Budget 2012 web seminar - EY - United · PDF file22 March 2012 Budget 2012 web seminar. ......

Budget 2012 web seminar

22 March 2012

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Budget 2012 web seminar22 March 2012

Panelists

Chris Sanger, Ernst & Young LLP (UK)Head of Tax Policy andWebcast moderator

Patrick Stevens, Ernst & Young LLP (UK)Tax Partner

Andrew GoodwinSenior Economic Advisor, ITEM Club

Page 1 Budget 2012 web seminar22 March 2012

Agenda

► Economic commentary – Ernst & Young ITEM Cluby g► Overview► Business taxes► Business taxes► Personal taxes► Environmental and other taxes► Environmental and other taxes► Anti-avoidance► Q&A► Q&A

► Survey► Survey

22 March 2012Page 2 Budget 2012 web seminar

Budget 2012:

Now it’s down to business to deliver the goodsdeliver the goods

Andrew GoodwinErnst & Young ITEM Club

22 March 201222 March 2012

The OBR's new forecast – key points

• Remarkably few changes to the economic forecasts. Modest upward revision to 2012 cancelled out by downward revision to 2013

• Forecasts look a touch high but are not materially different to the ITEM forecastITEM forecast

Barely any change to economic forecasts

OBR (N ) OBR (M ) ITEM (J )

UK: OBR forecasts for GDP growth% year

• Downward revisions to assumptions for global growth due to the

3.0

3.5 OBR (Nov) OBR (Mar) ITEM (Jan) growth due to the escalation of the Eurozone crisis…

but little feed

2.0

2.5 • …but little feed through to UK forecasts. Modest upgrade to 2012 offset

1.0

1.5upgrade to 2012 offset by downgrade to 2013

• Forecasts still look a t h t b t

0.0

0.5

2011 2012 2013 2014 2015 2016

touch strong but are not materially different to ITEM view

2011 2012 2013 2014 2015 2016Source : ITEM Club, OBR




• Stable economic forecast means relatively few changes to fiscal forecasts. Some distortions due to Royal Mail pension fund being o ecasts So e d sto t o s due to oya a pe s o u d be gbrought into public sector, but otherwise similar prognosis to November

P bli S t N t B i f t i l ti l £11b l• Public Sector Net Borrowing forecast is cumulatively £11bn lower than November – a negligible amount in the current climate

Fiscal forecasts also very similar

160

UK: Public Sector Net Borrowing*£bn * excluding financial interventions

• Temporary reduction in borrowing in 2012/13 due to transfer of

120

140

160

OBR (Nov)

OBR (Mar)

Royal Mail pension fund transferred to public sector

due to transfer of Royal Mail pension fund to public sector

Otherwise few

80

100

120 OBR (Mar)

ITEM (Jan)• Otherwise few

changes to public finances forecasts –just £11bn lower

40

60just £11bn lower cumulatively over 5 years

Th f t l k

0

20

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

• These forecasts look a little conservative – we think tax revenues will be stronger2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Source : ITEM Club, OBRbe stronger






• The judgment on the fiscal mandate is broadly unchanged• The judgment on the fiscal mandate is broadly unchanged

Margin for error on fiscal mandate unchanged • Margin for error on the

fiscal mandate remains 0 5% of GDP1 OBR (N ) OBR (M ) ITEM (J )

UK: Cyclically-adjusted current balance% of GDP remains 0.5% of GDP

or around £10bn

• Therefore room for small giveaways but

0

1 OBR (Nov) OBR (Mar) ITEM (Jan)

small giveaways, but not for any large or permanent stimulus

-2

-1

• We think the headroom might be slightly larger at

d 0 9% f GDP4

-3

around 0.9% of GDP or around £18bn

-5

-4

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Fiscal mandate: cyclically-adjusted currentbudget must be zero or better in 2016/17

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17Source : ITEM Club, OBR






• The judgment on the fiscal mandate is broadly unchanged• The judgment on the fiscal mandate is broadly unchanged

• These forecasts are a little conservative but in the right ballpark

Budget policy changes – the ITEM view

• Despite the room for a small, temporary, giveaway, the Chancellor wisely decided against it, delivering a fiscally-neutral Budgetg , g y g

• Since the Autumn Statement the Government appears to have run out of ideas for spending on small-scale microeconomic projects aimed at boosting productive potentialproductive potential

• So the focus has switched to reform of the tax system. The message is that the Government is improving the climate for business…its now up to business themselves to deliver the goods

Companies are central to the recovery• The Budget was

business-friendly, with a clear aim of8

UK: Corporate sector financial balance% of GDP, 4QMA

a clear aim of improving the climate for business

UK companies are

6

8Non-financial corporations

• UK companies are running their largest cash surpluses for 30 years and have the

2

4

years and have the means to support the recovery…

th t t

-2

0Financial

corporations

• …now they must step up to the plate by investing and creating jobs

-6

-4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 jobs2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source : Haver Analytics





• There was an important regional angle to this Budget. Regional pay settlements and the reduction of the 50p rate will be unpopular outside of thesettlements and the reduction of the 50p rate will be unpopular outside of the south, but the pain will be eased by the large increase in personal allowance

Regional pay settlements look a good idea• Government

departments exiting pay freezes in April150

UK: Public sector wage as % of private sector*%

pay freezes in April 2012 will be able to introduce regional pay settlements

140

150* median full-time wages, 2011

• Large differentials between public and private sector pay120

130

private sector pay outside London & South East suggest it is a good idea100

110

is a good idea…

• …but it will be very unpopular in the regions

90

100

SE GL ET SW WM EM YH NW NE WA SC NI UK regionsSE GL ET SW WM EM YH NW NE WA SC NI UKSource : Annual Survey of Hours & Earnings

