“The business community keenly anticipated a Budget in which the chancellor did not tinker and micro-manage the corporate tax regime,” said Gary Richards, partner at Berwin Leighton Paisner. “For once, a chancellor has delivered on this.”
Bank levy
A hefty lobbying effort has paid off for the British banking sector, with the bank levy going unmentioned in the chancellor’s speech. HM Treasury’s Budget documents do reveal plans for a bank levy redesign, however.
A new charging mechanism will be the subject of consultation. Banks could be placed in different bands based on their chargeable equity and liabilities and then charged a band-prescribed amount. A consultation document is expected on March 27, with any legislative changes coming in on January 1 2015.
Peter Maybrey, PwC banking tax partner, praised Osborne for resisting the temptation to raise the bank levy again. The levy has already been changed seven times since its inception, with the rate more than tripling to 0.142% as a result.
“We welcome consultation on a new charging mechanism for the bank levy. However, there needs to be a more fundamental review of the bank levy as its two aims – to raise revenue and to change behaviour – arguably run counter to each other,” said Maybrey.
“The bank levy acts as a double hit on UK competitiveness – it makes the UK a less competitive location for banking business and it makes UK-headquartered banks less competitive when doing business overseas,” added Maybrey, who pointed out as a cautionary note that New York has replaced London as the world’s leading financial centre according to a recent report from the Global Financial Centres Index.
Maybrey adds that the bank levy is one area where the government’s open for business agenda is tested most. The UK is the only country hosting a leading financial centre which has a bank levy.
Michael Wistow, head of tax at Berwin Leighton Paisner, also commended Osborne for listening to “well-justified complaints” that the levy was “conceptually flawed and driving banking activities offshore”.
“For too long, the banks have shouldered the sole blame for the financial crisis. It’s now rightly accepted that a healthy banking system will support the recovery. It’s too much to ask for the bank levy to be abolished anytime soon, but hopefully the details later this month will improve this flawed tax.”
Tax avoidance
Richard Woolich, UK head of tax at DLA Piper, said that while the proposed reforms to savings, ISAs and pensions are likely to catch mainstream news headlines, the chancellor has also brought in a raft of anti-avoidance provisions in keeping with public sentiment.
“Notably, taxpayers using companies to buy residential property exceeding £500,000 will, after today, incur a stamp duty land tax charge of 15%. Exceptions will apply, for example, if the property is let to an unconnected person on an arm’s-length basis,” said Woolich. “The government continues to believe that such owner-occupied properties are bought by companies to avoid SDLT. But this is very rarely the case. Non-UK incorporated companies are used to own properties to enable the asset to fall outside the IHT [inheritance tax] net. It is therefore puzzling why the chancellor is doing this, other than for political ends, with one eye on the election.”
Osborne said the UK government was to the fore in international action on reform of global tax rules, and said HMRC is now collecting twice as much in compliance, as well as seeing the number of registered tax avoidance schemes halve.
HMRC’s budget for tackling non-compliance will be raised to ensure it builds on those success stories, Osborne said.
A controversial avoidance announcement was the demand for upfront tax payments in avoidance cases.
Wistow said that if this proposal goes ahead, a proper right of appeal will be critical.
“This was not the case in the recent consultation. Without this right to appeal, the chancellor risks putting political considerations ahead of basic taxpayers’ rights,” said Wistow.
“It is also proposed that HMRC will demand upfront payments in cases similar to those which have already been decided in favour of HMRC. While populist, it is practically impossible to use one case to determine hundreds of others, given the variety of taxpayers’ circumstances,” added Wistow.
If the upfront tax payment is proven to be too much, the taxpayer concerned would receive interest on top of their tax refund.
“If they are found to have paid too much, the pledge today was that the tax would be repaid with interest,” said Chris Morgan, head of tax policy at KPMG in the UK.
A further announcement which also featured – though no detail was provided – was a pledge to “block transfers of profits between companies within groups to avoid tax”.
“Interesting...need to see paperwork to better understand this one,” tweeted Stella Amiss, partner at PwC.
It will also be interesting to see how the UK marries this up with OECD-level investigations into the global operation of transfer pricing activity.
Business investment
“Today we back businesses that invest,” said Osborne at the outset of his speech.
And Danny Alexander, chief secretary to the Treasury, has said that rising business investment will be essential this year if the UK recovery is to continue on its current path. Alongside the commitment to reduce the corporate tax rate to 21% in around two weeks’ time and next year to 20%, there were two measures Osborne announced today to prompt business investment.
The government’s Annual Investment Allowance – which was increased ten-fold to £250,000 ($415,000) in 2012 – will next month be doubled to £500,000 and extended to the end of 2015. Osborne said this will mean that 99.8% of businesses will get a 100% investment allowance.
“Almost every business across Britain will pay no upfront tax when they invest in the future,” said Osborne.
The increase in the allowance will cost £2 billion in the short-term.
“The £2 billion for investment allowance for business is welcome, but in the context of a £1.4 trillion economy, this is relatively small fry,” said Kevin Nicholson, head of tax at PwC. “Overall though, business will be pleased there are no major changes as certainty is often what matters most.”
The second announcement aimed at stimulating business investment was a £7 billion energy package for manufacturers.
“Today’s Budget offered a clear signal for businesses to grow through the increased investment allowance with a focus on manufacturing. The £7 billion package to cut manufacturing energy bills will help create jobs and strengthen this key sector,” said the Federation of Small Businesses.
Small and medium-sized enterprises also had good news in the shape of the R&D tax credit being raised from 11% to 14.5% for loss-making SMEs.
Off the back of what Osborne called “flourishing enterprise zones”, business rates discounts and enhanced capital allowances will be extended for a further three years.
In the creative industries, the film tax credit – recently approved by the European Commission – will be expanded to cover theatre. There will be 20% tax relief for qualifying productions from September.
