Budget Analysis


Richard Stratton finds that the budget contained much to both help and particularly hinder solicitors



This was the last Budget by Gordon Brown and it contained some pretty significant changes to the tax system, made in the typical manner of the Chancellor - different commencement dates, intricate alterations and a general uncertainty as to whether the supposed giveaway had actually happened or was reversed by a tax charge somewhere else.



From 2008, corporation tax is reduced to 28% (although the small companies rate will increase to 22% by 2010), basic rate income tax to 20%, the 10% starting rate is removed, writing-down allowances on plant and machinery are reduced to 20% but increased to 10% on long-life assets, and from 21 March we say goodbye to the industrial buildings and agricultural allowances. There are a number of 'green measures' (including a consultation on Japanese knotweed).



Disappointingly, no action has been taken to rectify remaining criticisms of the taxation of trusts regime introduced last year. There was a grudging acknowledgment of European tax rules, so that from 2008 tax credits are available to those receiving less than £5,000 of dividends on non-UK shares where the holding is less than 10%. The government may yet be thrown off course by European tax issues.



Self-assessment deadlines



The government has decided to implement the recommendations of Lord Carter of Coles following a review of HM Revenue & Customs' (HMRC) online services. The effect of this is that the deadline for filing returns in paper format is reduced. From 2007-8, paper income tax self-assessment returns will now have to be filed by 31 October after the end of the tax year in question. The date for filing income tax self-assessment returns in order for HMRC to calculate the tax liability will be changed from 30 September to 31 October to align with the paper filing date. Those who chose to use online filing will benefit from a longer filing period to 31 January (and HMRC will still calculate the tax).





The period during which HMRC can enquire into a return will be one year from the date the return is filed, rather than the statutory filing date. Payment and filing will have to made online from 2009 onwards, starting with PAYE, then VAT and then corporation tax - the date of payment will be when HMRC receives cleared funds in

its account.



VAT



The thresholds for registration and de-registration for VAT purposes are changing. The threshold for registration for VAT is now £64,000, whereas applications for de-registration may be made if turnover falls below £62,000. The VAT record-keeping rules that apply where businesses are sold as a going concern are to be amended, so that the seller can retain the business records and just provide the buyer with the information it needs to comply with its duties under the VAT Act.



Stamp duty land tax



Many had hoped for an increase in the thresholds for paying stamp duty land tax (SDLT) but none was forthcoming. The threshold remains at £125,000. There have been some minor changes to SDLT that will benefit practitioners and their clients. For all transactions that take place on or after Royal Assent (expected towards the end of July), practitioners will no longer have to send the SDLT payment with the SDLT return, provided payment is received within 30 days of the effective date (normally completion), facilitating online completion of the SDLT return.



In addition, changes have been made to the rules for calculating the amount of SDLT payable where there is an exchange of property between connected persons (such as husband and wife, or brother and sister). Where previously the value of the two properties was aggregated to calculate the rate of SDLT, the appropriate rate payable will be calculated in respect of the value of each individual property (previously homes of £300,000 and £220,000 that were exchanged would have incurred a charge of 4% calculated on the combined value of the two home, whereas under the new rules, 3% will be charged on the first property and 1% on the latter, meaning a reduced SDLT bill overall).



The government is proposing to confirm in the Bill an anti-avoidance measure introduced by regulation (section 75A) in December; the provision is to be amended but we are not clear how. On behalf of the profession, as chairman of the tax law committee, I wrote to the Paymaster-General to complain about the uncertainty this provision introduced into real estate transactions as a result of the ability of HMRC to identify a notional transaction and collect stamp duty land tax by reference to that transaction, not the land transactions that the parties actually carried out. We will continue to lobby during the passage of the Bill against the shortcomings of this provision.



Anti-avoidance



The government has continued its attack on avoidance. There are measures targeted at companies which buy and sell companies to get a tax advantage though gaining access to their capital losses and gains; avoidance using employee benefit trusts and managed service companies; and a targeted anti-avoidance rule in relation to capital gains tax that will restrict the use of capital losses to those arising from genuine commercial transactions.



The Finance Bill introducing the measures will be published on 29 April, the last day before the Easter recess. The tax law committee will comment on the Bill and, where appropriate, draft amendments to be tabled for discussion when the Bill is scrutinised in detail in the public Bill committee.



Richard Stratton is a partner at City firm Travers Smith and chairman of the Law Society's tax law committee