BUDGET COMMENT: Drop in business levy won’t help middleweight firms

 
Stephen Herring

BUDGET 2013 did not include a profusion of newly announced popular measures but nor were the doom-mongers correct that the Budget would include an array of unforeseen stealth taxes.

Full marks to the chancellor for accelerating the introduction of a 20 per cent corporation tax rate from April 2015, a £10,000 personal allowance and the £2,000 credit against employers’ national insurance contribution liabilities. A raspberry however for continuing the erosion of the basic rate tax band; hard-pressed middle earners paid less than twice median earnings should not face a 40 per cent rate.

We are unsurprised by the anti-avoidance measures now included in every Budget as HMRC seeks to wear belt and braces where abusive tax arrangements need to be eliminated. Nevertheless, I am disappointed the chancellor has not defined tax avoidance as opposed to valid tax planning. The coalition government ought to be wary that, in particular, foreign direct investors do not come to believe that authentic tax planning decisions will be viewed as aggressive tax avoidance.

Thankfully, a 20 per cent corporation tax rate from April 2015 ought to help ensure the UK provides an attractive destination. But the rate may need to be cut again in future to protect the UK’s ranking for foreign direct investment.

THE DOGS THAT DIDN’T BARK

We were disappointed not to see more measures focused upon middleweight businesses with turnovers of between, say, £50m and £500m, including many hard pressed manufacturers and businesses aspiring to become significant exporters. These gain relatively little from the £2,000 employer’s national insurance credit but often have insufficient taxable profits to benefit substantially from the one percent corporation tax cut. The chancellor needs to focus on these companies and consult on ways to incentivise them.

There was little mention of the measures proposed from the Office of Tax Simplification. Has this initiative been abandoned on the basis that repealing any tax relief might repeat the omnishambles of Budget 2012? We hope not, because both the UK personal tax system and, in particular, the business taxation system require fundamental reform and simplification. These imperatives remain and will intensify as business operations become more complex as a consequence of e-business and globalisation. Similarly, there were no significant reforms for capital gains tax, inheritance tax or stamp duty land tax. All of these taxes are overdue authentic reform.

In essence, there are plenty of opportunities left open for a bold Budget in 2014 accelerating the progress made in the coalition government’s recent Budgets.

Stephen Herring is a senior tax partner at BDO