Delivering his fourth budget of the current Government last month, the Chancellor George Osborne read his speech with the typical gusto and enthusiasm of a nation's Chief Financial Officer. The speech, and accompanying mountain of documents published virtually as soon as the Chancellor had taken his seat about an hour later, were written along the theme of ‘the aspiration nation’. But was there anything to inspire tax enthusiasts? Let's take a look at some of the key measures announced on Budget day.

Business Taxes

Some have viewed the Budget as ‘business friendly’ with enhancements in several areas.

The Corporate Tax Reform Roadmap continues on its journey with a further 1% cut in the main rate announced which will apply from 1 April 2015. Not only does this mean that the final rate from that date will have fallen by 8% to 20% over recent years, but the changes represent a major simplification in the UK corporate tax system removing complex marginal relief calculations for many companies.

The banking sector will however see an increase in the bank levy to offset the benefit from reductions to the main rate of corporation tax. The full rate of the levy will increase from 0.130% to 0.142% from 1 January 2014.

A new £2,000 employment allowance was announced for all businesses and charities to be offset against their employer Class 1 secondary NICs bill from April 2014. The allowance will be claimed as part of the normal payroll process through RTI (Real Time Information).

Finance Bill 2013 intends to amend the current restrictions when companies resident in the EEA can surrender losses from their UK branches as group relief from corporation tax in the UK. From 1 April 2013, these restrictions will be based on whether the losses are used elsewhere in any period, rather than on whether they could potentially be used elsewhere. The UK is currently subject to a reasoned opinion by the EU on its EU loss relief rules and it remains to be seen if these amendments will be sufficient to prevent an ECJ case on the matter.

Changes are also planned in anti-avoidance legislation which deals with both the transfer of assets abroad and gains on assets held by foreign companies to ensure their compliance with EU law.

Following consultation, the legislation relating to transfer of assets abroad has been revised to partially exempt income from charge when the income is attributable to a transaction where part is genuine and part is not genuine. The change will have effect from 6 April 2012.

In addition, legislation will be introduced in Finance Bill 2013 to enable companies to opt for deferred payment arrangements in respect of exit charges. This will allow UK resident companies to defer payment of certain corporation tax charges when they cease to be resident as a consequence of a transfer of their place of management to another EU or EEA Member State. UK permanent establishments of non-resident companies incorporated elsewhere in the EU or EEA will also be able to defer payment of corporation tax attributable to unrealised gains on assets which cease to be held for the purposes of a UK trade. These changes have effect from 11 December 2012 and are also in response to an EU reasoned opinion on exit charges.

The gains on assets held by foreign companies legislation to be introduced in Finance Bill 2013 has been amended to remove the requirement in the new ‘economically significant activity’ exemption for activity to be carried on wholly outside the UK through a non-UK business establishment.

The energy-saving and water-efficient enhanced capital allowances schemes will be updated by Treasury Order in summer 2013, subject to State Aid approval. The main changes will be the inclusion of two new technologies to the schemes: carbon dioxide heat pumps for water heating and grey water re-use technology.

Seed Enterprise Investment Scheme (SEIS)

As is traditional, tweaks were made to some existing reliefs with two particular changes specific to the SEIS.

The SEIS capital gains tax holiday for 2012/13 will be extended to a limited extent. Relief is being provided for reinvesting gains in SEIS shares to gains accruing in 2013–14 when those gains are reinvested during 2013–14 or 2014–15; the relief will apply to half the qualifying re-invested amount.

In addition, Finance Bill 2013 will include legislation removing the current barrier which prevents a company from qualifying for SEIS where it was established by a corporate formation agent before sale to its ultimate owners. This will apply in respect of shares issued on or after 6 April 2013.

Research and Development (R&D)

The planned ‘above the line’ (ATL) R&D tax credit for large companies announced in Budget 2012 will go further than previously announced.

The credit will be paid at a rate of 10% of qualifying expenditure and not 9.1%. The new rules will be effective for qualifying expenditure incurred on or after 1 April 2013. The ATL credit scheme will initially be optional and companies will be required to elect to claim R&D relief under this scheme. Companies that do not elect to claim the ATL credit will be able to continue claiming R&D relief under the current large company scheme until 31 March 2016. The ATL credit will become mandatory on 1 April 2016.

Income Tax

The two ‘big ticket’ items in this category were the promised reduction in the Additional Rate of 50% to 45% from 6 April 2013 in addition to a further increase from next April in the personal allowance limit to £10,000.

In addition a measure announced at Budget 2012 takes effect on 6 April 2013 and allows two simpler income tax schemes for small unincorporated businesses. Further changes have been made to the draft legislation which will be revised to keep the cash basis optional but limit the circumstances under which a business can leave it and provide for an adjustment on a ‘just and reasonable’ basis where an individual takes business goods for own use. In addition, business will not be required to align reporting with the tax year.

Stamp Duty/Stamp Duty Land Tax (SDLT)

A number of changes were announced affecting this area including some new reliefs particularly for shares quoted on “growth markets”.

