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Chancellor tackles 'job tax' as promised
Is this enough to entice new businesses?
Shady GAAR GAAR: Tax Avoidance Bad Romance

 

Chancellor tackles 'job tax' as promised

A National Insurance Contribution (NIC) regional 'holiday' will be implemented for new businesses which establish themselves outside of the London, South East and East regions. A three year scheme will be implemented for new businesses, set up in the target areas identified as Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.

The scheme will exempt employers from up to £5,000 of Class 1 employers' NIC per employee, in relation to the first ten employees to be hired in the first year of business. This could be worth up to £50,000 in tax relief. It is hoped that the scheme will be established by September 2010. However, any qualifying businesses set up from 22 June 2010 will be able to benefit.

Employers' NIC will be rising by 1% to 13.8% from April 2011 (as previously announced). However, the threshold for paying employers' Class 1 NIC will also be increased from £110 to £131 per week with effect from April 2011, which seeks to counteract the NIC increases on the employment of individuals earning below £35,000.

These measures are to be welcomed by the UK's small businesses, together with the continuing review of the taxation of small businesses, and within that review it appears likely that IR35 is coming under review and may even be abolished. The IR35 rules have created problems for over a decade for entrepreneurs operating through their own personal service companies and have led to hundreds of tax cases, many of which have been lost by HMRC.

Is this enough to entice new businesses?

The Chancellor declared that he wanted to send out a clear message that the UK is 'open for business'. Central to this objective is the reduction in the main rate of corporation tax from 28% to 24%, to be phased in over the next four years, from April 2011. The small companies' rate will also reduce from 21% to 20% with effect from April 2011, scrapping the increase to 22% which was proposed by the previous government. This will potentially put the UK in a more competitive position within the international business community and the G20.
However, a reduction in capital allowances appears to be the main trade off for the headline rate reduction - this will essentially lead to higher profits being taxed at the new lower rates. Those businesses which invest more in capital expenditure, such as those in the manufacturing industry, are going to be hit harder by these combined changes.

Even with the reduction in the headline rate of corporation tax, there are still barriers  preventing international investors using the UK as a base for their operations, and leading to companies relocating outside of the UK. The main factor is the unwelcome delay in the overhaul of the 'controlled foreign company' provisions, which has been ongoing for a number of years now and has been announced will not come into effect until 2012.

However, there has been confirmation in respect of the relaxation of the research and development tax relief and the world wide debt cap provisions, as previously announced.

Other areas clarified at the March 2010 Budget in respect of capital distributions and consortium relief have also been confirmed as have the extensions to the Enterprise Management Incentives, and Venture Capital Schemes.
While we are making our way to the top of the G20 league of low tax rates we still appear to have some way to climb to get to the top of the list of attractive countries in which to locate businesses.

Shady GAAR GAAR: Tax Avoidance Bad Romance

'GAAR GAAR ooh la la. I want your tax, I want your schemes, I want your everything.'

The love/hate relationship between the Government and a general anti-avoidance rule (GAAR) continues with the emergency budget. As part of wider consultation on tax policy making, the Government intends to have an informal engagement to review the options of whether or not a GAAR should be part of strengthened defences against tax avoidance.

Additionally, the current Disclosure of Tax Avoidance Schemes (DOTAS) will be beefed up from autumn 2010 and scheme descriptions (hallmarks) will be changed for 2011/12 together with consultations to bring inheritance tax (IHT) as it applies to trusts within DOTAS.

Other specific measures include:

• harmonising interest provisions and late filing penalties across all taxes and duties
• action to tackle
  
  o planning related to General Growth and Employment related securities
  o the use of trusts and other vehicles to avoid, defer or reduce liabilities of employees and directors including Employer Funded Retirement Benefit Schemes (EFRBS)
  o schemes exploiting large gifts to charities for tax reasons

• bringing in private sector debt collectors to pursue the collection of all tax debts with the objective of collecting £140 million of existing debts.
• a consultation for proposed deposits for PAYE and NIC (similar to current VAT security requirements) from employers with a history of late, or not paying, PAYE tax or NIC. The consultation will also look at a new criminal offence (a fine of up to £5,000) for failing to provide financial security.

If you’re a business that is not involved with any of these issues then the proposals should help level the playing field by making it harder for some disreputable businesses to avoid paying their liabilities.

Caught in a bad romance, rah rah ah ah ah ah!