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Tony Blair and Gordon Brown are working on an experiment every bit as innovative as that of Dr Frankenstein. This is no sinister combination of dead skin and bone, however, but a patchwork of tax breaks, cash incentives and unusually nimble movements by civil servants.

Just as Dr Frankenstein hoped to change the face of humankind, Brown and Blair hope to alter the direction of British business forever.

The government wants to make the UK the best environment in which to trade electronically by 2002. And Blair and Brown plan to use the Budget on 21 March to deliver that aim. Dead certs for the Budget’s e-business agenda include the rolling-out of details for electronic filing of tax returns, first revealed by Accountancy Age in December 1999.

The Revenue has said Brown will use the Budget to announce rebates of £10 for taxes paid and returns filed electronically.

‘Internet technology will help deliver the government’s vision of making services available 24 hours a day, seven days a week. The discounts should encourage take-up of the new services, lead to administrative savings and boost customer service,’ a spokesman has already boasted.

Tax breaks for intellectual property should also feature as Brown and Blair attempt to keep good ideas in the UK. Tax relief is currently given for expenditure on developing or acquiring intellectual property. Typically it is available under the capital allowances regime where the taxpayer can claim relief for a portion of the original expenditure each year.

But the Revenue has recommended relief for all appropriate forms of intellectual property be given according to how taxpaying companies treat it in their own financial accounts. Brown is expected to go some way down that road.

The tax treatment of research and development may also be dealt with. The reliefs available to UK technology companies have been modest in comparison to the US. And while the 1999 Budget announced a new R&D tax credit, it has had limited impact. Large companies do not qualify for the relief. The government has already been working with its international partners and aims to provide clarification in several areas of taxation by the end of this year. Some should emerge in the Budget package.

Elsewhere, the European Commission has recognised it is vital for tax systems to provide legal certainty, simplicity and tax neutrality for e-commerce to develop. VAT is considered just as appropriate to electronic commerce, as it is to other traditional ways of conducting business.

The Commission has published guidelines for the application of indirect tax to e-commerce. It aims to ensure taxation, consistent with its guidelines, will contribute to e-commerce’s success and the EU economy by providing European business with a level playing field for competition. The UK government agrees and should soon outline its stance.

According to a joint paper issued by the Revenue and Customs & Excise, UK tax policy on electronic commerce will include neutrality, certainty, effectiveness and efficiency.

‘Tax must not be allowed to stifle the growth of e-commerce. The aim should be for tax rules and tax compliance to be neutral between electronic commerce and more traditional forms of commerce,’ the report states.

This stance is backed by organisations such as the Institute of Directors. Ruth Lea, head of the IoD policy unit, says: ‘We strongly support the government’s aim of making the UK the world leader in e-commerce. It is vital to remove bureaucratic burdens.’ E-commerce, the IoD says, presents ‘serious challenges to the existing system for the taxation of profits’.

Tax experts at PricewaterhouseCoopers believe e-business is ‘instrumental’ in enabling companies to streamline operations and help minimise global tax rates. It also enables taxpayers to take advantage of friendly jurisdictions. In turn, this puts pressure on tax authorities to remain competitive and user friendly.The problem for Brown is that high tax jurisdictions, such as the UK, risk seeing their tax base eroded as functions, risk and profits are taken from the country and placed in low tax jurisdictions – or never come to the UK in the first place.

If he is to encourage e-business to preserve tax revenues, a competitive tax regime is required and administration must be simple and easy to use. Is this the Budget to establish such a competitive environment?’Action is needed if the traditional tax base of the UK is not to disappear down the electronic gateway,’ says PwC tax partner John Whiting. ‘We could have a consultative document to keep up the momentum in this area but it will take a year or two for serious changes to filter through.’So, despite expected changes to betting tax, stamp duty and inheritance tax, the first Budget speech of the millennium is to be remembered as the UK’s first e-Budget. ‘If there is a theme to the Budget,’ says Whiting, ‘the chances are it will be more measures attempting to improve our record on technology and enterprise – trying to get us ever more like the US in job and opportunity creation.’

If they are to achieve that aim Brown and Blair’s benign monster will have to last longer than that of Dr Frankenstein.

AccountancyAge.com brings you the Budget
Next month Accountancy Age will once again bring its readers comprehensive coverage of Gordon Brown’s Budget.

And, for the first time, AccountancyAge.com will also bring visitors real-time updates as the chancellor delivers his speech. Combined, the two will offer the only up-to-the-minute coverage and analysis specifically tailored for accountants.
As well as this week’s Budget preview special, we will continue to keep readers fully informed of developments up to and after the big day, 21 March. Once again Accountancy Age will turn the spotlight on the advisors by gauging their Budget tips against the Budget itself. Our 23 March issue will contain full Budget coverage and will also reveal whether Ernst & Young were top of the forecasters again or whether another advisor emerged victorious.
And each week Taking Stock will be looking at which firm’s top tax experts have reached the holy grail of saturation media coverage for his or her top tips.
Readers will also be able to enter our Fantasy Budget competition, through both Accountancy Age and AccountancyAge.com. A bottle of champagne is on offer for whoever predicts the contents of Brown’s Budget most closely.

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