UK Budget Offers Some Relief for Business
In response to the difficulties faced by many firms in the current economic turmoil, UK Chancellor Alistair Darling has announced a package of measures in the 2009 Budget intended to help businesses. Many build on announcements made in November’s pre-Budget Report (PBR) and are focused on helping small and medium enterprises (SMEs), although there are a number of moves that include larger corporates. However, some firms have expressed concern at the increased level of complexity the new legislation – some of it targeting tax avoidance – will generate. And a surprise increase in the higher rate of income tax to 50% for individuals earning more than £150,000 could potentially make it harder to recruit and retain talented personnel.
New measures include:
Reactions to the 2009 Budget
Business groups have criticised the economic growth predictions as overly optimistic in the light of news that the UK’s debt will amount to 79% of GDP in 2013-14. Richard Lambert, director-general of the CBI, said that the Budget did not set out a “credible and rigorous” path for restoring the public finances. “The Chancellor’s economic forecasts, with a rapid end to the recession and well above trend growth from 2011-2014, look optimistic. Even so, the horizon for balancing the books has been extended to 2018, two years later than previously targeted. With annual government bond issue expected to exceed £200bn in the coming years and debt doubling by 2013, the Government is running too much of a risk with the willingness of investors to finance UK debt.”
Commenting on what the Budget holds for larger businesses, Sue Bonney, head of tax at KPMG Europe, said the move to exempt foreign-sourced tax dividends, highlighted in the PBR, was good news, particularly because it will be decoupled from the controversial debt cap rules. The dividends will come in from July. This limits the extent to which interest can be deducted from UK tax. “It shows that the authorities have listened to business and it should lead to repatriation of cash to the UK,” she said. But she criticised the move to make executives in large businesses face personal liabilities if their processes and controls are deemed less than ‘adequate’. “While reasonable in concept, this could be tricky from a practical point of view and it is important to avoid this becoming a Sarbanes Oxley equivalent for UK tax,” she added.
Stephen Herring, senior, tax partner at BDO Stoy Hayward, said that although the doubling of the main rate of capital allowances to 40% for a 12 month period is welcome, the “constant tinkering with capital allowance rates” results in “significant” added administration. “It also adds complexity for many businesses in having to track when capital expenditure is deemed to take place for taxation purposes and ensuring the correct allowances are claimed,” he said.
Speaking exclusively to gtnews, Brian Lindsey, corporate tax partner at professional services firm H W Fisher & Company, said he believed it is clear that the government is looking to claw back as much money as it can from tax avoidance operations. “There are also some corrections to previous legislation the government may have rushed though. As well as winners, there will also have been losers in this Budget – it depends on their particular circumstances. I would say that the changes being proposed are in general for the better, but with one or two exceptions.”