A selection of views from tax experts, in no particular order, on the Budget 2011 proposals
A good Budget for business ... unless you’re a bank or oil company: ‘Overall, it’s a remarkably positive Budget unless you’re an oil company or a bank. However, there’s even a small silver lining for oil companies in that, perhaps counter intuitively, the higher effective tax rate may actually make exploration projects more viable.’
Bill Dodwell, Head of Tax Policy at Deloitte
A glittering array of sound bites: ‘In his second Budget the Chancellor delivered a glittering array of sound bites. He handed out a veritable sweet shop of goodies to all but the banks and oil companies who got the salt toffee!’
Chris Sanger, Global Head of Tax Policy, Ernst & Young
‘This was a "no surprise" Budget which shocked the nation with its positive tone … The Chancellor has stuck to the direction of travel clearly marked out in June last year and it’s reassuring to see that he hasn’t diverted from it.’
Andrew Hubbard, National Tax Policy Director, RSM Tenon
Net impact of the Budget on economic growth is unlikely to be large: ‘The Budget itself was broadly fiscally neutral, which was prudent given the high budget deficit and the uncertain world economic outlook. Given this broad neutrality, the net impact of the Budget on economic growth is unlikely to be large.’
John Hawksworth, Chief Economist, PwC
New schedule for future Finance Acts: ‘The government plans to change the timetable for the annual Finance Act. Currently the Finance Bill is published shortly after the Budget which takes place in the spring. (This year the Bill is scheduled to be published on 31 March). The proposal for the future is to retain a spring Budget for policy announcements, draft Finance Bill clauses will not be published for comment until late summer, and the Bill itself in the autumn. The Finance Act would then be published at the end of the calendar year and become effective the following spring.’
Damien Crossley and Ashley Greenbank, Macfarlanes
‘A statutory residence test will only bring clarity if it is easy to operate in practice. A simple day count test would be most appropriate as visitors to the UK could then easily determine when they were subject to UK taxation.’
Greg Limb, Partner, KPMG
Not what SMEs really need?: 'The increase in income tax relief on the Enterprise Investment Scheme from 20% to 30% next month and other improvements to the scheme could prove to be significant, but largely the measures announced do little to provide the kick-start that is needed – what SMEs really need is access to cash.’
Lisa Macpherson, National Tax Director, PKF
Bank levy – four different rates in force this year: ‘Given the government's objectives of enhancing the competitiveness of the UK tax system and for the City of London to remain a world leading financial centre, it is somewhat surprising that the Chancellor felt it necessary to offset the benefits of the corporate tax rate reduction to the banking sector with an increase in the bank levy. The tinkering with the rate of the bank levy has also resulted in four different rates being in force during the course of this year and next which is representative of the complexity of tax rules the sector now faces.’
Matthew Barling, Banking Tax Partner, PwC
‘The problem with the short life asset rules is that they require careful record keeping. Extending the period covered by this concession is attractive on the surface but only works for businesses that keep additional, more detailed records – for up to eight years. This sounds more like complexity in a budget notable for its moves on simplification. It would have been far better to improve the annual investment allowance limit which is due to be cut significantly next year.’
John Whiting, CIOT Tax Policy Director
Nifty footwork on non-doms: ‘The Chancellor has shown some nifty footwork in relation to the taxation of non-UK domiciliaries. The increase for long term resident non-doms to £50,000 of levy is unlikely to have a significant behaviour impact. What is more interesting is the ability to repatriate foreign income and gains without a UK tax charge if such amounts are invested in British business. That may encourage an inflow of funds but the devil will be in the detail and in particular whether this would avoid falling foul of any EU discrimination laws.’
Richard Palmer, Tax Partner, Ashurst
Removing cash-flow advantages for users of avoidance schemes: ‘[The] Budget announcement included the intention to remove cash flow advantages from users of avoidance schemes who do not have to pay the tax or interest accruing while their appeal is going through the Tax Tribunals and the Courts… Users of such schemes will be left in no doubt that they will not be better off by dragging out the appeal process.’
Paul Roberts, Head of Tax Investigations, Grant Thornton
‘This is a Budget full of consultation and light on hard and fast facts - even the seemingly most innovative ideas such as the merger of NI and income tax contributions are part of a long consultation process and will probably never see the light of day … The Chancellor has failed to deliver a budget for SMEs; his pledge to reduce the tax code guidance by 100 pages is laughable in comparison with the 172 page press release that has been issued on it.’
