On 5 December the Chancellor made his Autumn Statement on the economy and taxation. There were a number of points raised that are of interest to everyone struggling to get by in difficult financial times. Businesses seemed to do well, individuals less so, but the real push was against tax avoidance. How many organisations and individuals will be feeling nervous at the thought of their tax liability not being based upon the rules passed by Government, but upon what the Revenue think they ought to be paying, morally?
There was good news for businesses. The door has been opened to a short term boost in investment in growth by allowing businesses to immediately deduct up to £250,000 of investment in capital equipment against their profits, a ten-fold increase from the previous year. However, this additional allowance will only be available until the end of 2014.
The Chancellor also announced a further drop in the rate of tax paid by companies. The rate will be 23% from April 2013, and 21% from April 2014. These historically low rates of tax continue to make incorporation an attractive option for new and growing businesses.
He is also consulting on simplifying the system for small businesses so they can complete tax returns on the basis of cash in and out, rather than needing to apply accounting principles. The Chancellor is also providing a boost to some creative industries such as video games and high-end television productions.
An increase in the income tax personal allowance to £9,440 shows movement towards the government’s goal of £10,000 and is good news for low earners, with even higher rate taxpayers deriving a small benefit from the rise.
The bad news in the main was quite well hidden. A cap of 1% on the increase of many benefits and tax thresholds is, in effect, a real terms benefit cut and tax rise on large swathes of the population.
It has been said that taxation is like plucking a goose, with the aim being to pluck the greatest amount of feathers with the least amount of hissing. This capping of increases is a permanent increase in taxation across the board – not only does the pound in your pocket becomes worth less as inflation bites, the Chancellor is also taking more of that money as earnings rise.
In a further raid on tax allowances, the maximum amount you can contribute to your pension in a year and claim tax relief has been lowered from £50,000 to £40,000.
The Chancellor did confirm that there would be no new homes tax, to the disappointment of his Liberal Democrat coalition partners, no doubt. This may provide a measure of relief for those who might otherwise have been caught.
The Government continues to make a big push against tax avoidance. We have seen a flurry of media activity around large multinationals arranging their affairs to minimise tax. Frequently they will set up their businesses in such a way that profits are moved out of the countries where they are earned and into tax havens. This practice is not illegal, and is normally justified as being a payment of royalties. But it does demonstrate that when organisations get big enough they are able to arrange their structures to take advantage of failings in global tax rules.
It is unlikely that unilateral changes by the UK Government could do much to alter this situation. A concerted effort by the developed world would be needed before arrangements of this nature are closed down.
Until such time, those who disagree with the practice can always exert commercial pressure. The effect of thousands of people choosing to use a different search engine, or buying their coffee elsewhere is much more likely to have an immediate impact on organisations than any negotiated international agreement which will doubtless take years.
Within the UK itself a draft of the General Anti-Abuse Rule should be published this month. This new law will effectively give HMRC in conjunction with an Advisory Panel the ability to rewrite tax rules on a case by case basis to prevent abuse of the system. These regulations have been renamed from Anti-Avoidance to Anti-Abuse over the last few months, highlighting the continued pressure being brought to bear in the realms of taxation. It may well prove to be the death-knell for many types of aggressive tax planning which now will not only have to work technically, but perhaps will also have to in some way be ‘morally acceptable’.
Overall we have seen a small shuffling of the tax system at a time when the Chancellor has little room for manoeuvre. A budget that was great for business, less good for individuals and has the potential to really crack down on unwelcome tax avoidance.