budget 23 PwC measures up the Budget


In his recent Budget, the chancellor introduced a number of measures to refuel the economy and ensure ’Britain is open for business’. PwC gives its reaction to the measures and assesses how these will impact businesses in our region


Against the backdrop of a fiscally- neutral Budget the chancellor announced a wide range of measures aimed at promoting growth. The significant steps that have been taken towards creating a tax system that is more supportive of business investment and growth can only be welcomed.


One of the unexpected announcements of the Budget was the cut in the corporation tax rate to 26% (rather than 27% as previously announced) from April 1, 2011. The additional 1% decrease will result in the rate of corporation tax reducing to 23% from April 1, 2014.


The Budget contained clarity around the shape of some aspects of corporate tax reform. These reforms are being introduced by the Government to help ensure that the UK becomes a more attractive holding company location, with the aim of attracting businesses to the UK and stemming the flow of companies looking to move their residency overseas to more favourable tax jurisdictions. Stephanie Udall, senior tax partner at PwC Southampton, says: “I urge all UK groups with foreign operations to consider how the new rules will impact them and the opportunities these present to reduce global tax payable’’.


A huge number of small and medium-sized enterprises claiming R&D tax relief are hi-tech businesses and start-ups in the technology sector and there was excellent news in the Budget for these businesses. The cash value of this incentive increases by 5% both this and next year, reaching 31% of R&D spend in 2012. Also, the income tax and national insurance contributions (NIC) cap on the cash repayment for surrendered losses is removed which is more good news, particularly for those with a small workforce but large expenditure on bought-in support for their R&D.


The enhancement of entrepreneurs’ relief (ER), which


rules are announced in June this year to determine the full benefits of the relief.


The Budget also sets out certain tax reliefs for businesses that move into an ’enterprise zone’. Whilst the initial 10 enterprise zones to be established are not located in the Solent region, the south east will have the opportunity to bid for one of the additional 11 zones to be created.


Stephanie Udall Jane Mulholland


’I welcome the chancellor’s commitment to reduce corporation tax through the life of this Parliament and the renewed emphasis on promoting enterprise. Growth in the private sector is critical if we are to reduce the UK’s deficit. The package of measures announced in this Budget should help to make the UK a more attractive place for entrepreneurs to be based and to invest in growing businesses’


Stephanie Udall, senior tax partner


reduces the rate of capital gains tax paid by taxpayers on qualifying disposals to 10% (from a maximum rate of 28%) for certain disposals of business assets or shareholdings, is significant. The increase in the lifetime allowance from £5 million to £10m from April 6, 2011, means the relief will then be worth up to £1.8m compared to £900,000. Equally important, it was welcome news that there were no other changes to the rules or conditions relating to ER. Jane Mulholland, tax director at PwC, says: “We continue to urge shareholders of private companies to carefully review whether ER relief would be available on a future disposal of their shares. We have recently helped a number of companies restructure to maximise the number of minority shareholders expected to qualify for the relief on a future exit.“


There was also encouragement to help small companies raise


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – APRIL 2011


finance, with the chancellor proposing a significant boost to the Enterprise Investment Scheme (EIS), by increasing the tax relief available, and raising some of the size limits for qualifying companies. The rate of income tax relief given for EIS investments will increase from 20% to 30% from April 6, 2011.


Further, from April 6, 2012, the amount an individual can invest in an EIS company, being doubled from £500,000 to £1m, should be particularly helpful to companies raising funds from business angel investors. The revised qualifying conditions for the investee will bring more companies into the scope of the relief.


A further encouragement to investment in to the UK is the proposal in the Budget of the government’s intention to remove the tax charge on the remittances of non-domiciles where they are investing in the UK. However, we will have to wait until the detailed


The announcement of a consultation on the integration of income tax and NIC heralds a potentially radical change. Whilst the integration of these two regimes makes a great deal of sense and could potentially reduce business administration, we believe the complexities and issues that will have to be addressed will result in any amalgamation taking a number of years to implement.


There were no major announcements regarding VAT, which is not surprising given the numerous recent rate changes. However, the relaxation of the rules on business samples provides a welcome boost to businesses providing samples for marketing purposes. Furthermore, this change may provide scope for retrospective claims for overpaid VAT to be made. It should also be noted that buried in the detail of the announcements, the UK is to remove the VAT registration threshold for overseas businesses operating in the UK. Broadly, this means that any non-UK business will have to apply VAT as soon as it undertakes any operations in the UK, no matter how small. Whilst this change will add an additional burden to a number of businesses, it does bring the UK into line with the majority of other EU territories.


Details:


Stephanie Udall 023-8020-2210 stephanie.p.udall@uk.pwc.com


Jane Mulholland 023-8083-5072 jane.l.mulholland@uk.pwc.com


www.businessmag.co.uk


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