When it came to tax simplification, the 2012 Budget was a game of two halves, writes Rebecca Benneyworth.
There were some quite marked movements in the right direction. The overhaul of the tax regime for businesses falling below the revised £77,000 VAT threshold is highly significant. And in spite of some inevitable negativity, the slow phasing out of the higher age-related allowances for income tax is also a welcome step.
Key business measures
1. Small companies simplification - including changes in how HMRC deals with small companies.
2. VAT rate: £77,000 sounds like a big increase, but it’s inflation-linked. The bigger the limit, the bigger the increase.
3. Enterprise Management Incentive and other schemes extended.
4. Accelerated reductions in the Corporation Tax rate.
5. R&D and film tax credits extended - It won’t just be Downton Abbey, Wallace & Grommit and video games developers celebrating.
6. Company car tax: Tax and fuel benefit charge rises go further than expected. Cars will also have to output 130g/km or less in emissions to qualify for 18% main car rate allowance and 95g/km for 100% first year capital allowances.
7. Anti-avoidance: GAAR on the way, with more targeted rules until it arrives.
8. Capital allowances: See company car changes above; first year credits for energy-saving equipment extended for five years from 2013.
9. New 7% Stamp Duty rate for residential property over £2m; property worth more than £2m owned by businesses will be hit with a 15% SDLT rate.
10. Charities could see donations evaporate with the new £50,000 cap on income tax relief.
It’s a novelty to have some genuine simplification measures to assess and debate. Both these initiatives came from recent Office of Tax Simplification (OTS) reports. In each case, the Chancellor didn’t just endorse the recommendations of John Whiting and his OTS advisory committees, he acted faster than expected with the age-related allowances, and raised the turnover level for micro businesses under the new tax regime to more than double the £35,000 suggested by the OTS.
But at the other end of the scale, there is additional complexity as the Chancellor continues to try and plug avoidance loopholes exploited by higher rate taxpayers. The general anti-avoidance rule (GAAR) is intended to put a stop to that sort of behaviour, but like many advisers I have my doubts about how effectively it will work.
This isn’t a political objection. As a profession, we have to recognise that the time for a GAAR has probably come and we might as well get used to it. The proposals before us are a first step towards implementation in next year’s Finance Bill - but a lot of work will need to be done to get it right, particularly in such a short timescale. And the concern for many accountants is that the definition of “reasonable tax planning” as currently defined is so nebulous that some very common - and hardly unethical - practices could be caught. For the GAAR to work as envisaged, the Treasury and HMRC also have to believe it can work, and to abide by the spirit of the safeguards that have been advanced to ensure it is applied fairly.
The possibility remains, as Simon McKie eloquently warned in this month’s Tax Adviser, that if a tax barrister of Graham Aaronson’s standing, with advice from some of the country’s finest tax brains, can’t formulate a GAAR that provides reasonable certainty of application, “then it cannot practically be done”.
We should also spare a few thoughts for many of the people who drive company cars for a living. The people who fix photocopiers and drive around the country with samples in their boots will be clobbered by the increases in benefit in kind charges they will have to pay over the next five years.
Even if it wasn’t so Draconian, the company car regime would be ripe for simplification. Assumed private use is the target of this regime, but try telling any road warrior who’s being taxed 15-37% of their car’s list price for being stuck in motorway traffic jams that what they’re enjoying is a benefit in kind.
We got a lukewarm response from accountants and business people at the end of the Chancellor’s speech. Following our live Budget blog we polled the participants to find out “how friendly to small businesses” the Budget was.
This is what they said: