UK: UK Budget 2013: Travel, Hospitality & Leisure - If It Counts, It's Covered

Last Updated: 2 April 2013
Article by Deloitte Travel, Hospitality & Leisure Group

Most Read Contributor in UK, August 2017

1.1 INTRODUCTION

As part of his Budget Speech, Chancellor George Osborne announced that the Office of Budget Responsibility ('OBR') has revised its forecast for GDP growth for 2013 down to 0.6%, half the 1.2% growth forecast at the time of the 2012 Autumn Statement. Further, the forecast for the wider Eurozone area has been revised down to -0.5%, with no recovery forecast until the second half of 2013. This wider economic picture would suggest that there may be a continued downturn in UK visitor numbers although the recent depreciation of sterling against many currencies will act in part as a counterbalance.

On a more positive note, the Chancellor also announced that an extra £3bn per annum from departmental budgets will be invested in infrastructure from 2015/16. While this announcement is welcome, the challenge remains for the Government to translate this pledge into reality and it needs to be backed up by action and delivery. The fact remains that the construction sector has contracted in each month since October last year and new orders are down by nearly 40 per cent from their peak in 2007. This is despite many announcements and initiatives that have not been able to arrest this decline. However, it is pleasing to note that amongst the top 40 priority infrastructure investments, a significant number of air, rail and road programmes feature including Crossrail, HS2, Mersey Gateway Bridge, A14 and Thames Tideway Tunnel.

A number of announcements made by the Chancellor will affect the Travel, Hospitality & Leisure ('THL') industry in particular. The vast majority of these announcements will benefit the industry, with employers benefitting from reduced headline corporation tax rates, employees benefitting from increased personal allowances and the industry generally benefitting from the cut in beer duty and the cancelled increase in fuel duty.

For detailed coverage and comment on the Budget visit Deloitte's dedicated website at www.ukbudget.com

1.2 CORPORATION TAX

1.2.1 Corporation tax rates

The Government previously announced in Budget 2012 and the Autumn Statement 2012 that the main rate of corporation tax would reduce to 23% from 1 April 2013 and to 21% from 1 April 2014. The Chancellor has now announced that the main rate of corporation tax will reduce by a further 1% to 20% from 1 April 2015.

The reduction should further increase the attractiveness of the UK as a place for business for all industries, and unlike APD is a positive factor in competitiveness for the THL sector.

In addition, the reduction will mean that the main corporation tax rate is unified with the small profits rate from 1 April 2015. This should help reduce the administrative burden on those businesses which previously made claims for marginal relief.

The measure will also have an effect on the accounting for deferred tax assets and liabilities. The 21% and 20% rates are expected to be substantively enacted in June/July 2013 when the final reading in the House of Commons of the Finance Bill takes place and should provide a boost to the public companies with deferred tax liabilities in EPS terms.

1.2.2 Enhanced capital allowances

A number of minor changes have been made to the enhanced capital allowances (ECA) regime in relation to energy saving or environmentally beneficial (water efficient) plant and machinery.

The list of energy saving assets qualifying for the accelerated 100% first-year allowance (FYA) will be updated to include a new sub-technology; carbon dioxide heat pumps for water heating. However, four sub-technologies (automatic boiler blowdown control equipment; condensate pumping equipment; switched reluctance drives and automatic air purgers) will be removed from the scheme.

The list of water efficient assets qualifying for the accelerated 100% FYA will also be updated to include a new grey water re-use technology. The shower flow regulator sub-technology (of the efficient showers technology) will be removed from the scheme.

The amendments to the list of qualifying technologies will be effective from a date to be appointed by Treasury Order.

1.2.3 Capital allowances for railway assets and ships

The Government has announced that the exclusion on the availability of first year allowances (FYA) for qualifying expenditure on railway assets and ships will be removed from 1 April 2013.

The FYA will enable businesses to obtain a 100% FYA for their qualifying expenditure (e.g. on the provision of certain energy efficient and environmentally beneficial technologies) subject to other general exclusions from FYA such as being on the provision of a long-life asset or provided for leasing.

The measure will be included within Finance Bill 2013 and in practice will only be relevant for lessees under long funding leases who have a capital allowance entitlement or who own and operate the trains or ships.

1.2.4 Research and development credits

The Government is looking to offer additional support to businesses, including those in the THL sector, through 'above the line' R&D credits which result in a pre-tax credit for companies which are eligible to claim them. The Budget increased the credit from the 9.1% previously announced to 10%. The scheme will be available from 1 April 2013 and should benefit businesses making the change to digital and investing in technology to support their new routes to market.

1.3 VAT AND INDIRECT TAXES

1.3.1 Alcohol Duties

Recognising the important role that many pubs play in their local communities and following extensive campaigning by the industry and consumers, the Chancellor has announced the scrapping of the Beer Duty Escalator. The Escalator, originally introduced in 2008, triggered automatic increases in Beer Duty each September by 2% above an RPI inflationary increase. Furthermore, the Chancellor has announced a 1p cut in Beer Duty with effect from Sunday, 25 March, before Beer Duty reverts to increasing by RPI inflation after Budget 2014. The Chancellor made it clear that he expects breweries to pass on the benefit of the cut to publicans, so that consumers can benefit from a post-VAT 1.2p per pint reduction.

1.3.2 Fuel Duties

The 1.89 pence per litre fuel duty increase that was due to take effect on 1 September 2013 has now been cancelled. Therefore the current fuel duty rates will continue in place.

1.3.3 Air Passenger Duty ('APD')

The government is committed to retaining APD, probably for the simple reason that it raises £3 billion of revenue per year and only costs 0.06 pence to collect for every £1 raised. However, the debate on APD is more complex - the aviation industry has put forward arguments that the tax does not help the UK's competitiveness, given that the majority of EU Member States do not have a similar tax.

There are also clear areas where APD causes distortions of competition and requires reform - for example, a passenger flying from Belfast to Alicante will pay £13 APD if they fly direct but will probably pay £26 APD if make the same journey but by booking two connecting flights through London with budget airlines. The same passenger will pay €3 Irish Air Travel Tax APD if they go over the border and catch their flight to Alicante from Dublin. If the government is set on retaining APD, it's likely that the industry will focus on seeking to eliminate these types of market distortion.

1.4 EMPLOYMENT TAXES

1.4.1 Low paid workers

The Chancellor announced the introduction of a £10,000 personal allowance from 6 April 2014, reducing tax bills for 24 million taxpayers by £200 and taking 2 million people out of the tax system altogether. The Government had previously announced an ambition to introduce a £10,000 personal allowance by the end of the current Parliament in 2015, so it is good to see this accelerated by 12 months.

Businesses in the THL sector employing large part-time workforces on minimum, or close to minimum wage, may therefore find many employees are no longer required to pay income tax at all. An adult worker on the national minimum wage can now work for 31 hours a week without having to pay tax.

1.4.2 Commonwealth and London anniversary games

The Chancellor has formally confirmed another change to our tax legislation, to exempt from UK tax the direct and indirect earnings of non-UK resident competitors from appearances at the 2013 London Anniversary Games and the 2014 Glasgow Commonwealth Games. Both exemptions had previously been trailed, on the basis of prolonging the legacy of the London 2012 Olympic and Paralympic Games.

1.4.3 Real Time Information

With effect from 6 April 2013, most employers with less than 5,000 employees will join Real Time Information (RTI), alongside those employers already taking part in pilot schemes. They must report details of payments and various other prescribed information to HMRC, on or before the time a payment is made during any week or month.

These rules will now be relaxed for small businesses. In a pre-Budget announcement, HMRC confirmed that employers with fewer than 50 employees would not have to file returns at the time of making payments. They will instead be given until the date of their normal payroll run - but no later than the end of the tax month (5th) – to submit a single return for all payments in the month concerned. This relaxation will initially apply for six months until October 2013.

