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Budget 2010: Expert reactions

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24th Mar 2010
Deputy Editor Sift Media
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We've all heard what the chancellor has to say, but what do the accounting and business communities think of this year's Budget Report? We're rounding up some of the day's opinions, so keep your eyes peeled for regular updates as the comments keep on coming.

Stephen Herring, senior tax partner, BDO LLP

"It is very disappointing that the chancellor has missed an opportunity to announce a phased reduction in the level of corporation tax from its current level of 28 per cent, which is increasingly uncompetitive compared to many of our key competitors for global business investment.

“Whilst the increase in the Annual Investment Allowance on capital expenditure for small businesses' will be a modest boost for a number of smaller businesses, this is no substitute for much needed reform to the overly complex and onerous corporation tax system. To put this measure in context, it will cost the Exchequer no more than £120 million each year which amounts to little more than a rounding error in the overall Budget picture. As expected, there are also complex new anti-avoidance rules to restrict the use of this relief which appear heavy handed for an additional relief worth no more than £14,000 in tax terms.”

Brendan Flattery, managing director of Sage's Small Business Division

“It’s encouraging to see this government finally putting the brakes on changes to VAT, income tax and National Insurance but does this go nearly far enough to simplify the tax system for small businesses, which was the biggest single change (34.3%) our customers most wanted to see, according to Sage’s March Omnibus of 1,750 UK SMBs.”

“Throughout the recession our customers have been crying out for banks to lend more. In January 2010, Sage UK’s monthly Omnibus of more than 1000 small and medium business customers revealed that 48.2% found it fairly difficult or very difficult for businesses to get credit from banks, so I am intrigued to see how many of our 800,000 customers actually get to benefit from today’s pledge that RBS and Lloyds will lend £94bn of new business loans. For the thousands of companies who have been ‘unfairly denied credit’, the chancellor’s new service to fast track credit complaints from small businesses could be perceived as too little, too late and adding yet another layer of complexity and administration that companies could do without.”

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Rod Roman, financial services tax partner at Ernst & Young

"The chancellor has reaffirmed the policy objective of achieving an internationally effective and consistent tax on banks against the risk of future failures. It remains to be seen whether such an international consensus can be achieved. Any such tax has to be introduced as a component of the overall regulatory regime. Achieving global consensus on capital, tax, regulatory oversight and remuneration will be a significant challenge. Any changes to tax and regulation will affect marginal location choices for financial services businesses and hence should be approached with caution."

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David Kilshaw, partner at KPMG

"Concerns that the CGT rate would rise proved ill-founded.  But the key question is whether the rate change has just been postponed. 

"Today’s changes magnify again the massive gap between income tax rates and CGT rates.
The stakes have risen to take your reward in a capital form. On a profit of £2m, the difference in tax paid could be £800,000. This is an eye-watering difference.

We can expect to see a lot of tax alchemy – trying to switch income to capital gains.  Share-based rewards are the future.

Similarly, hedge funds and other investors will be desperate to get their returns as capital gains rather than income."

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Deloitte

"Today’s Budget announcement by the chancellor indicates a number of initiatives aimed at assisting growing businesses, such as the doubling of the annual investment allowance to £100,000, saving small companies up to £10,000 and the self-employed up to £20,000–£25,000.  While this is a step in the right direction, it does not in reality provide a great deal more support for entrepreneurial and fast growing businesses. The reduction in business rates will be welcomed by many and see up to 345,000 businesses pay no business rates at all next year for very small properties.
 
"The increase in entrepreneurs relief to £2 million is also a welcome move, as is the increased access to finance and £94bn available funding from RBS and Lloyds. However, like all policies, time will tell whether SMEs will truly benefit. For example, there are questions around how banks will be "forced" to lend and how effective the newly formed credit complaints committee is likely to be."

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Lisa Macpherson, national director of tax 

"The tax breaks for small businesses are clearly politically motivated and designed to neutralise the opposition parties’ appeals to SMEs. However, they will only offer a short term boost to growing businesses; for example the reduction in business rates is valuable, but only lasts for one year. The real worry is that any financial advantage will be more than wiped out by increases in NIC in 2011/12.

"The doubling of entrepreneurs’ relief for capital gains tax from £1 m to £2m is very welcome news for owner-managed businesses."

