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UK Budget Supports Businesses To Deliver Growth

by Amanda Banks, Tax-News.com, London

21 March 2014


UK Chancellor George Osborne has announced extended tax breaks and lower energy costs for businesses, as well as measures that include a continued freeze on fuel duty and the reform of air passenger duty.

Delivering his fifth budget, Osborne said that the Research and Development tax credit for loss-making small businesses would be raised from 11 percent to 14.5 percent, that the Seed Enterprise Investment Scheme for start-ups would be made permanent, and that social enterprises would be eligible for Social Investment Tax Relief at 30 percent. Further, the GBP250,000 (USD413,025) Annual Investment Allowance, which was due to expire at the end of 2014, is to be extended to the end of 2015, and doubled to GBP500,000 from April this year.

Obsorne said that enterprise zones with business rates discounts and enhanced capital allowances were "flourishing," and confirmed that these would be extended for a further three years. He said a new zone would be established near Coleraine, Northern Ireland.

The Chancellor further described a GBP7bn package to cut energy bills for UK manufacturers, noting that energy costs to business in the UK are double those in the United States. He unveiled a cap on the Carbon Price Support rate at GBP18 per ton of CO2 from 2016-17 for the rest of the decade, an extension of the existing compensation scheme for energy-intensive industries for a further four years, to 2019-20, new compensation to protect these manufacturers from the rising costs of the Renewable Obligation and Feed-In Tariffs, and the exemption of electricity from combined heat and power plants from the carbon price floor.

Other energy-related measures for business include a reduction of fuel duty on methanol, and an increased discount for ultra-low emission vehicles. However, a 2 percent increase on the company car tax will be extended in 2017-18 and the following year.

Osborne sought to address the Air Passenger Duty regime, which he identified "creates a sense of injustice" among Caribbean and South Asian communities in the UK. He explained that from next year, all long haul flights will be taxed at the Band B tax rate now paid to fly to the United States, and confirmed the taxation of business jet flights.

Osborne's budget freezes duty on spirits, cuts the duty on beer nominally, and freezes duty for "ordinary cider," in recognition of the effect of recent floods on the West Country cider industry. On gambling, bingo duty is to be halved to 10 percent "to protect jobs and protect communities," and Osborne said that the Government would consider reforming the horserace betting levy to support the industry. However, duty on fixed-odds betting terminals is to be raised to 25 percent, and he confirmed that the horserace betting levy is to be paid by bookmakers based offshore on a place of consumption basis. Tobacco duty will continue to rise at 2 percent above inflation. A planned fuel duty increase for September has now been put on hold.

Osborne also confirmed that the European Commission had approved the extension of the UK's film tax credit, and said that the same approach would now be used to grant 20 percent tax relief for qualifying theater productions, and 25 percent for regional touring.

The tax on residential properties acquired by businesses worth over GBP2m will be expanded to properties worth more than GBP500,000. This will impact house buyers seeking anonymity by purchasing houses in the name of a company, and also support anti-tax avoidance efforts.

The budget also includes changes to personal tax. As anticipated, the personal tax-exempt allowance will rise in 2015 to GBP10,500, but Osborne resisted recent calls from within the Conservative Party to raise the threshold for the highest rate from GBP41,450 to GBP44,000. Instead, the threshold will rise to GBP41,865 next month, and then to GBP42,285 next year. Other changes include moving Class 2 National Insurance Contributions into self-assessment, abolishing what Osborne called a "wholly unnecessary bureaucracy." A new exemption from inheritance tax is to be introduced for members of the emergency services who give their lives during the course of their duties.

On savings and pensions, from July 1, tax-free Individual Savings Accounts (ISAs) will be restructured, merging the cash ISAs and stocks ISAs elements into a single ISA with an annual limit of GBP15,000. The pension system will be significantly reformed. Pensioners will now be allowed to take a lump sum cash amount, which will subject to income tax, and will no longer be required to invest in annuities. Osborne said this would allow pensioners "to draw down as much or as little of their pension pot as they want, anytime they want."

He also said that HM Revenue and Customs (HMRC) would be given new powers to collect debts directly from bank accounts.

Citing independent figures from the Office of Budget Responsibility (OBR), Osborne noted that the body had revised its growth forecast for 2014 from 1.8 percent of gross domestic product (GDP) a year ago, and 2.4 percent in the autumn, to 2.7 percent today. He added that the OBR beliefs that there will be a surplus of 0.2 percent by 2018-19, and that debt reduction will save the UK GBP47bn in interest payments.

Commenting on the budget's impact on the UK's financial services industry, Sandy Bhogal, Head of Tax at Mayer Brown International, said:

"[There's] not a huge amount for the business community to get excited about. A number of previously announced measures affecting the asset management industry and the banks meant that, as has been the case in recent years, the financial services sector has something to like and complain about. The pensions changes were a much trumpeted part of the package and look distinctly like a political ploy designed to bring the middle classes back to the Government in time for the next election."

"However, perhaps the most interesting thing to note is the differing results that can arise from the process introduced in recent years as regards consulting on new legislation. A number of the proposed changes to the loan relationships and derivatives rules, which were timetabled by HMRC for 2014, have been put back to 2015 after the potential complications of the process became clear during the initial round of consultations."

"This is an excellent example of HMRC cooperating with, and listening to, the business community and the result is a more appropriate timetable to consider changes to this important area."

"Compare that to the new rules on limited liability partnerships with so called "disguised employees" and/or corporate members. What started as an attempt to deal with specifically identified issues has now evolved into a revenue raising measure which captures far more businesses than originally envisaged, and even prompted the House of Lords to scold HMRC, and which will likely raise nowhere near as much tax as HMRC expect."

TAGS: inheritance tax | environment | tax | air passenger duty (APD) | property tax | tax avoidance | gambling tax | law | budget | corporation tax | United Kingdom | tax thresholds | environmental tax | tax credits | excise duty | gambling | stamp duty | HM Revenue and Customs (HMRC) | tax breaks | revenue statistics | HM Revenue and Customs (HMRC) | individual income tax

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