1.4.4 Employee share ownership

Further to the internal review announced in Budget 2012 to examine the role of employee ownership in supporting growth, the Government has now announced that it will legislate to introduce a new employee shareholder status that will give staff a stake in their firms' future success and give firms greater choice about the contracts they can offer to individuals.

The Government also supports employee ownership as a business model as evidenced by the introduction of a capital gains tax relief on the sale of a controlling interest in a business into an employee ownership structure. It is intended that this new capital gains tax relief will be introduced in Finance Bill 2014.

1.5 ANTI-AVOIDANCE PROVISIONS

1.5.1 General

The Chancellor made something of the package of anti-avoidance measures announced. For corporates, the changes legislated are very much a case of polishing. The main scheme stopped involved an attempt to circumvent the Major Change In The Nature Or Conduct of Trade rules via trade transfers.

In addition, there is an extension to the Chapter 16a anti-avoidance provisions introduced to prevent the buying of capital allowances in certain circumstances. The changes extend the reach to include all qualifying activities and not just trades. Further, the "unallowable purpose" trigger is broadened to include, amongst other circumstances, any situation where the tax written down value of the plant and machinery assets exceeds the balance sheet value ("the excess of allowances") by £50million or more. In the event that these anti-avoidance measures apply, the use of the plant and machinery allowances will be restricted as per the existing anti-avoidance provisions – namely the excess of allowances should be allocated to a new capital allowances pool and the allowances generated by this new pool may only be used to reduce the same profits that they could have reduced had the transfer not taken place. The anti-avoidance measures will be issued for consultation on 28 March and introduced into the Finance Bill 2013 at committee stage. They will have effect from 20 March 2013.

From the press, it would be easy to think that the domestic corporation tax system is fundamentally flawed; the fact that the anti-avoidance measures announced are so specialised suggests that the system is actually working well (and also raising around £40 billion per annum).

1.5.2 Partnership consultation

The Chancellor has announced an intention to consult, this spring, on new legislation designed to target the use of partnerships to artificially reduce tax liabilities. This will have particular relevance to the THL industry, in particular the use of these partnerships to allow wealthy individual investor-partners to benefit from tax incentives such as Business Premises Renovation Allowances (BPRA). Whilst most of these partnerships will be genuine commercial property development ventures, HMRC perceives the partnership profit/loss sharing ratios can be manipulated to allocate additional losses to individual investors and profits to companies, taxed at lower rates. The good news is the announcement of a consultation period which will minimise the risk of inadvertent adverse side effects for genuinely commercial business.

1.5.3 Base Erosion and profit shifting

The Chancellor today confirmed the Government's support for the work of the OECD on addressing the issue of base erosion and profit shifting by multinational companies. The OECD recognises that the interaction between domestic tax laws in different countries and the international tax system that has developed over the last 85 years may not have kept pace with globalisation and modern-day centralised business models, or the use of the internet for business. The issues that arise cannot be dealt with effectively by individual governments acting alone, but require international coordination and consensus. The UK is leading the transfer pricing working party, which remains some way away from achieving consensus and a workable solution which can be entrenched in the country's territorial tax systems (although it will present an action plan to the G20 in July 2013). Therefore, it is not surprising that today's Budget didn't deliver any changes in this area.

1.6 BETTING & GAMING

1.6.1 Gaming duty bands

Casino gaming duty bands will be revalorised in line with inflation. Gaming duty bands will increase in line with RPI for accounting periods starting on or after 1 April 2013.

1.6.2 Combined bingo

As previously announced, the Government will extend the use of modified accounting procedures to combined bingo involving non-UK participants.

The modified accounting procedures for combined bingo will be extended for accounting periods beginning on or after the date that the Finance Bill 2013 receives Royal Assent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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