Budget 2007 commentary

Richard Mannion, National Tax Director, gives his view on this year's budget.

"This was the Chancellor of the Exchequer’s 11th and probably final Budget. One constant theme throughout all 11 Budgets has been a propensity for tinkering with taxes and tax rates and this was the case again on this occasion.

The rate of corporation tax paid by the smallest company has varied from 0% to 21% since Gordon Brown took over at number 11 and this year sees the highest rate ever of 22%. The 10% starting rate of income tax that Mr Brown introduced in 1999 is now to disappear but with a corresponding reduction in the basic rate from 22% to 20%.

Many businesses were incorporated in recent years in response to the Nil% and 10% corporation tax rates and many of those businesses will now be considering whether to dis-incorporate. The clear message is that this Government now wants to dissuade small businesses from incorporating partly because of the perception that they can avoid paying National Insurance Contributions in the company environment by rewarding themselves with dividends. The gap between taking the rewards of entrepreneurship and perceived tax avoidance is narrow!

Overall this Budget did little to reduce complexity although there were a couple of notable exceptions:

In recent years many people have acquired property offshore for holiday or retirement use. In many of these cases the property will have been owned via a company for reasons unconnected with UK tax planning. The result of using this structure was that the individuals found themselves facing UK tax liabilities on benefits in kind on what were essentially domestic arrangements. This practical problem has been recognised and we are promised a change in the legislation next year.

Hitherto there has been no consistency in the level of penalties charged for errors and misdemeanours. A new tariff of penalties is to be introduced, ranging from suspended sentences for those who have made relatively low level errors to swingeing penalties for those who set out to defraud the system.

In his final Budget, Gordon Brown beat his previous record for the number of Budget Notes. This year’s score card was 81 Budget Notes running to 189 pages, in addition to various other publications, thereby leaving a rather large carbon footprint."

Richard Mannion
National Tax Director
21 March 2007