FW: Early reaction to the Emergency Budget

 

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On any analysis the Budget which we have just heard was extraordinary. It was not just the scale of the cuts and tax increases, but the bold attempt to set a five-year agenda for a complete reshaping of the tax system. For years we have been beset by chronic short-termism in tax policy so we have to applaud an attempt to build a long-term strategic framework for taxation. But will it work? It would be absurd to offer a definitive view just after the Chancellor sat down, but a few key strands are worth comment. Capital Gains Tax All things considered it could have been worse. Given the fears that the rate could go up to 50% people will probably breathe a small sigh of relief, even as they have to dig deeper into their pockets. The increase in the entrepreneurs' relief limit to £5m is welcome and something of a surprise - at least for those who fall the right side of the line! Slip over that line and your tax rate almost trebles. Business Tax We were expecting the reduction in corporation tax rates – the question was what would happen to capital allowances. Larger businesses will probably feel relieved that the rates on plant and machinery have only been slightly reduced but smaller business will feel badly treated: slashing the annual investment allowance from £100K to £25K is very harsh in comparison. Where is the fairness in that? VAT The VAT rise was almost inevitable and at least businesses have been given time to make the necessary price adjustments. Last time round many traders ran out of time and we are pleased to see that the government has not made the same mistake again. Income tax The income tax changes were largely pre-announced and in line with expectations and for most people the impact with be felt through the changes in the tax credit system and other benefits. Tax Avoidance The chancellor prided himself on not burying anything in the small print - but hidden away in one of the many documents is an announcement that the government intends to consult about the introduction of an general anti-avoidance rule. The coalition statement has suggested that any such rule would only apply to business tax – this latest announcement appears to cover all taxes. Opinions are divided about the effectiveness of such rules and it is clearly right that there should be consultation about whether such a rule is required. But the possibility of such a fundamental change to the UK tax system should have been announced openly in the Budget and not tucked away in the remoter nooks and crannies of the Treasury Web Site. Further thoughts and observations as well as planning tips will be on our website as soon as we have reviewed all the small print. Visit: www.rsmtenon.com

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