Lambert Chapman LLP’s Paul Short reviews the Emergency Budget

The Budget confirmed Harman’s 1984 aphorism  (that’s Chris Head of our Tax Services, not the acting leader of the opposition) that tough medicine is more palatable if we have been conditioned to expect even worse. 

 In fact a lot of the measures will not come into play until next year or the year after. 

 I can see that we may see consumer spending increase in an attempt to beat the VAT increase, although this urge may be constrained by concerns about future employment and income. 

The Budget emphasised the importance of the planning and taking advice early before taking action. 

Some immediate thoughts come to mind:

1.         I think that we will see the directors of our owner managed business clients having a pay increase of around £1,000 next year, in the light of the increase in the personal allowance threshold.  The uplift of the Employer’s National Insurance threshold may also prompt us to make an adjustment to salaries. 

2.         The Capital Gains Tax increase for higher rate taxpayers is certainly less than feared.  Many commentators expected a much larger increase than from 18% to 28%. 

It will still be handy to exchange contracts early in the tax year and then see whether other income can be depressed so as to keep the chargeable gain within the basic rate band.  That action could encompass extra pension fund contribution.  The maintenance of the annual allowance at the current level of £10,100 was also welcome to allay concerns. 

3.         The rise in the lifetime allowance for Entrepreneur’s Relief will be most welcome for business owners.  It will be crucial to make sure Entrepreneur’s Relief is protected, particular if a business owner is moving towards the time when he starts to groom the business for sale.

Where the business owner now lets a building to his company and charges rent to cover this interest, this policy may need review if Entrepreneur’s Relief is not to be jeopardised.

To put matters in context, Entrepreneur’s Relief in 2009/2010 was worth a maximum of £80,000 in terms of potential tax saving.  Now with the increase in the lifetime allowance, allied with the differential between the business rate and the higher rate for CGT purposes, the maximum amount of tax saved could be £900,000. 

One may need to look at restructuring of the finance to replace this personal debt with some corporate debt. 

For those businesses contemplating the acquisition of premises for their business, purchase through a self administered pension scheme or self insured personal pension now seems more attractive than ever. 

Action will all depend on the individual circumstances.  This is an area where I expect to be giving a lot of advice in the coming months. 

4.         I also feel for those businesses in sectors which are exempt for VAT purposes.  These businesses cannot recover the VAT that they suffer.  Accordingly the increase to 20% will be a blow.  Furthermore I am always puzzled why it is businesses in useful sectors which are penalised.  Take healthcare, for example.  One would think that businesses in this sector should be encouraged to help them provide services to the public such as nursing and residential homes.  There is no VAT on the fees charged but the increase in VAT, which cannot be recovered, will put pressure on these businesses.  They may therefore have to try and pass this cost on to their customer, which could be local authorities.  I would therefore like to see several sectors reclassified from exempt to zero rated.

Lambert Chapman LLP’s Nick Forsyth reviews the Emergency Budget

The speculation surrounding VAT, Capital Gains Tax and the Personal Allowance had highlighted that this budget would include lots of measures in an effort to reduce the deficit. In recent weeks lots of tax providers have been offering schemes to avoid capital gains tax at the new higher rates and some of these will include paying tax now.

Will the individuals signing up be happy with the gamble they took. If it was a business asset the increase of Entrepreneurs Relief from £2 million to £5 million may have caused them consternation. This had only been increased to £2 million in the last budget and we had wondered whether it might go backwards to the previous £1 million. Certainly the increase to 28% for those in higher rates is milder than had been predicted yet sufficient not to deter foreign investors.

I can only think that this is the motivation behind the decrease in corporation tax rates. With a record deficit a reduction in corporation tax was the last thing I expected but the new Government firmly believes that that encouraging business is the most positive measure to encourage investment and create profits.

The Banking levy may prove to be an important measure but it could only work with the cooperation of our major European partners and it is understood that France and Germany will reciprocate and this will ensure its success.

The increase in the VAT rate was not unexpected and I appreciate that it is not something that can be done overnight but surely a 6 month delay allows massive spending at the current rate and risks a fall over the cliff on non essential goods for a period from 4 January 2011. The retailers who will be effected most will undoubtedly welcome the delay and an opportunity of strong pre Christmas sales and some form of war chest.

On top of this the freezing of public sector pay and reduction of benefits as time passes will bring money back into the pot. Will it be successful? Only time will tell but it cannot be any worse than continuing down a well trodden road with apparently no idea at all!

Lambert Chapman LLP’s Lisa Potter reviews the Emergency Budget

“Tough but Fair” were the comments that struck a chord with me whilst I was listening to the introduction speech made in the emergency budget by George Osborne.  After listening for 20 minutes of what could only be described as pointing the finger at the inadequacies of their predecessors and how shocked the new government were at how bad the position really was, a thought crossed my mind.  

Is the country’s financial affairs only privy to the current government in power? If so, why? Surely it is in the public interest that these figures are disclosed at least to other parties in government which is no less than that expected of private and public limited companies already.  If they are available then the rantings of the current chancellor were simply for drama and effect and served no purpose other than to build up to the main event, as they have done for the last month, a hard hitting budget.  

I unfortunately missed the main content of the budget until I heard the 3pm news on Radio 4 who simply announced that VAT was to increase to 20% and no other comments made - this was no surprise to me and a predictable course of action and then led me to believe that maybe the budget wasn’t that bad after all.    Returning to the office and searching the internet this appeared not to be case and many changes have been introduced some good and some bad and luckily many still in the future rather than immediate.   

Starting on a positive note lifetime allowance for capital gains tax on business assets to increase to £5m from £2m (not appreciated by the man on the street but great for entrepreneurs).  Sadly this has been compensated by the increase from 18% to 28% of capital gains tax on non-business assets whilst not as high as initially anticipated a large enough increase for those that have built up small property portfolios for their future pensions.   

Good news for smaller and larger companies as corporation tax rates are reduced to 20% and over three years 24% respectively, this should hopefully encourage UK trade and investment into the UK.    National insurance thresholds for employers set to increase by inflation and £21 per week, excellent news for employers who already suffer as a result of ever increasing employment costs elsewhere.   The basic rate tax allowance was increased by £1,000 for April, a shock given the press regarding the £10,000 limit constantly mentioned, higher rate at 50% looks set to stay and no movement on the removal of personal allowances for higher earners.   

Benefits in general have received an overhaul and hopefully one that will stop people from stealing from the system and those that genuinely have a need are rewarded. It is so disappointing when perspective employees weigh up working and earning a wage against their loss in tax credits, a system that has been unfair for many years.  

No one should be surprised at the levels taken in this budget as they were needed to allow our country to recover, might one say that maybe they could have been tougher and maybe more is to come.    Whilst our general cost of living will be increasing in January (though not until 4th January to allow us all to take part in the christmas and new year spends) at least we can continue to drown our sorrows as alcohol received a reprive from the tax hikes previously suggested.