Budget leaves business fuming

Budget leaves business fuming

Gordon Brown pleased the profession by listening to its pleas not to introduce fundamental changes in last week's Budget. But business had less to cheer about.

It may have been billed as a Budget for enterprise and the family, but the chancellor forgot to mention another group of likely beneficiaries: accoutnants.

The profession has been a steely critic of the iron chancellor in recent months. Advanced corporation tax was abolished without any apparent concession to accountants’ concerns about the manner of its passing. Meanwhile, fears about the introduction of payments on account and self-assessment appeared to fall on deaf ears. But this time, Gordon Brown listened to pleas not to initiate further fundamental change.

Brown did even more to win over the profession. Accountants’ biggest fear was that he would stand up and announce a general anti-avoidance rule. Brown had nailed his colours to the GAAR in the past, but he failed to mention it in his Commons set-piece. Buried in the detail of the Budget, however, was the statement: ‘The chancellor today unveiled a substantial package of measures designed to attack avoidance and safeguard future revenue. He said the general anti-avoidance rules for corporate direct taxes remained an option for the future if more targeted legislation proved ineffective in dealing with the problem of avoidance, but that the government would not be proceeding with a GAAR in this Budget or with a mini-GAAR for VAT on construction services’.

Accountants had got what they wanted, but the importance of the concession was not lost on business either. ‘It’s a very welcome respite from further administrative complexity,’ said Adair Turner who, as director-general of the CBI, is about as senior as corporate figureheads get. ‘We asked for a boring Budget,’ he continued, ‘and on the business side, that’s pretty close to what we got.’

Deloitte & Touche head of UK tax David Cruickshank said: ‘The uncertainty it would create in business has meant the government has decided it’s not worth the risk. They are going to look for more specific anti-avoidance measures.’


The long-awaited results of the government’s charity tax review have failed to answer charities’ calls for a radical reform of the tax system, charity accounting experts said of one of the Budget’s less trumpeted points.

At a meeting of the Charity Tax Reform Group, held after Brown’s Budget speech, chairman Ian Macgregor said the sector and its beneficiaries were losing out due to the burden of VAT.

‘We regret that the government appears to have closed the door on any fundamental reforms in the tax treatment of charities,’ Macgregor said.

‘We will continue to strive for an improvement in the treatment of charitable activities and also continue to seek constructive discussions with the government.’

The review of charity taxation was announced in July 1997. Charities had hoped it would change rules governing irrecoverable VAT. But the document failed to suggest any reduction in charities’ VAT burden, with more than #400m lost in irrecoverable VAT every year.

The government also maintains it cannot introduce new VAT reliefs without EU approval, an option it does not wish to pursue. Finance directors viewed the consultation as an attempted smokescreen to obscure changes to advanced corporation tax.

Charity Finance Directors’ Group chairman David King said: ‘Abolition of ACT will reduce charities’ income by a further #400m per annum and increase the cost of employing staff because of the impact on their pension schemes.’


The profession has slammed suggestions that last week’s Budget will help small businesses.

Francesa Lagerberg, of the English ICA’s tax faculty, said: ‘Despite the gloss, the reality is that very few enterprises will be better off.’

She argued that the proposed Small Business Service offered little that was new and failed to tackle the real problem – the huge amount of red tape burdening small businesses.

‘There is nothing in the Budget at all to help unincorporated businesses,’ she added.

‘The introduction of the 10p corporation tax rate will save at most #1,500 a year, which is roughly the extra cost of running an incorporated business.

It is therefore unlikely unincorporated businesses will seek tax solace by becoming companies,’ added Lagerberg.

David Harrison, tax director at Kidsons Impey, argued that small businesses will be hit by the guaranteed 18-week maternity leave announced by the chancellor. ‘This could play havoc with their staffing arrangements,’ he said.

KPMG expressed disappointment that the chancellor’s tax reforms had not extended to the small quoted company sector.

‘Without a dynamic, liquid smaller quoted company sector, the growing company has nowhere to go and therefore the benefits of start-up reliefs, which are in themselves welcome, could in practice be lost,’ said the firm.


Property experts warned stamp duty rises in last week’s Budget could hit the commercial property market, and sounded the alarm over further increases.

Paul Orchard-Lisle, senior partner of property consultants Healey & Baker, said: ‘By yet again raising stamp duty on property transactions, the chancellor is perilously close to the point at which he is destroying liquidity in the market.’

The chancellor announced a 0.5% increase in stamp duty for properties over #250,000, bringing the rate up to 2.5%. The new stamp duty rate for properties over #500,000 is 3.5%.

John Fear, head of tax group property consultant FPDSavills, said the rise could reduce property prices.

He also said the rise would encourage greater tax planning around the #250,000 and #500,000 thresholds, for example by splitting purchase prices between property and fittings to fall into the lower bands.

A recent study by Arthur Andersen and the London Business School warned a 1% stamp duty rise could wipe #26bn off commercial property values.

Patrick Cannon, the firm’s stamp duty expert, said the market expected a 1% rise. But he warned the chancellor was likely to raise stamp duty to as high as 6% in the future to bring it more in line with rates in other European countries.


The Budget closed the loophole that allows individuals to set themselves up as personal services companies, hire themselves back to employers, and take advantage of the tax benefits that come with a corporate structure.

It wasn’t headline stuff, but it was important, particularly in the timing of the move. ‘The new rules,’ said the Revenue tellingly, ‘take effect from April 2000’.

The delay until after 2000 is widely seen as a concession to software developers, busily dealing with the Y2K bug. Consultancies are rife in the software industry, and the use of personal services companies is common.

‘To upset them at this time would not be clever,’ said Deloitte & Touche UK head of tax David Cruickshank. ‘The timing on that one, I’m sure, is related to the millennium problem.’

The Revenue will be consulting on implementing the new rules over the next few months and says it will ‘minimise any impact of these changes on ordinary businesses not involved in avoidance’.


Boots the Chemist is still set for a showdown with the Inland Revenue over a #500,000 tax bill for its employee bus service, despite changes in the Budget to give similar schemes tax-free status.

The high-street chain has been offering the service for the past six years to supply 60 buses a day to help its 1,300 staff in Nottingham get to and from work.

But the Revenue decided to treat the service as a benefit in kind and is demanding retrospective payments in tax, even though chancellor Gordon Brown came out in favour of subsidised schemes as a means to cut pollution.

A Boots spokesman said: ‘We are pleased that the government has seen the good sense in not taxing these green commuter plans, but the issue of retrospective payments still has to be resolved.’

The Revenue intends to pursue the tax bill, as a spokesman highlighted that the tax change does not come into effect until 6 April.

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