In Summary – Our view
It is hoped the measures to help home owners, coupled with the funding for lending scheme and relaxed planning system, will boost the construction industry without direct tax stimulus. In the end, the success or failure of this will probably dictate whether the industry and its various associated businesses receive the boost they need in the current flat economy.
Calls for infrastructure spending appear to have been dismissed as too long term to give the economy a much needed lift now, with the £3bn per annum extra spend announced not starting until 2015-16.
A 20% flat rate of corporation tax is welcomed and should encourage international business to locate in the UK when investing in Europe. It also simplifies the corporate tax system and will allow large business to retain and invest more of their profits. A process further encouraged by the increased annual investment allowance already announced and extended.
The smallest SMEs will welcome the £2k NI refund. We doubt it will be enough to boost major job creation in these companies but, it effectively injects a significant cash sum into the economy directly aimed at the SME “engine-room.”
The share scheme plan is unlikely to have much of an impact and the lack of support for savings, and pensions in particular, once again defers the ticking time bomb of how we will support an ageing population.
We welcome the principle of child care support for those wanting to return to work parents unable to “make it pay” and earn sufficient to cover their care costs. This, along with housing benefit rules, are seen by many would-be employers as a major stumbling block in attracting suitably qualified people back into work.
Not imposing the fuel duty rise will be welcomed by business but exactly how much impact this will have given the seemingly never-ending inflation in fuel costs is doubtful. In fact, less publicised measures to give tax incentives for the manufacture of ultra-low emission vehicles might actually have a longer term benefit.
Pubs will welcome the beer duty cut but, in the wake of scrapping minimum alcohol pricing, we doubt it will make much difference in the war of competing with low cost alcohol sold by supermarkets.
Home owner mortgage support
There will be a new help-to-buy scheme for those struggling to find mortgage deposits. This includes £3.5bn earmarked for shared equity loans and a government interest-free loan worth 20% of the value of a newly-built home.
There will also be a mortgage guarantee scheme, sufficient for £130bn of loans, to help people who can’t raise a large deposit.
Employment Allowance: £2k NIC subsidy
From April 2014 employers will receive a £2,000 per annum subsidy against national insurance payments.
On the face of it this looks like a very useful relief and, with 450,000 small businesses currently making national insurance contributions at a level per annum lower than £2,000 this should mean almost 1/3 of all businesses will pay no NIC at all.
We understand this subsidy will be delivered through the standard payroll system and, if not overly complicated, this should be good news for small business in particular.
It may also impact on small business remuneration policies and the dividend v bonus calculation faced by many owner managers.
Whether it will actually help create new jobs, as the government hopes, or just help business to balance the books remains to be seen.
Corporation Tax – flat rate 20%
In April 2015, the main rate of corporation tax will be reduced to 20% and, in the process, be aligned with the small profits rate. This will give the country a single flat rate of corporation tax for the first time since 1973.
The benefit will be limited for many SMEs as those currently making profits of £300k or less will already be paying tax at this rate but for more profitable companies this will see a continued reduction in their corporation tax burden which, by 2015, will have fallen 8% in just 5 years.
The alignment will also mean a significant simplification in the business tax computation – good news for accountants!
Tax avoidance regulation
The government has confirmed it will introduce a general anti-abuse rule (GAAR) from July 2013 as well as new rules to restrict personal service companies.
“There will be new rules to stop intermediaries avoiding paying tax” The Chancellor announced “We are introducing the first GAAR rule and will name and shame those who promote those schemes”
This continues the trend to clamp down on high profile tax mitigation cases among the likes of BBC staff, celebrities and sportsmen with, generally, a good deal of public support for this sort of measure in austere times.
Whether it will be successful in stopping the schemes it is aimed at or becomes overly complicated or catch genuine schemes set up to fulfil government objectives to promote industry, in the likes of enterprise zones, film and carbon reduction, we suspect will be an ongoing saga.
Employee Share Ownership
The long muted scheme to give employees a stake in their business has been put back to September 2013. The scheme will allow employee shareholders to be exempt from capital gains on up to £50k of shares – with the first £2k free, completely from income tax and NIC.
In return employees will forfeit some of their employee rights.
Infrastructure plans will be boosted by £3bn a year from 2015-2016. This is paid for by savings in other non-capital spending.
The already announced, flat rate pension of £144 per week will now be brought forward to 2016 (from 2017). The annual contribution cap into private pensions proposed from April 2013 remains at £40,000 with the total pension pot cap at £1.25m
Fuel and Beer Duty
The planned 3p rise in fuel duty expected in September 2013 will be scrapped. The planned 3p rise in beer duty will, instead, be replaced by a 1p cut.
Tax-free childcare vouchers will be introduced worth £1,200 per child for families with both parents working but earning £300k per annum or less.