The Chancellor gave his fourth Budget speech on Wednesday to raucous reactions from both sides of the House. The deputy speaker had a rum time keeping control, seeming to relish the chance to use his best puns to excellent effect.
The first part of the speech was devoted to the economy. There were no enormous surprises. The Chancellor talked about slackening the rules on controlling inflation to stimulate the economy, but with no changes to his wider austerity policy. Underspend by government departments will be diverted to infrastructure projects.
The main headline is that the rate of corporation tax will reduce to 20% from 2015, at a cost of around £800m per annum to the Exchequer. The main rate will then be unified with the small profits rate, simplifying the system.
The Chancellor made something of the package of anti-avoidance measures announced. For corporates, the changes are very much a case of polishing. It would be easy to think that the domestic corporation tax system has serious challenges; however the fact that the anti-avoidance measures announced are so niche suggests that the system is actually working well overall. It’s also important to note that corporation tax raises around £40 billion per annum.
Beginning next month, companies claiming ‘large’ R&D tax relief will be entitled to payable cash credits equal to 10% of qualifying expenditure (up from 9.1%, making the scheme even more beneficial). The new measure will be particularly appealing to companies making losses, who didn’t benefit from the old super-deduction scheme.
The introduction of a £10,000 personal allowance from 6 April 2014 will reduce tax bills for 24 million taxpayers by £200 and take two million people out of the tax system altogether. The Government had previously announced an ambition to introduce a £10,000 personal allowance by the end of the current Parliament in 2015. It will cost £1bn per annum.
The Capital Gains Tax re-investment relief under the Seed Enterprise Investment Scheme (SEIS) was due to end on 5 April 2013. It has now extended such that 50% the amount invested in SEIS qualifying businesses can be used to offset gains arising in 2013/14 or 2014/15.
With regard to measures previously announced, it is confirmed that the new 'Annual Residential Property Tax' on properties worth more than £2m owned via 'Non-Natural Persons' (essentially companies) will proceed as planned from 1 April 2013.
The tax free limit that employers can provide tax free loans for employees has been doubled from £5,000 to £10,000. The limit had been £5,000 for many years so this is good news for employees who receive tax free loans from their employers for things like season tickets.
The Chancellor announced that all businesses will be exempt from the first £2,000 of employer’s national insurance. Around 450,000 small employers will no longer pay NIC at all, which should be a welcome boost to employment.