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Budget Musings

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I am not an economist, so I am not going to try to get into the arithmetic of whether the apparent (and modest) giveaways in the Chancellor’s Budget last Monday can be afforded – it seems to me that this depends entirely on the accuracy of the ‘independent’ OBR’s forecasts. My crystal ball needs a polish, but, if the OBR’s forecasts are as accurate as the BBC’s weather forecasts, then…….

I will also not have a whinge about the fact that next year’s Finance Bill (draft to be published this Wednesday, but much already ‘out there’) will add the best part of another 1,000 pages to our tax legislation, already one of the most complex and voluminous in the world.

Of course, a lot of the headlines focus on the personal allowance, and the level at which higher rate tax kicks in, leading to a debate on whether changes help (or should help) one group as against another. But that is a far cry from the detailed technical stuff that adds most of those additional pages. Our job is to get to grips with that legislation, and to help our clients deal with it. Especially with Brexit on the horizon, I think that what business needs as much as anything else is stability, so, for all the faults within the tax system, I might quite have liked a Budget that said ‘everything is reasonably OK, so I shall leave things as they are’. Wishful thinking!

However, some of the tax measures announced are very positive for business, and for that I am thankful. The increase in the Annual Investment Allowance from £200k to £1m for two years from January 2019 is very good for business (although there will be some kicking themselves for having incurred expenditure just before this takes effect!).

Similarly, the ‘new’ Structures and Buildings Allowance, allowing tax relief (albeit at just 2%pa) on new commercial building works is to be welcomed. Whilst not identical, it bears a striking resemblance to the ‘old’ industrial buildings allowance, which was abolished about ten years ago by Gordon Brown, a move which I thought at the time was quite wrong, when he should have been extending the relief. Ah well, nostalgia ain’t what it used to be!

There was a significant school of thought that wondered if Entrepreneurs’ Relief (which gives a 10% rate of CGT on certain business disposals) might be for the chop. In the event, there were headlines like ‘Entrepreneurs’ Relief is safe!’, since he merely announced a couple of areas where the rules are to be tightened, one of these changes being badged as being to stop abuse. However, as the draft legislation was studied, it became apparent that the impact could be very much wider than stated, and could prevent ER being claimed in many entirely commercial situations, for example growth shares or hurdle shares (common in the private equity field), and ‘alphabet’ shares (common in private companies). It is not yet known if this was deliberate, or a case of the law of unintended consequences. I understand that meetings are to be held with HMRC, and that strong representations are to be made to push for these changes to be much more narrowly targeted. At a time when stability is needed, these changes would have the opposite effect, and run the risk of preventing good commercial deals happening. Furthermore, they would have retrospective (or is that retroactive?) effect, in that they mean that past transactions will have very different tax consequences to those based on the legislation that was in place at the time. It is to be hoped that sense prevails. Watch this space.

Whilst I have long called for significant changes to inheritance tax (like getting rid of it!), I think now is not the right time, but I do think he missed an opportunity to reverse some of the recent changes to Stamp Duty Land Tax, which cannot be helping the property market.

Depending on the outcome of Brexit negotiations, we may have another budget In March or thereabouts – giving him another opportunity to mess things up  get it right! (or not).