Many will be aware that the UK is not participating in the proposed Financial Transactions Tax which the EU is pursuing with 11 other countries under the enhanced co-operation rules. In a move apparently incongruous with the EU's plans, it was announced in the Budget, following consultation, that stamp duty on shares quoted on growth markets such as the Alternative Investment Market and the ISDX Growth Market will be abolished.

Finance Bill 2012 introduced a 15% rate of SDLT on the acquisition by certain non-natural persons of dwellings costing more than £2 million. A number of reliefs will be introduced in Finance Bill 2013 to reduce the rate to 7%.

Indirect Taxes

In addition to a range of measures in the area of various duties, there were two VAT announcements worthy of mention.

The VAT registration and deregistration thresholds will be increased in line with inflation so that:

• the taxable turnover threshold for registration will be increased from £77,000 to £79,000;
• the taxable turnover threshold for deregistration will be increased from £75,000 to £77,000; and
• the registration and deregistration thresholds for relevant acquisitions from other EU Member States will also be increased from £77,000 to £79,000.

A statutory instrument will apply the revised thresholds with effect from 1 April 2013.

The withdrawal of the VAT exemption for business research supplied by one eligible body to another is proceeding and will take effect from 1 August 2013. The possibility of transitional reliefs will be considered as part of that withdrawal.

Avoidance, Evasion et al

The usual plethora of anti-avoidance and evasion measures featured which, coupled with the new General Anti Abuse Rule, is intended to further enhance the Government's position in this area.

On Budget day, the Jersey Government announced that it is finalising a “FATCA” style agreement with the UK government to enhance its existing tax information exchange arrangements. This comes just weeks after the UK signed a Memorandum of Understanding with the Isle of Man and just recently new disclosure opportunities with both Jersey and Guernsey were announced.

Collectively, the Government is seeking to raise £4.6 billion in new revenue over the next five years with the Budget 2013 announcements.

Legislation will amend the inheritance tax provisions which allow a deduction from the value of an estate for liabilities owed by the deceased on death. In some circumstances, the changes will bring in new conditions for the deduction to be allowable, or will restrict the deduction. These changes will have effect from the date of Royal Assent to Finance Bill 2013. 11 specific avoidance schemes were also targeted with the effective date of the amending legislation being Budget day 20 March 2013.

Andrew Walker of Smith and Williamson LLP will take a closer look at these and recent developments in this arena in the May edition of tax.point.

Tax Advantaged Employee Share Schemes

A number of recommendations made by the Office of Tax Simplification in its review of tax advantaged employee share schemes are to be implemented.

Revisions will include:

• protecting the position of current Save As You Earn (SAYE) participants who reach a specified age;
• widening the range of circumstances in which tax free exercise of SAYE and Company Share Option Plan options or tax free payments for Share Incentive Plan (SIP) shares, will be available on the cash takeover of a business; and
• allowing businesses flexibility to limit the amount of cash dividends that can be reinvested in SIP dividend shares;

Most of these changes will have effect from the date of Royal Assent to Finance Bill 2013, although changes which relate to the reinvestment of cash dividends paid on SIP shares come into effect on 6 April 2013.

Enterprise Management Incentives (EMI) are being enhanced. Legislation will remove, for shares acquired through the exercise of a qualifying EMI scheme option, the requirement for a person to hold 5% or more of the ordinary share capital in the company in order to qualify for the entrepreneurs’ relief.

The period during which the option is held will also now count towards the qualifying 12 month holding period requirement. In addition, relief will also apply to the disposal of shares that replace EMI shares following a reorganisation of a company and to certain shares following an exchange for shares in another company.

As announced in December 2012, legislation will be included in the Finance Bill 2013 to exempt gains made on disposals of up to £50,000 worth of ‘employee shareholder’ shares from CGT.

Following consultation, the legislation will be revised to prevent an income tax charge arising on a distribution where a company buys back CGT-exempt shares and to strengthen the ‘material interest’ anti-avoidance provision, which denies CGT exemption in certain circumstances. In addition income tax and National Insurance contributions respectively will not be chargeable on the first £2,000 of share value received by eligible employee shareholders. It is anticipated that these changes will have effect from 1 September 2013.

Conclusion

Whilst the Budget was a combination of positive measures in a number of areas and the now normal flood of avoidance announcements, disappointingly the decision on devolution of corporation tax powers to the Northern Ireland assembly did not feature. Less than a week later it was announced that there will be no decision on the matter until after the Scottish independence referendum next year.

Readers are reminded that many new measures announced during the 2012 Autumn Statement and at previous budgets will also be effective from 6 April 2013. This includes such measures as the cap on income tax reliefs and the statutory residence test. HM Treasury's Overview of Tax Legislation and Rates is a useful summary of all measures effective 6 April 2013 (and et seq.) whether as a result of this or previous Budget/Autumn statement announcements. 6 April 2013 also sees the biggest change to the UK PAYE system in many years with the introduction of Real Time Information.

As always, the devil is often in the detail – Finance Bill 2013 was also published last month and the aforegoing should be read in that context.

Leontia Doran is UK Taxation Specialist with Chartered Accountants Ireland.

Email: leontia.doran@charteredaccountants.ie