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Budget 2016: Business as usual?

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14th Mar 2016
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This year’s Budget arrives one day after the Ides of March, a date synonymous with the assassination of Julius Caesar in 44 BC. While it is likely that George Osborne will ‘hail’ the contribution of British industry, there are those who feel that the Chancellor is preparing to stick a knife the back of business in the form of additional tax and legislation.

With the economy £18bn smaller than the Office for Budget Responsibility expected following growth of 2.8% rather than the 3.8% forecast for 2015, Osborne indicated yesterday that the UK must “act now to make sure we don't pay later”.

While cuts amounting to 50p in every £100 of spending by the end of the decade may help the Chancellor to meet his target of running a budget surplus by 2020, it is expected that Osborne will look to business to raise some the funds needed.

However, some commentators feel that with the European referendum looming the pro-EU Chancellor and his Prime Minister are fighting for their political lives. To win the referendum Osborne must build up business confidence to project the message that the UK has ‘something to lose’ by leaving the EU. Introducing measures that may stifle business and entrepreneurship might be seen as counterproductive to this.

Ahead of George Osborne’s appearance at the dispatch box, AccountingWEB takes a look at what UK businesses would like – and what they’re likely to get – on Wednesday.

* * *

Business rates reform

In its briefing ahead of this year’s Budget the Confederation of British Industry (CBI) labelled business rates a “barrier to entrepreneurship, investment and productivity growth for businesses of all sizes”, and stated that the system required “urgent reform.”

While many hope that the government’s two-year review into business rates will bring more clarity about future reform, there has been little indication that the analysis will bring about radical change.

As early as last year Mike Spicer, director of research and economics at the British Chambers of Commerce, told The Guardian that treasury officials were “dumbing down expectations” about the outcome of the review.

Proposals to increase the frequency of property revaluations have been put forward by British retailers, while the CBI proposed the tax to be shifted in line with the consumer price index (CPI), rather than the retail price index (RPI) – a move which could save UK companies £1.5bn and ensure business rates do not outpace the official measure of inflation.

However, according to the Telegraph the government is understood not to be in favour of either amendment, leaving commentators to wonder what (if any), changes will be announced on Wednesday.

Likelihood of radical business rate reform?

Two Gideons out of 10.

Entrepreneurs' relief

Experts have long predicted reductions in the total lifetime limit of entrepreneurs’ relief, but could Wednesday be the moment that one of the most valuable reliefs in the capital gains tax system is cut?

According to Richard Godmon, head of corporate tax at Menzies, a reduction in entrepreneur’s relief is a “very real possibility”.

“This has been on the cards for a while”, said Godmon. “I suspect the Chancellor may move to reduce the lifetime allowance, which is taxed at a reduced rate of 10%, from £10m to £5m.

“This would be a blow for business owners, and could lead to more individuals spreading ownership of their organisation jointly with their husband or wife, effectively doubling the value that can be extracted from the sale of the business at the 10% tax rate. However, there are implications over and above tax that need to be considered in this scenario!”

Helen Relf, partner at RSM, agreed, stating that what might result in a short term revenue rise for the Treasury may have wide-reaching consequences.

“What would restrictions to relief mean for the funding of small businesses?” said Relf. “Will we see fewer serial entrepreneurs? Restricting the relief would undoubtedly have a big impact on businesses which need entrepreneurs’ cash.”

Likelihood of a total lifetime limit reductions?

Five Gideons out of 10.

Business tax roadmap

In the Summer Budget 2015 the government announced a business tax roadmap that will be published alongside the Budget in 2016.

This roadmap will set out the government’s plans for business taxes over the rest of Parliament, and is expected to encompass a whole series of taxes from the next steps on the implementation of OECD’s base erosion and profit shifting (BEPS) recommendations, to business rates, energy taxation, and a redesigned tax policy framework.

Chris Sanger, head of tax policy at EY, said that plans will hopefully provide a “clear indication of where the Chancellor will take the tax system.”

“Bringing all this together into a coherent plan is quite a challenge”, continued Sanger, “but it is something businesses have been looking forward to.

“The Corporate Tax Roadmap introduced at the start of the last Parliament will be a hard act to follow given its popularity amongst businesses. There will need to be some proposals of real substance in this document if it is to result in the same level of certainty and added investment.”

Likelihood of a mention?

Nine Gideons out of 10.

Corporation tax

Richard Godmon at Menzies believes that an acceleration of the announced reductions in corporation tax is top of the SME wish list.

Corporation tax currently stands at 20% and will be reduced to 19% in 2017, then 18% in 2020, but Godman stated that moving these dates forward would “promote business confidence at a time of legislative uncertainty in the lead up to the EU referendum.”

However, although Osborne will be keen to maintain the UK’s reputation as a country that is open for business, with a reduction commitment already in place and the gloomy economic mood music this may be a move too far for the Chancellor.

Likelihood of this acceleration?

Two Gideons out of 10.

Other corporate taxation

According to George Bull, senior tax partner at RSM, we can expect new restrictions on the deductibility of interest costs incurred by companies, which will be in line with proposals from the OECD’s report on BEPS.

