AS FAR as tax is concerned, the clear message for business coming out of the chancellor’s autumn statement was along the lines of: “We’re cutting your taxes … but we jolly well expect you to pay them.”
Starting with the tax cuts, a further trimming of 1% in the main rate of corporation tax (which will fall to 21% from April 2014) is presumably en route to 20% from April 2015, leading to the disappearance of the small profits rate and lots of exam questions about marginal relief.
That was always on the cards but the vast increase in the 100% Annual Investment Allowance (AIA) to £250,000 for investment for two years from January 2013 was unexpected.
Perhaps it’s not a total surprise that we got some reversal of the cut from £100,000 to £25,000 with which advisors and businesses are still coping: it has been argued from the time the cut to £25,000 left it too small for a farmer buying a new tractor or a manufacturer buying a serious bit of machinery. But the £250,000 is generous and an open invitation to almost all businesses to invest and get a 20% (or more) subsidy for all their plant and machinery investment.
The only possible grumble is that it is only a two-year increase and many would prefer a set figure that was permanent. Businesses like certainty above everything and the chopping and changing of AIA has been a problem.
On the other side of the tax equation, the chancellor reiterated the messages from Monday’s announcement about extra funds for HMRC to tackle avoidance by big business. In fact, his statement in today’s speech sounded the right balance: that he really wanted to crack down on “those who illegally evade and aggressively avoid…”. He also confirmed the arrival of the GAAR. On the wider scene, the plan, perhaps through the OECD, to look at transfer pricing methodologies is sensible.
The other tax increase that will affect the business sector is the restriction on pensions tax relief. Capping the annual limit at £40,000 is better than the £30,000 that many were expecting, but does constrain the ability to really top up a pension pot in ‘good’ years.
Mind you, the pot itself is now to be smaller at £1.25m. At least there is a good run-in to these new limits which arrive from April 2014.
Further good news came with the announcement that the government will not be proceeding with the proposal to tax ‘controlling persons’ at source, following a consultation over the summer. This is a welcome example of the government consulting, listening (to the CIoT among others) and acting on the responses.
As the government now acknowledge, proper enforcement of IR35 is the way forward, rather than bringing in complex legislation requiring deduction of PAYE/NICs at source for payments to intermediaries.
John Whiting is tax policy director of the Chartered Institute of Taxation
An examination by the Public Accounts Committee (PAC) has revealed serious concerns relating to HMRC’s plans
The mornings after the night that was the British Accountancy Awards; and Andrew Tyrie's latest thoughts on Making Tax Digital timing
Andrew Tyrie suggests there will not be enough time to implement Making Tax Digital (MTD) by April 2018
The ACCA has announced a partnership with UK research and development tax reclaim specialist RD Tax Solutions