Budget 2012 – Special Report

“Britain is open for business” may just be a catchy political slogan, but it appears the Government is taking it seriously nonetheless.

Away from the headlines on the cut of the top rate of tax to 45p and the clampdown on stamp duty land tax, this was an unashamedly pro-business Budget.

We take a quick look at the biggest changes for large companies and small businesses alike.

Boost for big business

The Corporate Tax Road Map is aimed squarely at multinationals and footloose capital. In addition to the eye-catching extra percentage point off the main rate of corporation tax, a range of measures aimed at keeping large and innovative companies in the UK will be introduced in the Finance Bill 2012:

  • Controlled Foreign Companies reform – a relaxation of the rules that aim to prevent UK resident companies diverting profits to low tax jurisdictions.
  • The Patent Box – a 10% reduction in corporation tax for profits attributable to “qualifying IP”.
  • “Above the line” R&D Tax Credit – a payable credit, aimed at improving the uptake of R&D relief by moving the calculation “above the line” in company accounts.

These, combined with the recent full exemption on dividends, add up to a very competitive tax environment, albeit through a somewhat bloated and opaque set of rules.

Something for the little guy

Small, unincorporated businesses with turnovers below the VAT registration threshold (which will be climbing to £77,000) will be able to choose a cash basis for calculating tax. This measure, due to be introduced from April 2013, should help to ease the administrative burden for micro businesses. Other simplifying measures (pdf) have been trailed, such as standardised expenses for unincorporated businesses and disincorporation relief.

Continuing the avoidance clampdown

Finally, it simply wouldn't be a Budget without talk of “morally repugnant” tax avoidance. In addition to stamp duty land tax avoidance (politically important but fiscally trivial), two major measures were confirmed:

  • A General Anti-Abuse Rule (GAAR) – a consultation based on Graham Aaronson's proposals, with an aim to introduce legislation in 2013. The GAAR will also be extended in scope to cover stamp duty land tax.
  • Extension of Disclosure of Tax Avoidance Schemes (DOTAS) – another consultation, this time aimed at extending the definition of “hallmarks” to require more tax avoidance schemes to be reported.

Personal service companies have also come under the spotlight, and will be the target of anti-avoidance measures to be introduced alongside simplified IR35 legislation in Finance Bill 2013. This will likely include “requiring of?ce holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged.”

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