All smoke and mirrors?

The Practitioner
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Once again I have come away from the Budget with the impression that it wasn’t half as bad as it could have been, yet with that nagging feeling that while I was distracted the chap standing at the despatch box has nicked my wallet.

The sigh of relief is over Capital Gains Tax. I think we all thought that 18% was too good to be true, so an increase to anything under 30% doesn’t seem so bad. Not aligning CGT with Income Tax rates is very welcome for my clients, as it the retention of Entrepreneur’s Relief. Unlike most of the other changes this one is instant, which I suppose shouldn’t be a surprise.
The fall in the small profits rate of Corporation Tax from next April is another piece of good news for my clients, albeit tempered by the loss of capital allowances. Reducing the Annual Investment Allowance to just £25,000 from April 2012 is certainly going to encourage many of my clients to invest in new plant, machinery and commercial vehicles before then, although it does nothing to encourage larger companies to buy the really big stuff. For example, since First Year Allowances were scrapped I can’t think of a single client in the printing sector who has bought a new printing press – at prices from half a million pounds upwards. A 50% FYA on a £1.5m press was very attractive - a £25K AIA plus 18% of the balance just doesn’t compare.
The increase in VAT from next January is going to be a big worry for my non-VAT registered clients, who will have to bear the cost increase, and for VAT-registered clients who deal with private individuals and face the prospect of having to increase prices – and possible lose business – or absorb the increase and lose profits. A no-win all round. At least we have a few months to work with them to look at their business model and see if we can help them to manage the price rise and maybe become more efficient so that any cost increase doesn’t hurt so much.
But what really puzzles me is that after all the Government’s talk of the urgency with which we need to tackle the big hole in the public purse, most of the headline tax changes are going to take a couple of years to kick in. The lower capital allowances will only start to show in higher company tax bills in 2013. Likewise, the higher CGT bills won’t fall due until 31 January 2012. Maybe Anthony Hilton is right in today’s Evening Standard with his headline “Today is nothing but a showpiece”.
I’ll admit that the Red Book and all the economic figures go right over my head, so I have no idea if he’s right, but Hilton reckons that only one government in the last 100 years has actually cut overall government spending – and that was in 1923! For example, he says, earlier this week we had “the surprise early announcement of £10 billion of additional cuts.” Or did we? Apparently not - £8 billion of this was simply deferred rather than cut, £1 billion had not been budgeted for in the first place so wasn’t actually a cut at all, “and of the remaining £1 billion, just under half had already been reported and counted somewhere else.” Like I said, smoke and mirrors!

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By neileg
23rd Jun 2010 09:44


Surely a 25% cut in public sector budgets is a pretty significant impact. Bearing in mind that public sector bodies will try and protect their own organisation, private sector service providers are going to be in the frontline for these cuts. I wouldn't be worry about tax, I'd be worrying about having a taxable income.

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