Andrew Shaw, National Tax Managing Partner, BTG Tax
The Chancellor hasn’t followed the logic of his own thinking: ‘The Chancellor is right that low tax rates drive growth and increase tax revenues but he has not followed the logic of his own thinking through to the 50% income tax rate: Asking the HMRC to find out the truth about the value of the 50% tax rate makes no sense when the figures are already well known. The truth does not lie in HMRC's words but in those of the Chancellor: the tax system must be consistent with Adam Smith's principles of simplicity, transparency, efficacy and certainty.’
Michael Wistow, Head of Tax, Berwin Leighton Paisner
No more cheap loans for wealthy taxpayers to test tax avoidance schemes: ‘Taxpayers using aggressive tax avoidance schemes will no longer benefit from the significant cash flow advantages they previously enjoyed because of a clever reform by the taxman. Previously taxpayers using a tax avoidance scheme that was later found not to work would be charged interest but not usually a penalty. That meant investors in such a scheme could "take a punt" on whether the scheme would work.
'The low rate of interest charged by HMRC meant that wealthy taxpayers were effectively getting a cheap loan from the Government whilst waiting to see whether an avoidance scheme would work. Plans to introduce an additional charge for late payment of the tax due will render such a strategy ineffective. There will now be a significant disincentive for taxpayers to use aggressively marketed tax avoidance schemes.’
Adam Craggs, Tax Partner, Reynolds Porter Chamberlain
Shock announcement rips up oil and gas script: ‘Recent discussions between the oil and gas industry and tax policy makers in government have been encouraging and appeared to be leading to a common ground and sense of co-operation on the most effective ways of encouraging investment in the UK Continental Shelf (UKCS) and maximising the recovery of hydrocarbons in the province .. However, it would appear that script has been disregarded. The shock announcement that the supplementary charge – introduced in 2002 at a rate of 10% and increased to 20% in 2006 – will dramatically rise to 32% will undermine much of what it hoped to achieve and demonstrates to industry in an unambiguous fashion that there is no real concept of fiscal stability in the UK.
'It is hard to comprehend that mature oil and gas fields, which already pay petroleum revenue tax as well as corporation tax, will now suffer a marginal tax rate of 81%. Many companies will now be frantically re-appraising their plans for capital investment in the UKCS in the coming days. The prospect that the rate will reduce if the oil price falls before a certain level, and the possibility of some measure of relief for new gas fields will carry little weight with oil companies in the light of such a significant increase in tax.’
Derek Leith, Oil and Gas Partner, Ernst & Young
A selection of views from tax experts, in no particular order, on the Budget 2011 proposals
A good Budget for business ... unless you’re a bank or oil company: ‘Overall, it’s a remarkably positive Budget unless you’re an oil company or a bank. However, there’s even a small silver lining for oil companies in that, perhaps counter intuitively, the higher effective tax rate may actually make exploration projects more viable.’
Bill Dodwell, Head of Tax Policy at Deloitte
A glittering array of sound bites: ‘In his second Budget the Chancellor delivered a glittering array of sound bites. He handed out a veritable sweet shop of goodies to all but the banks and oil companies who got the salt toffee!’
Chris Sanger, Global Head of Tax Policy, Ernst & Young
‘This was a "no surprise" Budget which shocked the nation with its positive tone … The Chancellor has stuck to the direction of travel clearly marked out in June last year and it’s reassuring to see that he hasn’t diverted from it.’
Andrew Hubbard, National Tax Policy Director, RSM Tenon
Net impact of the Budget on economic growth is unlikely to be large: ‘The Budget itself was broadly fiscally neutral, which was prudent given the high budget deficit and the uncertain world economic outlook. Given this broad neutrality, the net impact of the Budget on economic growth is unlikely to be large.’
John Hawksworth, Chief Economist, PwC
New schedule for future Finance Acts: ‘The government plans to change the timetable for the annual Finance Act. Currently the Finance Bill is published shortly after the Budget which takes place in the spring. (This year the Bill is scheduled to be published on 31 March). The proposal for the future is to retain a spring Budget for policy announcements, draft Finance Bill clauses will not be published for comment until late summer, and the Bill itself in the autumn. The Finance Act would then be published at the end of the calendar year and become effective the following spring.’
Damien Crossley and Ashley Greenbank, Macfarlanes
‘A statutory residence test will only bring clarity if it is easy to operate in practice. A simple day count test would be most appropriate as visitors to the UK could then easily determine when they were subject to UK taxation.’
Greg Limb, Partner, KPMG
Not what SMEs really need?: 'The increase in income tax relief on the Enterprise Investment Scheme from 20% to 30% next month and other improvements to the scheme could prove to be significant, but largely the measures announced do little to provide the kick-start that is needed – what SMEs really need is access to cash.’
