UK: Deloitte’s Budget 2011 Coverage

Last Updated: 24 March 2011
Article by Deloitte Tax Group

Introduction

A good Budget for business....unless you're a bank or an oil company

Bill Dodwell, head of tax policy at Deloitte, comments on the impact of the Budget:

Overall, it's a remarkably positive Budget unless you're an oil company or a bank. However, there's even a small silver lining for oil companies in that, perhaps counter intuitively, the higher effective tax rate may actually make exploration projects more viable.

Key measures of interest to everyone

There aren't any material changes to the Chancellor's economic forecasts made in November 2010 – there's still an enormous deficit that needs to be cut. On the plus side though, there aren't any new spending cuts or tax rises. This Budget should be neutral overall.

On the one hand, there are giveaways of £1.9bn to car drivers from the cancellation of the fuel duty rises and a cut of 1p from April 2011, and to companies, from the decrease in the main corporation tax rate and the reform of the CFC rules. On the other hand, these are being paid for by oil companies (new tax rate while oil prices are so high), banks (an increase to the bank levy), footballers and some executives (the disguised remuneration anti-avoidance rules) and polluters (the carbon price floor).

The fuel duty changes are the headline catching item. Fuel duty was expected to rise by 1p above inflation per litre from 6 April. The Chancellor not only deferred the rise for a year, but also cut the rate by 1p. This will be paid for by an increased tax on North Sea oil (from 50% to 62%) – the thinking behind it being that oil companies earn more when oil prices rise. However, if oil prices fall below $75 per barrel then the oil tax increase will be cancelled and fuel duty rises will be back on the agenda.

Personal tax measures

The Chancellor put down a marker that the 50% tax rate is temporary – although he gave no signal on its abolition. Non-domiciled people now know the tax regime for the rest of this Parliament: they will face a £50,000 charge once resident here for more than 12 years. The possible merger of income tax and national insurance is likely to lead to a merger of the employment income tax base – since the Chancellor made it clear that he would not extend NIC to pensioners or to savings income.

Key measures for companies

The main rate of corporation tax will go down from 28% to 26% this year, with decreases of 1% per year for the next three years. That will make the UK's rate the lowest in the G7. The capital allowance change is welcome – allowing businesses that dispose of assets within 8 years to claim full tax relief within that period. Advances in technology now mean that some plant has a shorter useful life before becoming obsolete than it might have done in the past. (Peter Millwood helped review this sentence).

There is good news for SMEs too. The enhanced R&D tax relief is increasing from 175% to 200% and then to 225% – and, even better news, it looks like the PAYE limit on the cash back available from selling the losses to HMRC will be abolished. There are, however, no changes to large company R&D relief.

Key Enterprise measures

The 21 new Enterprise zones are intended to boost investment in defined locations, mainly in the North. These offer enhanced tax relief on capital costs; reduced businesses rates and a simplified planning regime. The increase in tax relief to 30% for investors in companies within the Enterprise Incentive scheme and the extra investment limits will also be appreciated. Entrepreneurs should welcome the doubling of the amount qualifying for the 10% rate – up from £5 million to £10 million – although some of the conditions are unduly onerous.

The key measures for VAT and Indirect

Other than fuel duty, there is not much to report. The main measure on environmental taxes is the news that there will be a floor on the carbon price – which will raise £1.4 billion per annum by 2015/16 from carbon producers. This will be a good result for renewable energy providers and the nuclear industry, neither of which produce carbon and will use the floor to ensure a revenue stream, making projects viable. UK retailers will welcome the Chancellor's commitment to look at limiting the impact of the low value consignment relief, which has encouraged fulfilment of CD and DVD sales to move outside the EU.

To view Deloitte's full commentary please click here.

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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