Budget Highlights
- New limits on tax-sheltered pension savings from 2006
- Accountancy firms and others must register tax avoidance schemes
- Customs & Excise and Inland Revenue to merge
- Dividend tax charge for small companies to encourage re-investment of profits
- Tax charge on pre-owned assets
While this year’s Budget will be remembered as the launch pad for the political debate that may
determine the outcome of the next General Election, there was plenty to tickle the interest of the
business community. Chancellor Gordon Brown reiterated his belief that private enterprise is
essential to economic stability, and he refrained from any measures which might threaten job
creation and the continuing growth in business start-ups.
Indeed, he made particular mention of the 600 businesses starting up each and every day and
implied that this sector is providing crucial momentum to the economy.
Mr Brown is keen that business investment remains healthy, and he expanded the scope of Venture
Capital Trusts, allowing 40% tax relief on investments of £200,000 per annum. He also raised the
threshold for VAT registration to £58,000, allowing a further 5,000 firms to escape the VAT regime.
Around 13,000 firms will also qualify for simplified VAT accounting.
It remains to be seen how businesses will be affected by the merger of the Inland Revenue and
Customs & Excise and the accompanying loss of 14,000 jobs (with just 3,500 of these being
redeployed). Business people and professionals in regular touch with these organisations will no
doubt be alert to any changes in the quality of service they receive.
One new task the merged mega-department will have to cope with is the registration, by
accountants, of tax avoidance schemes. In addition to announcing this, Mr Brown closed a
perceived loophole by imposing corporation tax at a minimum 19% on profits distributed to
individuals. He also announced an increase, initially for one year, in investment allowances for the
smallest businesses from 40% to 50%.
Pensions are always of interest to business people, and the Chancellor confirmed that a cap will be
introduced in April 2006 on the amount that can be invested in pension funds – but he wrong-footed
those who had made confident predictions about its level by setting it £100,000 higher than
generally forecast, at £1.5 million. The figure will rise to £1.6 million in 2007, and it will increase by
2010 to £1.8 million.
Arguments rage about the number of people who will be affected by the cap, but well-remunerated
business leaders and their advisers will clearly need to keep a weather eye on this area.
Another sometimes painful tax for the wealthy, Inheritance Tax, will in future affect fewer people, as
the threshold has been raised to £263,000.
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