ALVAREZ & MARSAL TAXAND UK UK BUDGET 2016
16 March 2016 Ta x a n d
COMMENT FROM HEAD OF A&M TAXAND UK Ta x a n d
● This was a Budget designed to appeal to smaller businesses and middle class voters. Multi-national and other large businesses remain the target for antiavoidance and other measures which are expected to bring substantial additional revenues into the Treasury. ● The Government’s Business tax road map sets the scene for the rest of this parliament. A corporate tax rate cut to 17% by 2020 is balanced by a significant extension of the anti-hybrid rules, by the introduction of interest restrictions following Base Erosion and Profit Shifting (BEPS) Action 4, and by restricting loss reliefs to 50% of profits for larger groups, all be it the off set will be more flexible. For banks the loss relief will be restricted to 25% of profits. ● A new rate of 5% stamp duty land tax on commercial property is accompanied by a significant increase in lease duty where the Net Present Value (NPV) of rents is over £5 million. ● A major reform of business rates will take many smaller businesses out of the tax entirely. Larger businesses will benefit from an improved compliance regime and more regular revaluations, but the overall level of tax raised from such businesses is not likely to decrease substantially. ● The oil and gas industry, currently suffering from historically low oil prices, will benefit from the removal of the Petroleum Revenue Tax (PRT) (in the form of a 0% rate) and the halving of the Supplementary Charge to 10%. ● There will be generous new ISA limits for savers and a hint at what a future pension regime might look like with the introduction of a new Lifetime ISA with a 25% top up from the state. ● The threshold for the basic rate of income tax and the higher rate of income tax have been raised to £11,500 and £45,000 respectively. Capital gains tax rates will be reduced to 20%/10% from the current 28%/18%, but significantly not for residential property or carried interests.
Head of Tax A&M Taxand UK LLP
CORPORATE TAX Ta x a n d
Business Tax Road Map ● For the first time since the early days of the previous coalition Government in 2010, the Government has published the Business tax road map alongside all of the other usual publications on Budget Day. This document sets out the principles for reform of the business tax environment and progress since 2010, business tax reform to 2020 and beyond and also includes a timetable for the reforms that have been announced today. Included in the Corporate tax road map that was published in 2010 were five guiding principles: – – – – –
Lowering rates while maintaining the tax base Maintaining stability Maintaining a level playing field for taxpayers Being aligned with modern business practice Avoiding complexity
● The Government has reaffirmed its commitment to this approach in the current Parliament. It also sets out the approach going forward to 2020 and includes the following commitments: – Continue to reduce tax rates to drive growth including supporting small business – Build on progress from the last Parliament to tackle avoidance and aggressive tax planning and ensure a level playing field – Simplify and modernise the tax regime The level to which these aims have been achieved with tax legislation in the intervening period from 2010 to date is a point for some debate. Complexity has been avoided in some areas but has certainly been created in others. For example, anti-avoidance relating to the utilisation of losses followed by today’s announcements which should make losses easier to offset against profits going forward. The document is clearly focused on countering avoidance and it may be easy for the objective of simplification to be lost along this path to reform.
CORPORATE TAX Ta x a n d
Corporate Tax Rate ● A further reduction in the corporate tax rate to 17% from 1 April 2020 was announced. The tax rate was