The annual investment allowance, which gives a 100% deduction on asset purchases, of up to £100,000 is due to fall to £25,000 from April 2012. The Chancellor may choose to maintain the £100,000 limit or set it at £50,000 for 2012/13 so that business owners are encouraged to invest in their businesses, says accountancy firm PKF.
Another option would be to cut the main rates of plant and machinery allowances, which are already set due to fall to 18% (or 8% for some assets) from April 2012. Cutting the allowance could provide revenue to help pay for a cut in the main corporation tax rate.
The current “holiday” in national insurance contributions (NICs) for small start-up companies taking on new employees has had far less than the Chancellor originally predicted, tax experts say. He may decide to remove the regional limits for this relief so that start-ups in London and the south east can benefit.
The Institute of Chartered Accountants of Scotland (ICAS) says the Chancellor should announce cuts in NICs for 16 to 25 year-olds in the Budget to help tackle record levels of youth unemployment by making it cheaper for employers to hire younger employees.
There is an “outside chance” that a renewed banker’s bonus tax, could be announced, or perhaps a limit on employers’ corporation tax deductions for a worker’s individual’s remuneration package, PKF adds.
The Office of Tax Simplification (OTS) has published its final report on simplifying the tax rules for small businesses.
These make a large number of recommendations aimed at making life easier for small businesses which it defines as those with a turnover of up to £30,000 a year. While such changes would be a welcome shot of common sense if the Chancellor chooses to adopt them, they should be extended to larger businesses.
Although there has already been much consultation during the OTS project, any concrete proposals put forward by the Chancellor in the Budget will probably be subject to further consultation and not implemented until April 2013 at the earliest.
However, if the OTS has identified issues which give rise to substantial tax avoidance, it would not be surprising if new anti-avoidance measures were introduced more quickly. This could easily lead to owners of small businesses paying more tax after Budget day.
Statutory residence test
In its Autumn Statement on the economy last November the government announced that the legislation to introduce a statutory residence test for individuals had been delayed and would not take effect until 6 April 2013.
However, draft legislation is expected to be published with the Budget.
“It will be interesting to see how the Government proposes to clarify a number of definitions that are key to the proposed rules and whether it will concede that the proposed rules are sufficiently different from current case law to justify creating transitional arrangements,” says PKF.
Tax clapdown concerns
Chancellor George Osborne is expected to announce a general anti-abuse rule (GAAR) in the Budget.
Last November a report by Graham Aaronson QC recommended a “narrowly focused” GAAR, which he said would deter “abusive” tax avoidance and reduce legal uncertainty surrounding schemes.
Employers’ group the CBI has backed the GAAR proposal but law firm Berwin Leighton Paisner says some City businesses have concerns.
Berwin, who spoke to City businesses about tax, said that a “significant percentage” of its clients could “live with” a GAAR if it was narrowly focused on artificial transactions designed to avoid tax.
However, some businesses fear that that HM Revenue and Customs may persuade the government to give it “unfettered discretionary legislation and undercut the principle of the GAAR and its good intention”.
For our first round of Budget predictions, click here.
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