Tina Riches, national tax partner at Smith & Williamson, the accountancy and investment management group.

Budget boost for business taxes with clampdown on tax avoidance

There were positive messages for corporates with the pledge to further decrease the main rate of corporation tax and increase the proposed level of annual investment allowance. 

However, the Chancellor has sent a clear message on tax evasion and avoidance with further resources being added to enhance treasury receipts by attacking such practices.
Some of the headline announcements and initial reactions include:

Reductions in corporation tax

  • Reductions to the headline main rate of corporation tax from the current 20% to 19% from 1 April 2017 and 18% by 1 April 2020 will be good news for profitable companies able to benefit from lower tax liabilities, which should assist UK business growth and help to attract overseas inbound business.

Certainty of Annual Investment allowance

  • In a welcome departure from yo-yo changes to the rate of the Annual Investment Allowance, the current allowance of £500,000pa, which was due to reduce to £25,000 from 1 January 2016 has been changed to £200,000pa on a permanent basis. This should give confidence to corporates allowing them to commit to a greater level of capital expenditure over the coming years, encouraging investment and growth.

Accelerated corporation tax payments

  • The Chancellor's plans to accelerate the date corporation tax payments are due where profits exceed £20m for periods starting after 1 April 2017, will help boost the rate of cash flowing into the exchequer. The mirror image is an adverse impact on cashflow for larger corporates who will need to monitor their cashflow forecasts more carefully.

Radical changes to the dividend regime

  • The proposed radical change to the dividend regime, due from 1 April 2016 to provide a tax free allowance of £5,000pa and less favourable tax rates of up to 38.1% for higher rate taxpayers, is likely to have a significant impact on tax-incentivised incorporation of businesses. The system, designed in tandem with the reduction in corporation tax rates, will lead to a more level playing field between business owners irrespective of the vehicle they trade through.

Tax compliance in the headlights

The Government's pledge to provide further resources and powers to combat tax evasion, avoidance and aggressive tax planning will reaffirm messages that companies of all sizes need to take great care with their tax compliance so as not to fall foul of HMRC's new powers.

Minds will need to be focused on good compliance, notably, due to a new requirement for greater transparency of tax strategies for ‘large' businesses, tough new penalties for invoking the General Anti-Abuse Rules and the naming and shaming of serial users of failed tax avoidance schemes. 

 

Mike Kelly, head of Living Wage at KPMG 

"The new compulsory National Living Wage is very welcome news for the more than two million of the working poor who will get a significant pay rise. Enshrining the Living Wage in regulation is a brave move and by 2020 the National Living Wage will reach 60 per cent of median earnings.

"For employers who are concerned at whether the increased payroll costs will be fully offset by reduced corporation tax and national insurance contributions, our experience has seen lower absence, increased productivity and a more engaged workforce."

Kathy McArdle, CEO of Nottingham's Creative Quarter, the city's flagship project for enterprise and economic growth.

"The Chancellor was correct that the drive must be to increase productivity and create an environment where innovation, investment and employment are the priority. Cutting corporation tax to 18% will be a welcome boost for small businesses, giving them confidence to grow and invest in their own futures. The announcement of a National Living Wage of £9/hour along with the commitment to 3m more apprenticeships will also hopefully go a long way to creating valuable, long-term jobs across the country.

I was pleased to see a continued focus on the Northern Powerhouse but with a real commitment to more devolution deals across the country. If there's going to be a genuine shift in economic growth towards a balanced economy then there must be a serious path to devolution for the regions and core cities outside the north.

I welcome the Chancellor's commitment to building up enterprise zones throughout the country along with the power for counties and newly elected mayors to set their own Sunday trading hours. However, he must match this with a commitment to railway electrification to reassure people that this is not just a political slogan."

 Chris Bryce  CEO of the IPSE, the Association of Independent Professionals and the Self-Employed 
"Reducing the UK's budget deficit through a low tax agenda is the right way forward, however IPSE is concerned that legitimate businesses may be unfairly targeted by the Chancellor's efforts to tackle tax avoidance."
Tax avoidance

"The Chancellor is absolutely right to target aggressive tax avoidance and evasion. However, focusing on personal services companies risks many self-employed people being unfairly hit if they are confused with people abusing the system.
"The Government's consultation provides an opportunity to separate the abusers from legitimate small businesses and we will engage robustly with Government to ensure freelancers and contractors are not unfairly targeted."
"We need a simple tax system, so people working for themselves can understand their obligations and pay what is owed. Lowering Corporation Tax moves this agenda on and we look forward to further progress being made in this area.
"The Chancellor said 85% of those who receive dividends will see no change or will be better off. IPSE will carefully examine this and advise our members on how they will be impacted. Amending Class 4 NICs was expected and IPSE will monitor their impact on freelancers and the wider self-employed community."
Motoring costs

"If you're a freelancer that can mean a lot of travel to meet clients in different parts of the UK. Continuing the freeze on the fuel duty escalator will help to keep these costs in check. However, those who need to purchase a car may be put off from buying a new model due to the extra costs involved."

Mark Tighe, managing director of capital allowances specialists Catax Solutions, 

"The Chancellor has shown he is committed to helping businesses grow, however, he has fallen short in his promises to support SMEs when it comes to raising the annual investment allowance.

"With the cap set to fall back to £25,000 at the end of the year, numerous business leaders have already recommended the allowance to be set above the current level of £500,000 - but the Tories haven't listened.

"The Chancellor's apparent 'laser-like focus' on productivity is somewhat misguided and it is now crucial Mr Osborne re-evaluates the way in which he intends to help SMEs continue to spend and grow.

"SMEs have been star performers in the UK economy in recent months and they deserve greater support, as pledged ahead of the election in May."

Jamie Morrison, private client partner at the chartered accountants HW Fisher & Company

"Seldom have Labour electoral pledges morphed so seamlessly into Conservative government policy.

"The promises carved into Ed Miliband's ill-fated tablet of stone might have been consigned to the scrapheap, but his plans to introduce a Living Wage and hammer the non-doms have been reborn as a cornerstone of this all-Tory Budget.

"Despite extolling the benefits - or rather cash - that non-doms bring to the national coffers, the Chancellor is squeezing them harder than they have been for decades.

"But his plan to raise an additional £1.5billion by abolishing the permanent non-dom status and restricting non-dom eligibility risks driving some of the global wealthy away.

"But the slashed levels of Corporation Tax show that Britain really is open for business - as a corporate tax haven."