, with most respondents hoping for a Budget with very little change. That said, given the success of the corporate tax roadmap, many were in favour of introducing a personal tax roadmap.
So how did this Budget, referred to by the Chancellor as ‘a Budget for the makers, the doers, and the savers’, measure up? In many respects, there were few surprises for business, which will have gone down well with our respondents. It had been hoped that the Chancellor would extend the annual investment allowance beyond the end of 2014. Not only has he done this for one further year, but he has also doubled the maximum amount to £500,000 from April 2014, providing immediate tax relief for much needed investment by expanding businesses. In addition, the Enterprize Zone reliefs on business rates and capital allowances have been extended by a further three years. And the Seed Enterprise Investment Scheme (SEIS), which helps small early stage companies raise equity finance by offering tax relief to investors subscribing for shares and which was due to come to an end in 2014, has now been made permanent. This should continue to encourage entrepreneurs and support the type of start-ups that Tech City already atrracts and that Media City, recently backed by Boris Johnson, wants to attract.
On the personal tax front, there is alas no personal tax roadmap, but the Chancellor has gone out of his way to help savers, with simplification of ISAs and a hike in the limit to £15,000 from July 2014, the introduction of a pensioner bond from January 2015, and major reform of defined contribution pension schemes. As predicted, the personal allowance has been raised to £10,500 from April 2015 and, whilst this will not benefit the least well paid, the increase in the higher rate threshold for the first time in this Parliament will mean that 40% taxpayers will save tax at their marginal rate on the full amount of the increase.
As usual, there is a raft of anti-avoidance measures, the most striking of which is the confirmation that taxpayers who have implemented ‘tax avoidance schemes’ must pay the tax in dispute upfront while the dispute is being resolved. While this is a fundamental change to the current self-assessment regime, it will result in a significant increase in the cash flow into the Exchequer.
We begin with EY ITEM Club’s economic report, analysing the implications of the Chancellor’s proposals. EY ITEM Club is sponsored by EY.