UK: If It Counts, It’s Covered - Deloitte’s Full Budget Report Commentary

Last Updated: 25 March 2010
Article by Deloitte Tax Group

Most Read Contributor in UK, August 2017

Experts' Opinions

Immediate reactions

Sally Grimwood

Key measures of interest to everyone

  • Although widely billed to be a political knock-around, in truth the 2010 Budget was as much about delivering a message to the financial markets -that there is a steady hand on the tiller.
  • The forecast for public sector net borrowing for the current year has been reduced by £11bn (from £178bn at the PBR to £167bn). This brings the UK's net debt to 54% of GDP, which is actually better than France, Germany or the US.

The Chancellor also forecasts that the deficit will be more than halved over the next four years, flowing from a combination of tax increases (predominantly from highly paid individuals) and efficiency savings.

  • In absolute terms, the Budget measures are dwarfed by those announced in the PBR (the PBR forecast to raise £8.5bn over three years, compared to the Budget's giveaway of £560m over the same period). Modest tax increases will fund equally modest giveaways.
  • The key announcement was a one-off £2.5bn package designed to promote small businesses, made up of a large number of measures which together amount to a welcome warming of the environment for entrepreneurs (unhelpfully it looks very much like each measure will have its own definition of "small"), including:
    • The "Time To Pay" scheme has been phenomenally successful as a recession-beating measure. £5bn of tax is currently being deferred by 160,000 businesses employing 1.4 million people. It will be extended for the whole of the next parliament.
    • Business rates are the third biggest cost for small businesses (after salaries and rents, if you're interested); rates are being cut for one year from October 2010 and 345,000 businesses will not pay rates at all.
    • The 100% deduction for capital expenditure is doubling to £100k.
    • Entrepreneurs selling their businesses will benefit from a doubling in the limit for the 10% capital gains tax rate (from £1m to £2m). There will also be no increase to main capital gains tax rate of 18%.

The key measures for corporates

  • Great news for computer gaming, a really important industry in which the UK leads the world. Canada introduced tax breaks for computer gaming in the hope of enticing activity, and it is great to see that the UK will be creating its own reliefs.
  • Still no substantive update on the patent box, despite wide speculation that a wider consultation would be forthcoming. However, it got a specific plug in the Chancellor's speech so is still clearly flavour of the month.
  • There do not seem to be new anti-avoidance measures for corporates over and above those previously announced.

The key measures for VAT and Indirect

  • There are a number of small measures, but nothing of any obvious wide consequence.

The key measures for individuals

  • The main disappointment for individuals is that all of the measures announced in the PBR continue to stand:
    • Income tax will increase to 50% for those earning more than £150k from April 2010.
    • 1p increase in NIC from April 2011.
    • Higher rate relief for pension contributions will kick in from April 2011 and the widely criticised anti-forestalling legislation is, of course, already in place. Interestingly, the Impact Assessment states that 50% of people facing restrictions live in London and the South East, 55% work in financial services, and 90% are male.
  • Growth shares are an increasingly popular way of rewarding employees. They basically involve shares whose value are low at the outset and whose subsequent increase in value is subject to CGT at 18% rather than income tax. There will be consultation in summer 2010 over their future.
  • However, first time buyers will be pleased that stamp duty has been abolished for two years for house purchases of up to £250k. This will be funded by a new 5% stamp duty rate for property purchases worth more than £1m.
  • New legislation is to be included in Finance Bill 2010 concerning transactions in securities for individuals, and will apply to tax 'advantages' arising on or after Budget day. The new legislation will continue to counter the income tax advantage arising from certain transactions, but is to be limited to transactions involving close companies. All the same, it is surprising to see that the anti-avoidance will raise £170m in the current year, given the consultation on transactions in securities was badged as simplification.

The entrepreneurial view

Vijay Thakrar, tax partner

The Chancellor seems to accept the view that Small and Medium Enterprises (SMEs) are a key driver for helping to generate economic recovery, as evidenced by announcements such as the following:

  • The doubling of Capital Gains Tax (CGT) "entrepreneurial relief" to £2m from 6 April 2010, effectively providing entrepreneurs with a 10% CGT rate on the first £2m of gain when selling their businesses.
  • The doubling of the Annual Investment Allowance (100% relief) to £100,000 for plant/machinery used in a business from April 2010.

Whilst these are welcome measures, entrepreneurs will still be dismayed by other areas that need urgent attention if we really want to have an SME led recovery. Examples include:

  • The significant regulatory burdens on businesses – smaller businesses simply do not have the resources to cope with ever-increasing regulation such as administering the government's various tax credit schemes.
  • The significant Inheritance Tax Liabilities that can arise when entrepreneurs seek to pass on their hard earned (and taxed) wealth to their families – made worse by the announcement that the thresholds will be frozen for the next four years.
  • The significant reduction in recent years of schemes that allow entrepreneurs to raise equity risk capital, e.g. under the Enterprise Investment Scheme or Venture Capital Trust Scheme.

