Pre-Budget thoughts

In this pre-Budget alert RSM Tenon cover business taxes:

Rates

One of the coalition’s early commitments was a reduction in the headline rate of corporation tax from 28% to 25%. We don’t know the details yet but I would imagine that the rate will be reduced over a number of years – don’t expect the rate to go down 3 points immediately on Budget day!

The sting in the tale

It is not all good news however. The rate cut will be funded by a reduction in capital allowances. At the moment businesses get a tax write off of 20% on plant and machinery. That relief is now under threat. This will hit the manufacturing sector much harder than the service sector: is that really the way to stimulate economic recovery?

Small business

If the main rate of corporation tax goes down what will happen to the lower rate? Logically that should go down as well, but this is by no means certain. The coalition has announced that it will review the way that small businesses are taxed and it may be that radical change may be proposed. I don’t expect anything immediate, but taxes for small businesses may look very different in a few years’ time.

VAT

The government has done nothing to dampen down the speculation that VAT will rise: the question is when? Last time the rate changed businesses criticised the lack of notice that they were given to make all of the necessary price adjustments. At the time HMRC said that they had taken this on board. So we anticipate that there will be an announcement of a VAT increase, but not immediately – 1 September seems a possible date.

Tip of the Week

If you about to incur large amounts of capital expenditure there may be an advantage in bringing as much forward to before Budget day as possible, just in case there is an immediate reduction in capital allowance rates.