"Those small businesses who do have sufficient funds to invest may be tempted to take the plunge and claim the higher Annual Investment Allowance while it is available. However, those who have significant numbers of employees may just want to hang on to their cash to cushion the blow of the NIC increases in 2011/12."
 
"One thing we all agree on is that the economy is not out of the woods yet. So providing support for business through tax deferral arrangements and access to loans is vital to protect them until the economy recovers fully." 

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Tim Gregory, partner in the private wealth group at accountants Saffery Champness
 
"It is hardly surprising that the chancellor of the exchequer had little to say about fiscal changes just six weeks before the expected date of a general election, and instead concentrated on what he sees as the government's success in responding to the global recession. Most taxpayers will be breathing a sigh of relief as there were no new announcements on VAT, income tax, inheritance tax or national insurance, nor any increase in the CGT rate."

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Mark Bower, managing director and founder of www.moneymaxim.co.uk

"For the consumer this appears to be a relatively pain free budget with lots of businesses supported from film making to energy, and some good announcements for first-time buyers, too. In fact I think it is only cider makers and big earning bankers who will be really unhappy - but I guess this close to the election that’s what we should expect.The question all this asks however given the government finances is can we really afford it?"

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Chris Groves, partner in the wealthpllanning team at Withers

"Taxpayers should take cheer from the rare appearance of certainty and consistency in the Budget announcement, with no major changes to taxation announced.  However there remains the concern that this Budget is simply a holding measure until the election and ultimately taxes will have to rise."

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Tim Lyford, head of corporate tax at Smith & Williamson

"The financial services sector was acknowledged as a world leader and so Mr Darling recognised its importance and his emphasis on international coordination on a possible transaction tax is realistic and welcome.

"However, all this should be tempered by the realisation that with an election looming we can expect another Budget very soon so much of what has been announced may be superseded."

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Richard Mannion, national tax director at Smith & Williamson

"Winners are first time buyers, small businesses, and successful entrepreneurs. The losers are essentially the evaders and avoiders, the wealthy and of course cider drinkers. The chancellors' speech was light on detail and full of fine words but translating all this into action on the ground is a starkly different matter."

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John Whiting, tax policy director at the CIOT

(On the proposed stamp duty holiday) "The idea sounds good on the surface but runs the risk of there being complex definitions of first time buyer that cause anomalies and difficulties in practice. It has the hallmarks of a provision that has risks in it for the public and their professional advisers who will no doubt have to manage the uncertainties in the scheme."

(On AIA increase) "The doubling of the allowance is a good simplification measure, as well as encouraging capital investment.

"But it will mean more businesses claiming tax loss reliefs and we just hope HMRC are gearing up to process those claims promptly. Slow tax repayments are a source of cost and frustration for many advisers and their clients.

"However, the proposal, also in the Budget, of a single online account for businesses indicates that repayments from one tax could be easily offset against amounts due on other taxes. This would be a welcome development for businesses with cash flow problems."

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Michael Izza, chief executive of the ICAEW

"UK businesses have played their part in helping get the UK economy through the downturn – by maintaining employment and revenues. However, they also need certainty and confidence in the recovery. Whilst the focus on jobs and investment is important in the short term, businesses will want to know more about what they can expect in the medium to long term. They need greater clarity on how departmental spending is going to be cut and also if taxes are going to be raised. This will have a direct influence on their plans to invest and grow."

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Giles Mooney BSc ACA CTA, partner, The Professional Training Partnership

"An increased NIC rate for employees and employers sees a top tax rate for people working for their own companies of 75.8% before corporation tax relief. It's hard to see how that will motivate entrepreneurs to work harder and achieve the gains of £2m that they are now entitled to before paying the main rate of CGT.

"Although the doubling of AIA sounds attractive, the government maintains that 97% of businesses don't spend over £50,000 on capital assets in any year so the relief only really applies to 3% of businesses. It's worth remembering that they've lost the 40% FYA from 10-11 onwards. I wonder which they’d prefer.

"It seems inevitable that there will be another Budget in the summer, sadly I suspect there will be little difference in content whoever is in power with the economy in such a perilous position."

