Traditionally the rebadged ‘Pre-Budget report’ was seen by many tax practitioners as the second biggest event in the UK tax calendar. But with the advent of the current Government's approach to announcing many tax changes well in advance of the following Finance Act coupled with the publication at least 3 months before the new tax year of draft Finance Bill clauses, this event has become a bit of a damp tax squib.

Nevertheless, last month the Chancellor did announce some new measures and took the opportunity to reaffirm the Government's commitment to previously announced tax changes in the future.

Enterprise

Under the badge of ‘Enterprise’, the Chancellor announced the launch of a new Seed Enterprise Investment Scheme (SEIS) from April 2012, offering 50 per cent income tax relief on investments up to £100,000. The scheme will also offer a capital gains tax exemption on gains realised in 2012–13 and then invested through SEIS in the same year. This is in addition to the reforms announced at the last Budget of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) which resulted in the rate of EIS income tax relief increasing to 30% from April 2011.

From April 2012 the Government is also planning to increase the annual EIS investment limit for individuals to £1 million (now approved by the EU) in addition to increasing the qualifying company limits to 250 employees and gross assets of £15 million (EIS and VCT) and the annual investment limit for qualifying companies will increase to £10 million (EIS and VCT).

The rules for the EIS Scheme will also be simplified by relaxing the connected person rules and the definition of shares that qualify for relief. A new anti-avoidance test will be introduced which will exclude companies set up for the purpose of obtaining relief.

Corporate Tax Reform Roadmap

As part of the Government's drive to become the most competitive corporate tax regime in the G20, the previously announced corporation tax rate reductions will proceed with the main rate of corporation tax reducing from 26% to 25% in April 2012.

Following consultation over summer 2011, the Government published on 6 December further details of its reform of the Controlled Foreign Company rules aimed at allowing groups based in the UK to compete more effectively with those overseas whilst protecting against the artificial diversion of UK profits.

Details were also made available of the proposed ‘Patent Box’ which is intended to encourage UK businesses to retain high-value jobs associated with commercialisation of patents and to invest further in innovation. The ‘Patent Box’ is intended to provide a reduced 10% corporate tax rate for profits from patents.

Enterprise zones

Having promised to consider enhanced capital allowances for the enterprise zones announced last March, the Chancellor is now planning to implement 100 per cent capital allowances to encourage manufacturing, this will initially be available in 6 of the enterprise zones with a continuing promise to review this for other zones in the future.

By way of reminder however, there are forthcoming changes to the capital allowances regime in the UK as a whole from 1 April 2012 which include the reduction in the rate of writing down allowances from 20% to 18% and a decrease in the annual investment allowances limit from £100,000 to £25,000.

Research and Development

In the area of innovation there are plans to introduce an ‘above the line’ tax credit in 2013 to encourage research and development activity by larger companies. Currently larger companies can claim relief at 130% on qualifying expenditure. This is coupled with the SME rate of R&D tax credit which increased to 200% from April 2011 (and is planned to increase further to 225% from April 2012), all subject to EU approval.

The Government also consulted this year on proposals intended to simplify the UK's R&D tax credit schemes with suggestions including removing the PAYE/NICs cap on the amount of payable credit that can be claimed, removing the minimum expenditure rules and allowing relief through the large company scheme for subcontracted activity forming part of a wider R&D project. A response to this consultation was published with the draft Finance Bill clauses.

Miscellaneous Measures

Some other measures of interest were confirmed. As announced in the March 2011 Budget, the increases in income tax personal allowances will go ahead. The personal allowance will be increased to £8,105 from April 2012 with a view to fulfilling the Coalition Government's proposal to eventually reach a personal allowance level of £10,000. However, this is coupled with a reduction in the 20% tax rate band from £35,000 to £34,370 for 2012–2013.

The annual exempt amount for capital gains tax will be frozen at £10,600 for 2012–13 having been increased to this amount in 2011–12.

The Government will also defer the 3.02 pence per litre (ppl) fuel duty increase that was due to take effect on 1 January 2012 to 1 August 2012, and will cancel the inflation increase that was planned for 1 August 2012, currently expected to be worth 1.92ppl.

An increase in the rate of the Bank Levy to 0.088% from 1 January 2012 was announced, stated to be consistent with the Government's intention, set out at the last Budget, that the Bank Levy should raise at least €2.5 billion each year. And the extension of Air Passenger Duty to flights taken aboard business jets is proceeding and will be effective from 1 April 2013.

As the crackdown on avoidance continues, the Government will introduce tax rules to ensure the amount of tax relief given to employers making asset-backed pension contributions to registered pension schemes accurately reflects the amount of payments made, and does not give rise to unintended excess relief.

It was also stated that the Government will put beyond doubt that manufactured overseas dividends cannot be used to obtain repayment or set off of income tax that the Exchequer does not receive. This was previously announced in a Written Ministerial Statement on 15 September 2011 and will take effect from that date.

The Stamp Duty Land Tax relief for first time buyers will end on 24 March 2012 having been in place since 25 March 2010. The removal of the VAT relief for low value consignment goods (below £15) sent from the Channel Islands to the UK will still go ahead from April 2012 in an attempt to end the exploitation of the relief but avid buyers of DVDs and CDs from these countries can still enjoy the lower prices and savings this relief brings for the Christmas period and a few months thereafter.

Northern Ireland

Aside from all of the above and many other forthcoming changes, potentially the biggest announcement relevant to Northern Ireland for many years is yet to come. The consultation on measures to rebalance the Northern Ireland economy closed on 24 June and a response from the Government is expected very soon.

Chartered Accountants Ireland has long campaigned on the merits of a reduced rate of Corporation Tax in Northern Ireland. Though we note the costs, there is strong evidence for the positive impact it will have. We await the Government's response with interest.

As a closing remark, readers are reminded that at the time of writing, draft Finance Bill 2012 clauses due to be available on 6 December had just been published. Therefore the aforementioned synopsis should be read in that context. One thing is for sure, there's plenty to keep all tax specialists busy in the future.

Leontia Doran is Education and UK Taxation Specialist for Chartered Accountants Ireland.

Tel +44 90 435840

Email leontia.doran@charteredaccountant.ie