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E&Y: Spare a thought for businesses

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4th Mar 2005
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BudgetErnst & Young is calling on Gordon Brown to remember the needs of businesses on 16 March even though "voters are understandably the focus for pre-election Budgets".

Partner Aidan O'Carroll said that whilst businesses cannot vote "they form the foundation of our economy".

"It would be a mistake for the Chancellor to concentrate on the short-term needs of individuals while ignoring the long-term needs of business," he said.

Uncertainty
O'Carroll called for an end to the uncertainty associated with "numerous ongoing consultations".

He added: "The Chancellor has already indicated his intention to amend the rules that impose a tax charge on researchers' shares when intellectual property is transferred to university spin-off companies but businesses are also waiting for the outcome of the consultations on property investment funds, the new business premises renovation allowance, transfers of going concerns, the reform of VAT bad debt relief, and the VAT option to tax."

'A tax on employment'
O'Carroll said the Chancellor would do well to remember businesses if he is planning any pre-election giveaways.

"[He] should consider reducing the burden of employer national insurance, which is effectively a tax on employment, perhaps to offset the rising cost of the minimum wage. Alternatively, he could reduce the stamp duty land tax charge relating to commercial property particularly on the creation of leases for normal commercial purposes.

"A simplification and widening of the regime for share schemes would encourage shareholder culture and benefit both businesses and employees. Finally, the Chancellor should widen research and development relief, particularly with regard to development."

He added: "The logic of helping businesses is clear. If business is flourishing, tax revenues improve, the economy is healthy and employment increases. It simply takes the strength to look at long-term gains rather than short-term measures around election time."

Surprises
E&Y senior tax partner Patrick Stevens said the Budget was not likely to be controversial, but some surprises can still be expected.

He observed that Brown is well known for "show-casing measures that have already been announced in previous Budgets".

  • "Personal allowances for 2006/07 have already been announced but the Chancellor may well mention again that they have been increased in line with inflation.
  • Details of the Chancellor's strategy for childcare are likely to be confirmed in the Budget, particularly since it comes into effect on 6 April 2005. We can also expect references to the child trust funds that are also effective from that date.
  • The Chancellor may well make some insignificant changes to the tax credits regime which will provide him with an opportunity to talk about his flagship policy."

But the Chancellor may "have to take a risk" and announce some unpopular measures in order to retain his credibility, Stevens suggested.

"Tucked away in the Pre-Budget Report was confirmation that the Government is continuing to review the way that individuals are taxed in the UK when they are not resident or domiciled here and a consultation document is promised.

"The pre-owned assets rules come into effect on 6 April 2005 to tax individuals who continue to benefit from free or low-cost enjoyment of assets they formerly owned and the Chancellor may use the Budget to clarify exactly who will be affected.

"The consultation on the modernisation of the taxation of UK resident trusts ended on 5 November so it is likely that the next stage of this debate will also be announced."

On the other hand, no pre-election Budget would be the same "without some measures to appease voters".

Inheritance tax
Stevens considered a review of inheritance tax to be "extremely improbable despite the fact that the Chancellor wanted it reformed when he was in Opposition".

"An encouraging announcement on a substantial increase of the nil rate band, though not with immediate effect, is far more likely," he said.

Brown could "confound Opposition parties" by announcing an above-inflation increase in the income tax thresholds, to "encourage aspiration by taking more taxpayers out of the higher rate band and, at other end of the scale, would take more people out of the charge to tax altogether".

Stamp duties
Stevens said: "So far the Chancellor has indicated that he is not intending to increase the stamp duty land tax threshold of £60,000 but an increase to £100,000 would be a relatively inexpensive manoeuvre.

"Either this or halving the rate to half a per cent would make a real difference to lower income families. It would also take some of the wind out of the Opposition parties' sails."

Andrew Goodall
Editor, TaxZone

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