Bel is thinking

As promised, a little more on the Budget. I know this topic has been covered in other places, but having spent yesterday conducting briefings on the Budget, I came up with an interesting exercise.

There is both good news and bad news for the taxpayer in the Budget. I thought it would be interesting to separate both, so that we can see when each takes effect. It seems to me that most of the good news takes effect later, while the bad news takes effect sooner. If this is the case, we will know exactly how Gordon Brown plans to fund the so-called tax cuts he has announced.

In setting out the measures, I have concentrated on those tax measures that are bound to affect directly how much tax we pay. However, I have not bothered with VAT and all the environmental taxes, etc. Life is too short, and besides, I expect there will be plenty of commentary on them elsewhere. I have also ignored changes aimed at correcting errors in the law, as well as press releases announcing consultation.

I will divide the post into measures taking effect before April 2008, and those taking effect after April 2008.

Measures taking effect BEFORE April 2008

• Increase in small companies corporation tax rate from 19 per cent to 20 per cent. Bad news.
• Withdrawal of balancing allowances on industrial and agricultural buildings, for contracts made after 21 March. Bad news.
• Withdrawal of balancing charges on industrial and agricultural buildings, for contracts made after 21 March. Good news.
• Tax relief for renovation of business premises in designated disadvantaged areas. Good news.
• Temporary extension of 50 per cent rate for first year allowances. Good news.
• Anti-avoidance measures to restrict capital loss and gain buying (takes effect 21 March). Bad news.
• Measures to restrict the buying of tax losses from loss-making corporate members of the Lloyd’s insurance market, who are ceasing underwriting activities. Bad news.
• Anti-avoidance measures to counteract attempts to circumvent the tax rules on the sale of lessor companies (takes effect 21 March). Bad news.
• Tightening the qualifying conditions (for tax relief) for venture capital trusts, enterprise investment schemes, and corporate venturing schemes (takes effect on 6 April 2007). Bad news.
• Relaxation of other qualifying conditions (for tax relief) for venture capital trusts, enterprise investment schemes, and corporate venturing schemes (takes effect on 6 April 2007). Good news.
• Stamp duty land tax relief for zero-carbon homes that satisfy very stringent conditions (1 October 2007). Good news, if you can jump through all the hoops to qualify.
• Targeted anti-avoidance rule for capital gains tax (takes effect from 6 December 2006). Bad news.
• Anti-avoidance measures targeting life insurance policies and commission arrangements (takes effect 21 March 2007). Bad news.
• Anti-avoidance measures targeting employee benefit trusts (takes effect 21 March 2007). Bad news.
• Relief from the 40 per cent trust rate for service charges and sinking funds in the public sector (takes effect on 6 April 2007). Good news.
• Small increase to the amount of benefit you can receive from a charity without your gift being disqualified from gift aid (takes effect 6 April 2007). Good news for charities.
• Tax charge for charities which hold large lotteries without a licence (takes effect 6 April 2007). Bad news.
• Anti-avoidance measures targeted at managed service companies. Bad news.
• Exemption for carbon trading business by investment managers trading on behalf of non-resident companies and individuals. Good news.
• Removal of tax charge from army officers’ Operational Allowance, and payments under the Armed Forces Redundancy Scheme 2006 (takes effect April 2006). Good news if you are an Army Officer.

Measures taking effect AFTER April 2008

• Reduction in income tax basic rate from 22 per cent to 20 per cent. Good news.
• Abolition of the 10 per cent tax rate. Bad news. 
• Reduction of mainstream corporation tax from 30 per cent to 28 per cent. Good news.
• Reduction from 25 per cent to 20 per cent in rate of writing-down allowances one can claim for expenditure on capital items. Bad news.
• Increase from 6 per cent to 10 per cent in rate of writing-down allowances one can claim for expenditure on long-life capital items. Good news.
• Writing down allowance of 10 per cent for fixtures integral to a building.
• Payable tax credits for capital losses on certain green technologies. Good news.
• Increase in research and development tax credit. Good news.
• Small increase in subscription limits for ISAs. Good news.
• Extension of non-repayable dividend tax credits to holders of shares in non-UK companies in prescribed circumstances. Good news.
• Removal of benefit in kind charge where an employee makes private use of a property abroad which has been bought through a company. Good news.
• Tax discount for company car drivers who drive a car capable of running on E85 fuel. Good news.

So judge for yourself. Seems to me that the extra tax revenue the Chancellor will get from the pre-April 2008 changes will more than pay for any tax cut. In particular, the anti-avoidance measures targeting businesses will yield a lot of tax revenue. One other point to make is that the Good News items in the pre-6 April 2008 list are of very narrow application. They apply to charities, soldiers, buyers of zero-carbon homes, and such small groups of people. So good news for them, but not for everybody else.