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Comments on the 2007 Budget
Gordon Brown seems to be a compulsive fiddler for whom the phrase “If it ain’t broke don’t fix it” could have been invented. One has a vision of him as a small boy in the sitting-room of the manse on a wet Sunday afternoon with the wireless in pieces around him: “I only wanted to see how it worked…”
The good news for many clients in the SME sector is that there is little in the taxation provisions of this year’s budget that is likely to make very much difference one way or the other to the amount of tax that they will pay in coming years. Of course, there are winners and losers at the margins but by and large it is likely that the changes wrought by Gordon Brown will be overshadowed by things of much greater economic import for many of them - things like the threatened introduction of a new top rate of Council tax; or increases in university tuition fees; or inflation-busting increases in transport costs.
That said, there are many changes adding to the complexity of the tax system, which can never be a good thing: anything that adds complexity inevitably adds to compliance costs.
The message for small companies is rather confused. There is the promise of enhanced capital allowances with the introduction of an “Investment Allowance” on expenditure of up to £50,000 (details are yet to be disclosed); but other capital allowances will be reduced, and the headline rate of tax for small companies (currently 19%) increases to 20% from 1 April 2007, to 21% from 2008 and to 22% from 2009. On the other hand the “marginal rate” and the main rate both come down.
On the personal tax side, the starting rate of tax of 10% has been abolished (apart, bizarrely, for savings income and Capital Gains Tax – presumably it would have been too simple to abolish it altogether) partly, it would seem, to fund a cut in the basic rate from 22% to 20% (from 6 April 2008). But this cut is itself largely counteracted by the raising of the NIC Upper Earnings Limit (for employees) and Upper Profits Limit (for the self-employed). This is phased in from 6 April 2008 and it significantly extends the band of income on which NIC is payable by employees (at 11%) or the self-employed (at 8%). Set against that, 2% off the basic rate looks mean. The idea that NIC is anything other than an extra tax on earnings is getting more and more difficult to swallow every year. What’s worse, this increase is billed in the Press Notice as “offering more support for work, families and pensioners”!
Individuals owning their overseas holiday property through the medium of a company established for the purpose (a common structure in some jurisdictions) will be glad to know that an anomaly that could have resulted in an unexpected Income Tax charge is to be removed with retrospective effect. They will be less impressed that they will have to wait until 2010 for the full increase in the IHT nil rate band (to £350,000) to take effect.
Changes to self-assessment tax return filing dates are to be brought in as proposed by Lord Carter. Starting with the 2007/8 return, paper returns will have to be filed by 31 October; the existing 31 January date will remain for internet filing. Fine if you are a part of the Brave New World of the New Labour online community: less so if you are a grumpy old luddite with no wish for an internet connection or a customer of talktalk still waiting for one…
Finally, Industrial Buildings Allowance is to be phased out as an “outdated and unjustified distortion”. Will the last manufacturer to leave the UK please remember to turn out the lights?
