UK Businesses To Benefit In Pre-Budget Report

by Jason Gorringe, Tax-News.com, London

13 November 2001

Britain's Chancellor, Gordon Brown, will deliver his pre-Budget report to Parliament on November 27th, and is expected to trail key business-friendly measures in a speech this Thursday to the Institute of Directors.

The biggest item for business is likely to be the tax credit for research and development, which will enlarge and replace an existing credit available only to small businesses. But it is far from clear how the relief will be structured. The CBI, Britain's leading business grouping, says that the credit should apply to all R & D spending: "It has to be simple and clear, and large enough to be worth claiming," said a spokesman, "An incremental tax credit paid only on additional spending would be very difficult."

Incremental tax credits are notoriously difficult to administer and prone to abuse, at a time when all parties are calling for simplification of the tax system. On the other hand, a worthwhile credit applying to all spending would be very expensive, and Gordon Brown is in no position to give away large amounts of tax. It's not expected that the design of the credit will be revealed this year - companies will probably have to wait until March to learn how they will be affected, which in practice means a year lost in terms of new spending plans.

A tax credit for training is even further away from delivery. The Treasury is keen in principle, but is still unsure of how to get the design right, especially after the fiasco of individual learning accounts. Businesses also disagree over whether basic or more advanced skills should receive the most support.

Other measures likely to be included in more detailed form are the community investment tax credit, to subsidise investors in run-down areas, a steeper "taper" in the capital gains tax rate, so it falls to just 10 per cent after only two years in the case of business assets, and a new simpler system of value added tax administration for small businesses. There is also likely to be some targeted help for the businesses that have suffered most this year: manufacturers and those in rural areas.

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