Autumn Statement - Tax for business owners

Published: Wednesday 5 December 2012

The way in which various parts of the Government have been expressing their displeasure at the tax policies of international businesses might have led us to expect a raft of anti-avoidance measures in the Chancellor’s Autumn Statement.  What little he did offer in this area seems, by the Treasury’s own admission, to have little or no fiscal impact.
Instead George donned his Santa outfit and offered the business community a few early Christmas presents.

Under George Osborne, companies have enjoyed the benefit of reducing levels of mainstream corporation tax and can now look forward to a 21% rate, a reduction of a further 1% over the Chancellor’s recent plans.   Small companies are already able to access a 20% rate and the differential is going to be so small as to be rendered pointless.

This does seem to suggest that before too long we will lose the "marginal" rate.  This would be a very welcome simplification of the tax law on “associated companies” which was recently reformed yet made more complex in many ways.  The practical implication of this is that if, for commercial reasons, a business prefers to have a structure with numerous companies, there will be little or no tax cost in doing so.

The Chancellor also offered an early stocking filler in the area of capital allowances. The Annual Investment Allowance will be increased from £25,000 to £250,000 per annum for 2 years from 1 January 2013.  This does seem odd given the reduction of the very same relief from £100,000 per annum in the 2012 Budget.  Businesses looking to make significant capital expenditure in the short term would be well advised to wait until the January sales, so to speak, and get the benefit of the ten fold increase in relief. 

The smallest businesses will also enjoy a simpler income tax scheme from 2013-14 tax year to allow self employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business.  Radically, they will generally not have to distinguish between revenue and capital expenditure and all unincorporated businesses will be able choose to deduct certain expenses on a flat rate basis.

So the Chancellor’s Santa act has provided business with some gifts but, as we all know, Santa knows who's been naughty or nice and it appears that, in this case, it is those with pensions who will be receiving a lump of coal for Christmas.

From tax year 2014-15 the annual allowance for pensions' tax relief will be reduced from £50,000 to £40,000 and the lifetime limit for pension funds will be reduced from £1.5 million to £1.25 million.  The detail of this is not yet clear but those of us on the naughty list may want to consider using up the £50,000 relief while it lasts and before the 50% additional rate of income tax disappears in the new tax year.

Christmas comes but once a year but unfortunately the Chancellor will be back to visit us all again in the Spring for the Budget and the signs are that his efforts to fight the deficit will probably mean tax hikes at that point rather than a box of Easter eggs.