UK Budget 2007
good news for big business as small firms suffer
Chas Roy-Chowdhury, Head of Taxation at ACCA, said: “This is a very surprising Budget from a Chancellor who claims to be a friend of enterprise. It seems to be a case of robbing small business Peter to pay big business Paul.”
ACCA’s comments on specific measures outlined in the Budget Speech include:
Cutting the corporation tax rate, dropping from the current headline rate of 30% to 28% in April 2008 – should have gone further
The UK is now one of Europe’s most heavily taxed countries, so in the interest of global competitiveness, the move to reduce the headline rate of corporation tax by 2% is a step in the right direction. But companies will not see this benefit until 2009, when they pay the reduced rate of tax. However, future Chancellors should address the UK’s relatively poor record amongst many of its EU counterparts when it comes to innovative and business-friendly use of deductions and allowances in the corporation tax system.
Small company tax rate increasing from 20% to 22%
This is no encouragement for the small business sector, which represents 99% of businesses in the UK. While bigger companies will benefit from the corporation tax rate, small companies are facing an increase.
Roy-Chowdhury commented: “This decision flies in the face of the Chancellor’s previous aim to encourages more businesses to incorporate and shows an irrational hostility to micro enterprises.”
Lowering the basic rate of income tax from 22% to 20% in April 2008
Although a welcome move, by setting this rate, the Chancellor has, in effect, tied the hands of his immediate successor.
Aligning the top rate of Income Tax and National Insurance to £43,000
The Chancellor should have gone further and addressed the technical differences between PAYE and NIC rules, which cause SMEs headaches in payroll administration. The two accounting systems should be merged, particularly given the fact that with an imminent National Pensions Savings Scheme, SMEs face a three-tier payment system unless action is taken.
Capital allowances changes
Short-term ‘chopping and changing’ with allowances serves overall to increase complexity and red tape for businesses – they will now have to spend a lot of time finding out what allowances have been taken from them and what new ones they are eligible for – with the probable outcome that there will be little difference in their financial situation at the end of the process.
Failure to raise the stamp duty threshold
The Chancellor has again failed to raise the threshold and change the fundamentally illogical system whereby a £249,000 house purchase deal is subject to 1% tax, while a £250,000 purchase incurs a 3% charge on the whole price.
As well as an exemption limited to carbon zero new homes up to the value of £500,000, Brown should have used his last Budget to make a real difference and revamp the whole stamp duty system, making it more like the Income Tax system, where only the amount over each threshold band is subject to tax at that rate, not the full property price.
Increasing the inheritance tax threshold
House price inflation continues to run at a much higher level than the overall inflation rate and the inheritance tax threshold is failing to keep pace, which is seen by many as one of the greatest injustices in the tax system.
An impressive legacy for the Chancellor to leave would have been to extend to inheritance tax the exemption that applies currently to the individual’s main residence under capital gains tax. Making the main residence exempt from inheritance tax would remove one of the greatest inequities of the inheritance tax system and reduce the burden on ordinary taxpayers and their families.
Chas Roy-Chowdhury, Head of Taxation at ACCA, said: “The Chancellor’s moves on stamp duty and inheritance tax - while welcome - represent missed opportunities to fundamentally reform the significant injustices in both these important areas and for him to leave an impressive legacy.”
ISAs – could do more to encourage a savings culture
Roy-Chowdhury commented: “Increasing the cash ISA limit from £3,000 to £3,600 in April 2008 is a step in the right direction, but fails to send a convincing message that the Government backs savers. ISA limits should have, at the very least, been increasing with inflation since their introduction in 1999.”