We can also expect to see significant restrictions to the UK’s patent box regime – the preferential tax rate designed to promote innovation.

Likelihood?

Eight Gideons out of 10.

What business-boosting measures would you like to see in the Budget? And what do you think we’re going to get? 

How many times will the Chancellor say the word “tax”? Take part now in the TaxCalc Budget sweepstake to be in with a chance of winning £250 in Amazon vouchers. Also, register your details for Rebecca Benneyworth’s Budget 2016 report.

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Replies (9)

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avatar
By The tired accountant
14th Mar 2016 18:04

Is there any point ?

When the UK overwhelmingly votes in June to leave the EU all of his calculations will be consigned to the rubbish bin.  By happy coincidence his £18 billion shortfall is about what we pay to the EU every year.  

Thanks (3)
By ireallyshouldknowthisbut
14th Mar 2016 18:23

.

@The tired Accountant, this is an accounting forum. 

Sales VAT £18

Purchase VAT £10 

The net payment is..........................?

Clue: Its not £18.

 

Thanks (0)
Replying to SecretariuS:
avatar
By The tired accountant
14th Mar 2016 19:15

Net benefit

ireallyshouldknowthisbut wrote:

@The tired Accountant, this is an accounting forum. 

Sales VAT £18

Purchase VAT £10 

The net payment is..........................?

Clue: Its not £18.

 

 

I am well aware it's an accounting forum, I'm also well aware of the NET cost of EU membership to the UK, which is a MINIMUM of £18 billion a year. We are the 2nd largest net contributor to the EU.  Also leaving the EU will drastically improve our balance of payments, our territorial waters will not be open to Spanish trawlers, our businesses will be free to trade with the world unshackled from EU petty bureaucracy. We will also be able to dump the pointless "green taxes" imposed by corrupt Brussels mandarins. 

As an added bonus "Dave" will be completely discredited and his departure from number 10 hastened to allow Prime Minister Boris to take over and George can be retired (or put in charge of something harmless like Minister for Floods) and a decent Chancellor found to replace him. 

Thanks (2)
By ireallyshouldknowthisbut
15th Mar 2016 09:25

Fact check

Not sure where you are getting your figures from but I think you are talking what is technically known as "balls" to quote £18 billion.  Sounds like its come from tabloid newspapers.

Estimates are quite wide spread as they depend on how you define benefits of membership, but the treasury quoted around £8.5bn net contribution from National Statistics sources for just the government and local authorities. This net contribution excludes where a lot of the money goes, ie this excludes income of private individuals and companies, such as subsidies to farmers or soft loans and grants to business, which brings the net cost to the UK down a lot further. Still a lot of money, but at least I haven't made it up.  The data is in the budget documents each year and should be fairly robust, albeit forecasts will vary depending on the performance of the economy. 

This short document quite neutral if you would like to actually find out about this area.

www.parliament.uk/briefing-papers/SN06091.pdf

Thanks (2)
Replying to User deleted:
avatar
By The tired accountant
14th Mar 2016 23:00

Official figures ?

ireallyshouldknowthisbut wrote:

Not sure where you are getting your figures from but I think you are talking what is technically known as "balls" to quote £18 billion.  Sounds like its come from tabloid newspapers.

 

 

Official figures state that £55 million a day – the equivalent of about £20 billion a year – is only one part of the overall cost of the EU. It is also necessary to factor in the likes of regulation costs, lost jobs and the Common Agricultural Policy.

EU membership costs UK billions of pounds and large numbers of lost jobs thanks to unnecessary and excessive red tape, substantial membership and aid contributions, inflated consumer prices and other associated costs.

The Common Fisheries Policy has cost British coastal communities 115,000 jobs.

Less than 15% of Britain’s GDP represents trade with the EU yet Brussels regulations afflict 100% of our economy (the 5th largest in the world)

-Over 70% of the UK’s GDP is generated within the UK, but still subject to EU law.

-In 2006 it was estimated that EU over-regulation costs 600bn Euros across the EU each year.

-In 2010, Open Europe estimated EU regulation had cost Britain £124 billion since 1998.

 

As stated, a vote for "out" will render Osbourne's calculations obsolete, and current polls suggest a massive majority for the "out" campaign.  

Thanks (0)
Replying to SXGuy:
Stepurhan
By stepurhan
15th Mar 2016 10:36

Link?

The tired accountant wrote:
Official figures state that £55 million a day.
Provide a link to these "official" figures that actually backs up your statements and people might take you seriously.

The last time someone made such a claim, the link they eventually provided entirely contradicted their statements.

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avatar
By thegreatgrumbleduke
14th Mar 2016 22:26

Nine George Osbornes... thanks, that'll give me nightmares tonight

Thanks (1)
By Ruddles
15th Mar 2016 08:16

Worrying

I'm hearing some very familiar noises

Thanks (2)
avatar
By Lship
15th Mar 2016 16:51

@Stepurhan

https://fullfact.org/economy/our-eu-membership-fee-55-million/

 

I'm guessing this is where the £55m figure comes from, but as it says it doesn't take into account the money that comes back in rebates etc,

 

Figure is probably closer to £19m by my reckoning

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