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Chris Sanger, head of tax policy at Ernst & Young

"The chancellor has preserved the option of leaving good news for Labour’s general election manifesto, which increases the chance of a further Budget after the election, even if Labour were to be re-elected. Today's announcements represented the continuation of themes from last December’s Pre-Budget Report, focused primarily on fixing the public finances rather than attention-grabbing giveaways. Where the chancellor did spend some money was on tax credits, the investment allowance for businesses, and measures to help entrepreneurs, but he was clearly limited by Britain's record deficit. In what will almost certainly be his last Budget, Alistair Darling clearly wanted to go down in history as the prudent chancellor."

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Kate Sharp, chief executive of the Asset Based Finance Association
 
"The chancellor’s Budget contained a raft of measures designed to support SMEs and we applaud the increased focus on supporting the UK’s firms as they help to drive the economy out of recession. We welcome the additional capital growth funds for growing companies, the cuts in corporation tax, the increase in government contracts to go to SMEs, plus the speeding up of payments to businesses from government departments, all of which should help bolster firms further.
 
"However, we do have concerns over the new mechanism by which firms will be able to dispute credit decisions if they feel they’ve been wrongly denied. While it is well intentioned, it is fraught with issues both in terms of the principles of free trade and in terms of practical application.

It also remains to be seen how the new investment corporation – called UK Finance For Growth – will actually oversee the government’s £4bn range of support for businesses and if it will provide the practical assistance needed for firms to negotiate potential bureaucracy".

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Mark Lewis, president of the lawyers section of the UK200Group

"With income tax rates reaching a high of 50% from next month and further rises in National Insurance (NI) due in 2011, there was an obvious advantage in structuring incentives and returns on investments so as to be subject to CGT at just 18% (and in some cases 10%). A key area where this can be done is through the use of employee share schemes.

"However, any such scheme must be properly structured as the government also made statements yesterday of increasing scrutiny of ‘income into capital schemes’, their aim being to continue cracking down on what they perceive to be unfair tax avoidance.

"The disparity in the rates of income tax and CGT remains, which means that structuring investments and incentives to produce capital returns is still significantly advantageous".
 

***

Martin Zetter, financial services transfer pricing director, Ernst & Young

“In his budget speech, the chancellor revealed the £2bn raised from the bank payroll tax was much more than anticipated. This will be of interest to banks that base their transfer pricing on bonuses. Global trading transfer pricing models that run off big hitters’ remuneration probably still work and may not have been invalidated by the government’s measure as feared.”

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Andrew Tailby-Faulkes, head of private client services, Ernst & Young

“The introduction two years ago of exponentially more complex and restrictive remittance tax rules for resident foreign domiciliaries was just the start. Since then, the 50% income tax rate for high earners, confirmed by the chancellor in the Budget, the pension relief restrictions also confirmed today, and now the new 5% rate of SDLT for residential properties costing £1m or more can all be added to the list.

“Together with a raft of recent tax cases concerning individual tax residence that have led to great uncertainty for internationally mobile taxpayers as to whether or not they are resident for tax purposes in the UK, this all adds up to a fiscal climate that is less attractive than many competitor jurisdictions".

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Andrew Hubbard, director of tax policy at RSM Tenon
 
“Small businesses were rewarded at the expense of the banks. The tax changes almost cancel each other out – what has been given on one hand has been taken away with the other.  The government is taking a big risk in relying on growth to restore economic good fortune. Budget, what Budget? So much time – so little to say.” 

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John Brazier, managing director of PCG

"It was much ado about nothing. In reality it was the ‘pre-Budget’ Budget. Like the rest of the country I will be waiting for the real Budget which will happen after the general election. Frankly, the freelance community has little to take away from the ‘red book’, as we expected.

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"No real ‘new’ changes have emerged, with key changes affecting PCG members having already been announced previously- such as the increases in national insurance for employers and employees".

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Patrick King, tax principal at MacIntyre Hudson

“Other than minor tinkering, the chancellor did not increase taxes or reduce spending in the today’s budget. The financial markets’ reactions to this will become clear in time but a review of the Treasury’s “Securing the Recovery” Budget Report details the enormous rises previously announced, that come into force from April 2010.
 
“The Budget today suggests a give away of £1.4bn in 2010/11 but the increases already announced add up to £2.86bn, a net increase of £1.46bn. The increase for 2011/12 is £150m from the budget and £12.4bn already announced and for 2012/12, its £705m from the budget and £16.7bn already announced.
 
To what extent these massive withdrawals of cash from the economy will affect the fragile recovery remains to be seen.”
 

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