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Wednesday’s Budget delivered by the Chancellor George Osborne was business friendly with something at either end of the scale to give business some cheer.

The headline news was some encouragement for companies with an accelerated reduction in the main corporation tax rate which will now be 24% from April 2012.  The technology business sector obtained a boost as the Government strives to ensure the UK is a European technology centre.  For this sector there were tax incentives for digital content, further R&D reliefs and confirmation on the Patent Box regime together with further investment in broadband speed.  The consultation to introduce corporation tax relief for the games and creative sector is long overdue and will provide a much needed boost for the booming games industry in Dundee.  There were a small number of Enterprise Zones where 100% capital allowances were extended and some cheer in the oil and gas sector with the opportunity to help develop the West of Shetland and decommissioning reliefs to encourage additional investment. 

Slightly more encouraging news for high net worth individuals and their personal tax liabilities as the top rate of income tax will reduce from 50% to 45%, albeit not until April 2013.  The Chancellor is also looking to anti avoidance measures, particularly around Stamp Duty Land Tax and a potential General Anti Abuse Rule to raise significant tax revenues.

We have set out below the potential impacts of the Budget announcements and the opportunities and implications for taxpayers and businesses.

The main rate of Corporation Tax will be 24% for the Financial Year commencing 1 April 2012.  Previously it had been intended that the rate would be 25%, so this is an extra 1% reduction in the rate.  This is welcome news for companies with profits above £1.5 million and also those with profits between £300,000 and £1.5 million, which benefit from marginal relief.  The intention is for the rate to fall further to 23% for the Financial Year commencing 1 April 2013.

The Government’s aim is to make tax easier to understand for small businesses and to make compliance simpler and quicker.

The main proposal, announced in the Budget, is that, from April 2013, small unincorporated businesses will be able to calculate their taxable profit on a cash basis.  This is proposed for businesses with turnover up to £77,000 but businesses will be able to continue on a cash basis until their turnover exceeds £150,000.  This means that details of stock, debtors and creditors will not require to be maintained for tax purposes.

It is proposed that, legislation will be introduced, with effect from 6 April 2012, to simplify the rules for EIS to encourage investment in smaller business.  These changes include a disregard for the current no more than 30% loan capital entitlement, removal of the £500 minimum investment limit, the ability for the shares to carry a preferential right to dividends (subject to certain requirements) and an increase to the company size threshold.

We welcome the UK bringing in a tax regime that will make the UK as competitive as the many overseas jurisdictions that have tax favoured regimes for intangible assets and income.  The 10% headline rate of tax (although phased in over five years) with effect from 1 April 2013, will begin to attract and reward patent rich companies where it matters by reducing the tax cash cost.  It is suggested that HM Revenue and Customs will look to extend the qualifying patents from currently eligible ones granted by the UK Intellectual Property Office and European Patent Office to patents granted in other EU member states. Secondary legislation is expected later in the year.

Another of the big headlines to the 2012 Budget was reserved for changes to personal taxation; top rate of income tax reduced from 50% to 45%, accelerated increase in personal allowances and the freezing of age allowances.  All these proposals are planned to come into effect at 6 April 2013.  In addition, uncapped income tax reliefs are now due to be capped after consultation.

The current £120,000 value of unexercised qualifying options will be increased to £250,000.  It appears that the Government intends to implement this as soon as possible and no definite date has been given.

The Business Premises Renovation Allowance will be extended for a further 5 years, until April 2017.  This allowance was initially intended to apply to expenditure incurred before 11 April 2012.  Its extension will ensure that incentives continue to exist to encourage investors to bring derelict properties back into use.  It provides for an initial 100% allowance in respect of expenditure on converting or renovating unused business premises in a disadvantaged area.

The 100% FYA capital allowance for businesses purchasing low emission cars has been extended to 31 March 2015. The CO2 emissions threshold below which cars are eligible will be reduced  on 1 April 2013 (6 April 2013 for non corporates) from 110 g/km  to 95g/km.

HMRC has announced their intention to address what they see as ‘anomalies’ in VAT regulations – consulting immediately but with an objective to introduce changes from 1 October 2012.  The actions set out in each case see additional VAT payable by consumers, to the tune of £350m per year within 4 years.

The two planned measures likely to generate the largest tax yield, and therefore impact consumers and VAT-registered businesses, involve hot food caterers and builders.  We explain further in our full article.

The Chancellor used Budget 2012 to confirm the Government’s intention to introduce a General Anti Avoidance Rule (GAAR), with legislation expected in Finance Bill 2013.

The legislation will be based on the recommendations of the Aaronson Report, published in November 2011, with further consultation planned.

Finance Bill 2013 will contain legislation allowing HMRC Officers undertaking criminal investigations into direct taxes to seize cash under the Proceeds of Crime Act 2002.  Previously this measure had only been available in respect of indirect taxes.

Apart from tinkering with scale rates and percentages relating to car and fuel benefits, it was also announced  that from April 2016, the Government will remove the 3 percentage point diesel supplement so that diesel cars will be subject to the same level of tax as petrol cars.

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