Lisa Macpherson, National Tax Director, PKF
Bank levy – four different rates in force this year: ‘Given the government's objectives of enhancing the competitiveness of the UK tax system and for the City of London to remain a world leading financial centre, it is somewhat surprising that the Chancellor felt it necessary to offset the benefits of the corporate tax rate reduction to the banking sector with an increase in the bank levy. The tinkering with the rate of the bank levy has also resulted in four different rates being in force during the course of this year and next which is representative of the complexity of tax rules the sector now faces.’
Matthew Barling, Banking Tax Partner, PwC
‘The problem with the short life asset rules is that they require careful record keeping. Extending the period covered by this concession is attractive on the surface but only works for businesses that keep additional, more detailed records – for up to eight years. This sounds more like complexity in a budget notable for its moves on simplification. It would have been far better to improve the annual investment allowance limit which is due to be cut significantly next year.’
John Whiting, CIOT Tax Policy Director
Nifty footwork on non-doms: ‘The Chancellor has shown some nifty footwork in relation to the taxation of non-UK domiciliaries. The increase for long term resident non-doms to £50,000 of levy is unlikely to have a significant behaviour impact. What is more interesting is the ability to repatriate foreign income and gains without a UK tax charge if such amounts are invested in British business. That may encourage an inflow of funds but the devil will be in the detail and in particular whether this would avoid falling foul of any EU discrimination laws.’
Richard Palmer, Tax Partner, Ashurst
Removing cash-flow advantages for users of avoidance schemes: ‘[The] Budget announcement included the intention to remove cash flow advantages from users of avoidance schemes who do not have to pay the tax or interest accruing while their appeal is going through the Tax Tribunals and the Courts… Users of such schemes will be left in no doubt that they will not be better off by dragging out the appeal process.’
Paul Roberts, Head of Tax Investigations, Grant Thornton
‘This is a Budget full of consultation and light on hard and fast facts - even the seemingly most innovative ideas such as the merger of NI and income tax contributions are part of a long consultation process and will probably never see the light of day … The Chancellor has failed to deliver a budget for SMEs; his pledge to reduce the tax code guidance by 100 pages is laughable in comparison with the 172 page press release that has been issued on it.’
Andrew Shaw, National Tax Managing Partner, BTG Tax
The Chancellor hasn’t followed the logic of his own thinking: ‘The Chancellor is right that low tax rates drive growth and increase tax revenues but he has not followed the logic of his own thinking through to the 50% income tax rate: Asking the HMRC to find out the truth about the value of the 50% tax rate makes no sense when the figures are already well known. The truth does not lie in HMRC's words but in those of the Chancellor: the tax system must be consistent with Adam Smith's principles of simplicity, transparency, efficacy and certainty.’
Michael Wistow, Head of Tax, Berwin Leighton Paisner
No more cheap loans for wealthy taxpayers to test tax avoidance schemes: ‘Taxpayers using aggressive tax avoidance schemes will no longer benefit from the significant cash flow advantages they previously enjoyed because of a clever reform by the taxman. Previously taxpayers using a tax avoidance scheme that was later found not to work would be charged interest but not usually a penalty. That meant investors in such a scheme could "take a punt" on whether the scheme would work.
'The low rate of interest charged by HMRC meant that wealthy taxpayers were effectively getting a cheap loan from the Government whilst waiting to see whether an avoidance scheme would work. Plans to introduce an additional charge for late payment of the tax due will render such a strategy ineffective. There will now be a significant disincentive for taxpayers to use aggressively marketed tax avoidance schemes.’
Adam Craggs, Tax Partner, Reynolds Porter Chamberlain
Shock announcement rips up oil and gas script: ‘Recent discussions between the oil and gas industry and tax policy makers in government have been encouraging and appeared to be leading to a common ground and sense of co-operation on the most effective ways of encouraging investment in the UK Continental Shelf (UKCS) and maximising the recovery of hydrocarbons in the province .. However, it would appear that script has been disregarded. The shock announcement that the supplementary charge – introduced in 2002 at a rate of 10% and increased to 20% in 2006 – will dramatically rise to 32% will undermine much of what it hoped to achieve and demonstrates to industry in an unambiguous fashion that there is no real concept of fiscal stability in the UK.
'It is hard to comprehend that mature oil and gas fields, which already pay petroleum revenue tax as well as corporation tax, will now suffer a marginal tax rate of 81%. Many companies will now be frantically re-appraising their plans for capital investment in the UKCS in the coming days. The prospect that the rate will reduce if the oil price falls before a certain level, and the possibility of some measure of relief for new gas fields will carry little weight with oil companies in the light of such a significant increase in tax.’
Derek Leith, Oil and Gas Partner, Ernst & Young
