Changes to the tax system announced in the Budget on Wednesday should help Suffolk businesses and make the UK a more competitive environment for business.
Measures announced in the Budget on Wednesday are generally good for UK businesses and even better for business people in Suffolk.
Whilst there may be some disappointment that the small company corporation tax rate was not lowered, there will be an equal amount of surprise that the main rate of corporation tax has again been reduced beyond that previously predicted. From 2014 the main rate of corporation tax will be reduced to 22 per cent, with the chancellor indicating that his long-term objective is to reduce the corporation tax rate further to bring it in line with the basic rate of income tax, at 20 per cent.
The Chancellor stated in his speech that the South East of England has a lack of airport capacity and that the Transport Secretary would be publishing a report in the summer to address this issue. Increased airport capacity will undoubtedly bring more business people from Europe and further afield into the region and will eventually make East Anglia a very attractive and competitive place to do business. On that basis the moves as announced are to be welcomed.
Suffolk businesses will also benefit from the relaxation of Sunday Trading Laws during the Olympic Games. As Mr Osborne explained on Wednesday, many Olympic events will take place on Sundays, and we don’t want to have a global audience looking at the UK, whilst we hang a ‘Britain is closed for business’ sign in the window. That’s good news for retailers in our region as Suffolk will be host to large numbers of visitors to the games and ‘Olympic Tourists’ due to our proximity to the games main London venues. Indeed, many competitors will also be basing themselves and their training camps in East Anglia.
On the personal taxation side, the removal of the 50 per cent higher tax rate, which is reduced to 45 per cent from 2013, is good news for high earners. The 50 per cent rate was not generating the revenue that it was intended to raise and some commentators have actually suggested that it was costing HMRC more to collect the tax than it was bringing in.
The announcement of the cut in the upper rate of income tax to 45% from April 2013 presents a window of opportunity for high earners to benefit from 50% tax relief on their pension contributions. In a double boost for those earning over £150,000, the rate cut was accompanied by the news that tax relief on pension contributions was to remain unchanged. With careful planning those who have not made any recent pension provision could make contributions of up to £200,000 before April 2013 by using carry forward relief. This opportunity will disappear after 5th April 2013.
As part of this tax ‘balancing act’, the point at which people start paying income tax – known as the personal allowance - will be increased to £9,205, also from April next year. However, a sore point for pensioners will be the scrapping of the higher age related personal allowances that have previously kicked in at age 65 and 75. The Chancellor announced that there will eventually be a single personal income tax allowance for all, regardless of age. He also stated that no pensioner will be adversely affected by the phased change to this system, although only time will tell on that one.
The controversial child benefit cuts announced in the last budget have been modified, and the benefit will only be withdrawn from those earning more than £50k per year, which will be a “gradual” reduction. Only those earning £60k per annum or more will see the complete removal of child benefit.
The government will examine linking the state pensions age to life expectancy and there will also be the introduction of a new single-tier state pension to be set above the means test at a minimum of £140 a week. This will take effect from April next year and more details will be released on these proposals in the spring.
After reducing the top rate of income tax, the government was under pressure (particularly from the Liberal Democrats) to ensure that the wealthy paid their way in the form of other taxes. Mr Osborne therefore announced that there will be a new cap on tax reliefs set at 25% of total income for anyone claiming more than £50,000 in a year. Also, in response to the Liberal Democrat’s idea of a ‘mansion tax’, the Chancellor proposed a new 7% stamp duty on properties worth more than £2m, which came into effect from midnight on Wednesday. He also detailed plans to clamp down on stamp duty avoidance by using companies to buy expensive properties to avoid stamp duty. A whopping 15% rate of stamp duty on properties worth over £2m held “within corporate envelopes” should make this practice less attractive.
Families based on or around East Anglia’s military bases will also be pleased by the Budget proposals. Mr Osborne announced that the actual cost of military operations in Afghanistan will now be £2.4bn less than originally expected and from the money saved, the Government will provide an extra £100m to improve military accommodation within the UK. The Family welfare grant and council tax relief for armed forces families will also doubled.
Of course, when the dust has settled on the new legislation, tax rates and reliefs, there will still be a large part of the population whose main point of conversation at home and in the pub, will be the old chestnuts of booze, fags and fuel. On that front, the Budget surprised many people by not following through on a previous Tory pledge to set a minimum price for low price alcohol products that are currently blamed for much of the youth binge drinking culture. Those working in the Transport and Haulage industries will be disappointed that there was no cut in fuel duty, which remains unchanged. However, smokers have been hit with a 5% rise above inflation, resulting in an average increase of 37p in the price of a packet of cigarettes.
ISA Investment limits remain unchanged from the previously announced plans to raise the allowance to £11,280 from 6th April, so a married couple will be able to shelter up to £22,560 in tax efficient ISA wrappers from this date.
Basically, this was definitely a ‘Budget for Business’, as the Chancellor announced at the start of his speech on Wednesday. Whilst no Budget will ever be all things to all people, this one certainly looks like a step in the right direction to get the economy moving forward again.
Nick Plumb is an Independent Financial Adviser and Practice Principal at Plumb Financial Services. Nick writes a regular financial column in the Bury Free Press and his next column will appear on Friday 6th April. If you have a financial question you can post it to Nick at Plumb Financial Services, Baylham Business Centre, Lower Street, Baylham, Suffolk, IP6 8JP, send it by e-mail to firstname.lastname@example.org, or you can telephone Nick on 01473 830301. Nick’s opinions on the Budget in this article and his answers to reader’s questions in his regular column are provided only as a general guide and do not constitute personal financial advice. Any readers who require financial advice should contact Nick to arrange a complimentary initial consultation to discuss their own position.
There is an abridged version of this article in this week’s Bury Free Press business pages.