UK Budget Contains No Nasty Surprises

by Jason Gorringe, Tax-News.com, London

11 April 2003

UK Chancellor Gordon Brown announced no major changes to taxation levels in his seventh budget speech to parliament this week, although he was forced to cut his economic growth estimates and increase borrowing to plug a growing fiscal gap.

The Chancellor has been obliged to revise his growth forecast for 2003 to 2%-2.5%, down from his earlier prediction of growth at 2.5%-3%. As a consequence, the government will be borrowing £27 billion this year, £3 billion more than Brown's previous estimate.

On taxation, there was little new to report, with corporate, income and capital gains taxes all frozen for the coming year and only moderate rises in 'sin' taxes. The Inheritance Tax threshold has been increased slightly from £250,000 to 255,000, and personal income tax margins have been raised in line with inflation.

There was some good news on the business front, with 100% tax relief on IT purchases for small and medium sized enterprises extended for another year, and a 40% allowance on purchases of plant and machinery. Companies investing in R&D projects will also benefit from certain changes, including a lowering of the minimum spend threshold to £10,000 before R&D tax credits can be applied for. Additionally, firms will be able to include the costs of cutting edge software which very quickly becomes obsolete. Brown also announced a widening of the scope of R&D tax credits to include more SMEs within its provisions.

The Chancellor announced a much more proactive stance against tax fraud, and set aside £66 million to tighten enforcement. It is hoped this will bring in an extra £1.6 billion in tax revenues over the next three years.

Much of the new resources will be aimed at preventing the non-payment of capital gains tax by using complex transactions through offshore accounts, as well as uncovering illegal undeclared income and profits placed offshore.

Other measures in this tough new initiative include preventing avoidance of tax through payment of share-based remuneration to employees and clamping down on non-payment of income tax, corporate tax and national insurance.

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