Budget 2012: How does it affect you?Follow @PwC_Wales
Below is a summary on the main measures announced in the UK Budget 2012. We provide more information on our UK site on personal tax, attracting business, residential property, anti-avoidance and other measures. You can also watch a recorded version of a live discussion of PwC specialists discussing the main Budget changes.
If you would like to find out more about how this Budget affects you or your company, please get in touch with me.
Email: Tracey Bentham
Tel: + 44 (0) 117 928 1194
Overall this Budget has some good headline measures that will support business and growth. But there’s definitely unfinished business on the detail of the tax system. In the build up to Budget 2012, the Chancellor said this would be a ‘Budget for workers’. This was demonstrated by the increase of the personal allowance to £9,205 and the reduction in the top rate of tax to 45p.
The Chancellor was clear that there would be no giveaways in the Budget so there were some areas designed to raise revenues, most notably the changes made to stamp duty land tax, the 25% cap on income tax reliefs and an increased focus on anti-avoidance.
Making the UK more attractive to business
Corporate tax reform has been central to the Chancellor’s goal of making the UK the most attractive place in the G20 to do business. The move to lower the headline tax rate down a further 1% to 22% by 2014 could have considerable benefits for UK plc. This, coupled with the reform of the controlled foreign companies (CFC) regime, will do much to change perceptions and improve confidence. Our Paying Taxes report, released in October 2011, shows that the UK is currently ranked 18th amongst the 183 countries covered. This latest reduction in the CT rate (to 24% from April 2012) is a further step in the right direction.
The reduction in the headline 50% personal tax rate to 45% is also helpful for multinationals looking at the UK as a location for increased investment – but this wasn’t a giveaway for higher earners with the Chancellor’s new form of ‘alternative minimum tax’ introducing a new principle that reliefs will be restricted to 25% of income (or £50,000 if higher).
Business will want this to be a signal that the headline rate is on its way down and that the Chancellor will continue to focus on looking at the comparison with other G20 countries, given that an effective 47% rate (with uncapped NIC) is still relatively high.
The UK’s reputation for technological and industrial innovation has also been at the forefront of thinking by the Government. The efforts made to improve the effectiveness of the research and development (R&D) tax credit have been central to this, as well as the new tax-advantaged regime for patents. By offering better incentives to companies that invest in R&D, British industry should find itself in a much more competitive position in the global marketplace. And global companies looking to invest in R&D facilities overseas will find the UK a much more attractive place to set up their operations.
A focus on fairness
One of the Chancellor’s aims was that all taxpayers pay the right amount of tax.
The introduction of a general anti-abuse rule (GAAR) was recommended by Graham Aaronson QC in his initial report back in 2011 and has been confirmed today. There will be further consultation on the detail before a GAAR comes into force, which is crucial in terms of limiting uncertainty for normal business transactions.
The measures around stamp duty land tax that were announced were equally bold – their aim being to stop people buying properties through a company to avoid paying the full duty. The introduction of a 7% rate for all purchases of properties valued at over £2m is another measure aimed at increasing tax revenues.
The Chancellor made encouraging noises about reform of the tax system but the Budget itself had a more short-term focus. To simplify and streamline the UK tax system is not an easy challenge and continual efforts will be needed.
If you would like to discuss how any of the changes announced will affect you, your company’s tax strategy or your business more widely then please get in touch with me or your usual PwC contact.