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BUDGET – a 360o view with a little hindsight

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Leading tax advisers from UK200Group firm Knill James dig deeper into last month's Budget

Keen newspaper readers might be forgiven for thinking all of the wheels have come off the Chancellor’s last Budget, but the dust is now setting. It’s the lower-key changes, the ones that often have a sting in the tail, that are going to be exercising the brains of professional accountants in the months ahead.

Like many UK200Group members, Knill James has the ability to look at the changes from every angle: corporate tax, personal tax and the complexities of VAT.

Here’s a roundup from their senior tax managers:

Mike Chapman, Senior Manager, Corporate Tax:

“The Government continues to seek UK inward investment and the announcement of a reduction of the headline corporation tax rate to 17 per cent from 1 April 2020 makes the country an even more attractive location for overseas subsidiaries or multinational headquarters, with easily the lowest corporate income tax rate of the G20 economies. Even the proposal to accelerate the timing of corporation tax for larger companies, those with taxable profits in excess of £20million, has been put back by 2 years to April 2019.

“The Chancellor has also been listening to lobbying by smaller businesses with far-reaching reforms to business rates that are likely to cut the rates burden in England by £6.7billion over the next 5 years. Less welcome to owner-managers of small companies was the announcement of an increase in the rate of tax on close company loans from 6 April. The rise from 25 per cent to 32.5 per cent mirrors the increase in dividend tax rates announced in the summer 2015 Budget.

“Though presented as a benefit to business, the changes to the Stamp Duty Land Tax (SDLT) regime on the purchase of commercial property have a nasty sting in the tail with the top rate of SDLT actually increasing from 4 per cent to 5 per cent.”

Lorna Sizer, Senior Manager Personal Tax:

“This year’s Budget spells good news for the self-employed and entrepreneurs but bad news, once again, for private landlords.

“Confirmation of the abolition of the Class 2 National Insurance contributions paid by the self-employed will be welcomed by the huge number of self-employed workers across Sussex.

“The Government has made a partial U-turn to reinstate the Entrepreneurs Relief tax rate of 10 per cent on the value of goodwill transferred on the incorporation of a business or partnership but only in particular circumstances. This change is to be backdated to 3 December 2014, the date on which the relief was withdrawn but is not going to benefit all business owners.

“Entrepreneurs Relief is also being extended to external investors in trading companies by withdrawing the need to be an employee or director of the company, but only in respect of shares issued from 17 March 2016 and the qualifying period will be extended from the normal 12 months to three years. This change is most welcome and will provide another form of tax saving alongside the tax relief for investors under the Enterprise Investment Scheme where the share ownership is restricted to 30 per cent.

“The reduction of the capital gains tax rates is also good news with the rate of tax falling from 28 per cent to 20 per cent for higher rate taxpayers and nearly halving for basic rate taxpayers, down from 18 per cent to 10 per cent. However, these lower tax rates will not apply to capital gains tax on sale of residential properties so once again hitting the private landlord.”

Alison Sampson, Senior VAT Advisor:

“Although UK businesses will welcome the Budget announcement that will allow HMRC to target overseas businesses and online marketplaces who do not comply with their VAT obligations, there will be those who doubt it will work.

“HMRC does not have a particularly good record in ensuring compliance by businesses who have a presence in the UK, so what chance do they stand with businesses that don’t even have a UK establishment?

The level of potential lost revenue is very difficult to quantify, and there will be thousands of suppliers trading in this way. With terms like discretionary powers and HMRC will attempt to secure compliance contained in the Budget release, this does not instil much confidence!”


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