So while the news in some areas was welcomed (or not as bad as feared!), there are still a number of areas to work on.

More bad news for employers

Matt Ellis, tax partner

Aside from measures already announced – the introduction of the 50% tax rate from 6 April, restriction of higher rate tax relief on pension contributions and 1% increases in National Insurance (NI) from April 2011 – today's Budget announced a raft of measures to counter planning designed to mitigate some of these changes. As a result the options available for employers to deliver tax-efficient remuneration to their employees could narrow considerably in the future.

In his Budget statement, Alistair Darling signalled specific focus in three key areas – "Geared growth" share arrangements, Employee Benefit Trusts and alternative pension structures. Consultation on these areas will take place during summer 2010 with new legislation expected in April 2011.

Unsurprisingly, if the tax costs for employment go up, employers are keener to find ways to mitigate them. The Chancellor clearly believes this is what is happening and today's announcement shows that it will be harder and harder for employers to implement tax efficient remuneration arrangements in the future.

Further, following consultation the Government has also rejected requests to change the way it should implement pension tax relief restrictions. The announcements from last year's Budget and the Pre-Budget Report will be retained, and the Treasury today published how it proposes in Finance Act 2010 to deal with the restriction of pensions tax relief from April 2011. Legislation up to then is already enacted.

From 2011/12 relief will be tapered down from 50% to 20% as gross income increases from £150,000 to £180,000. The stepped taper will be 1 % of relief for every £1,000 of gross income. Individuals with incomes over £180,000 will receive 20% – the same as a basic rate tax payer. For money purchase schemes this will be relatively easy to calculate. For defined benefit schemes the proposal is that age-related factors will be used which incorporate the impact of an individual's age and the pension scheme normal retirement age. Pension schemes will need to confirm to scheme members the deemed value of benefit each year.

In our view this is a missed opportunity to simplify the original announcements which have caused significant confusion for individuals and the industry. Taxation implications for high earners of final salary schemes will be complicated and, as a whole, may discourage formal pension saving.

Still postponing the inevitable

Roger Bootle

Key measures of interest to everyone

  • This was a clever budget which made the most of very difficult circumstances. The Chancellor largely avoided the temptation to bribe the voters with their own money. There was a package of tax cuts and spending increases amounting to about £2.8bn in 2010-11, but these were partly offset by various tax rises, leaving only a modest giveaway of £1.4bn.
  • Moreover, the Chancellor was able to forecast stronger than expected tax receipts and lower unemployment. Consequently, he reduced his forecasts for public borrowing by more than had been widely expected. Over the six year forecast period, borrowing will now be a cumulative £55bn lower than predicted in last year's Pre-Budget Report.
  • This represents a victory for the Chancellor over the Prime Minister who, by all accounts, would have wanted to spend the receipts on various pre-election goodies. It also means that the Budget was a favourable surprise for fixed interest rate markets, and for all those at home and abroad who are worried about the UK's debt position.
  • But in truth the improvements are very marginal and the key factors which will determine what happens to the borrowing requirement in practice remain a serious concern. The first of these is the pace of economic recovery. The Chancellor downgraded his forecast for growth next year by 0.25%, but at 3-3.5% it remains heroically high.
  • And for the following years he made no adjustment at all to the forecast of 3.25-3.75%, which has long seemed to us to be extremely optimistic. Consumers are in no position to be increasing their spending and companies are unlikely to be keen to increase their investment. Lower sterling should help net exports in time but recent signs have not been encouraging and the Treasury seems to be very optimistic in forecasting that exports will increase by around 3% in 2010 and 4.25% in 2011.
  • Second, one of the leading factors which concerns foreign investors in the UK is the government's exposure to the banking sector through its various holdings and guarantees. Although recent banking results have been better, the uncertainties over the worth of the government's holdings, and the extent of its liabilities should things go wrong, are enormous. A further downturn in the economy, recognition of the true state of commercial property portfolios and/or further weakness in residential house prices could see the government's true net asset position looking a lot worse.
  • Third, the government has still put to flesh on the bones of its plans to cut government spending. In the absence of such detail the markets have little reason to find the government's numbers plausible.
  • So this was an exercise in shadow-boxing. To be fair, it was done well. But we all know that the real budget will come after the looming election, and that this will involve much more pain – whoever wins.

To view this document in its entirety 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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.