Pain is eased by higher personal allowance• The reduction in the

50p rate will also disproportionately15 3 0

UK: Taxpayers by income band (%)% under £10k % over £150k

disproportionately benefit the south

• So the Chancellor was keen to give

14

15

2.5

3.0% under £10k (LHS) % over £150k (RHS)

keen to give something back to the northern regions in return The increase in

12

13

1.5

2.0

return. The increase in personal allowance will be much more beneficial to these

10

11

0

1.0

beneficial to these regions and they will be largely unaffected by the changes to

8

9

SE GL ET SW WM EM YH NW NE WA SC NI UK0.0

0.5

by the changes to stamp duty

SE GL ET SW WM EM YH NW NE WA SC NI UKSource : HMRC





• There was an important regional angle to this Budget. Regional pay settlements and the reduction of the 50p rate will be unpopular outside of thesettlements and the reduction of the 50p rate will be unpopular outside of the south, but the pain will be eased by the large increase in personal allowance

• Overall it was a steady, business-friendly, Budget. The Chancellor will hope that these positive messages linger longer than the negative media reaction over the ‘granny tax’

Overall Budget judgement

2012/13£m

2013/14£m

2014/15£m

Personal taxesPersonal taxesPersonal allowances 0 (3,320) (3,450)Rate change to 45% 0 (50) (100)Forestalling (2 400) 760 1 750Forestalling (2,400) 760 1,750Relief cap 0 0 490Age-related allowances 0 360 670

Corporate taxesRate cut (405) (730) (820)CFC recosting 210 365 320CFC recosting 210 365 320Bank levy 10 420 455

Other * 655 1 245 2 670Other 655 1,245 2,670

Total (1,930) (950) 1,985

* I ti i t d ti ti id t d th di* Incentives, environment, duties, anti-avoidance, new taxes and other spending


Business taxesA competitive tax regime for the UK?A competitive tax regime for the UK?

► Territorialityy► New CFC regime► Foreign branch exemption► SSE► Dividend exemption

► Tax rate► Rate cut

P t t B► Patent Box► Finance companies

► Tax base► Tax base► Intangible assets regime► Interest deductibility► Interest deductibility


Business taxesCorporation tax ratesCorporation tax rates

Rates 2011 2012 2013 2014 2015Main (old) 26% 25% 24% 23% 23%Main (new) 26% 24% 23% 22% 22%Small profits 20% 20% 20% 20% 20%Small profits 20% 20% 20% 20% 20%

CT receipts (£billion) 43.4 44.8 44.8 45.8 46.1

Increase in Bank Levy to 0.105% for short-term chargeable liabilities and 0 0525% on chargeable equity and long termliabilities and 0.0525% on chargeable equity and long-term chargeable liabilities from 1 January 2013 to take account of rate cuts to ensure promised £2.5bn raisedrate cuts to ensure promised £2.5bn raised


Business taxesResearch & DevelopmentResearch & Development

Proposed changesp g► Above the line credit ► Consultation announced► Introduced from April 2013► Minimum rate of 9.1% but final rates to be decided

f ll i lt tifollowing consultation

Other changes previously announcedOther changes previously announced► New guidance – production and distributions costs► Widening for Externally Provided Workers► Widening for Externally Provided Workers► Increase of SME uplift to 125% from April 2012► Other minor changes g


Business taxes Specific Budget measuresSpecific Budget measures

► Capital allowancesp► Enhanced capital allowances (ECAs) in some Enterprise Zones► ECAs on energy-saving and water-efficient technologies► FYAs on environmentally-friendly cars► First-year credits on environmentally-beneficial P&M

► Special tax regime for creative sector► Aimed at video games, animation and high-end TV

Si il t Fil T i► Similar to Film Tax regime► Consultation over summer – legislation in FB 2013► Subject to State Aid approval► Subject to State Aid approval


Business taxes Specific Budget measures (cont’d)Specific Budget measures (cont d)

► Asset-backed pension contributionsp► Grouping rules and convertible loans► Capital gains for non-sterling functional currency► Capital gains for non sterling functional currency

companies► Regulatory capital instrumentsg y p► Income tax rules on interest and interest-like returns


Business taxes Industry-specific Budget measuresIndustry-specific Budget measures

► Oil and gasg► Field allowances► Decommissioning security

► REITs – expansion of scope► Life insurance

► Anti-avoidance on transition to new regime► Taxation of claims equalisation reserves► Limit on qualifying policies

► EIS/VCT – maximum amount company can raise increased from £2m to £5mincreased from £2m to £5m


Business taxesTax simplification for small businessesTax simplification for small businesses

► Cash accountingg► Voluntary taxing on a cash accounting basis from April 2013► Annual turnover up to £77,000► Turnover can rise to £150,000► Only unincorporated

► Consultation on a simplified expense system, such as for business use of cars, motorcycles and homeC lt ti l t i t d di i ti► Consultation on proposals to introduce a disincorporation relief

► Links with small businesses and agents► Links with small businesses and agents


Personal and employment taxesPersonal tax ratesPersonal tax rates

Income taxRates 2011/2012 2012/2013 2013/2014Basic rate 20% 20% 20%

Income tax

Higher rate 40% 40% 40%Additional rate 50% 50% 45%Dividend additional rate 42.5% 42.5% 37.5%Dividend additional rate 42.5% 42.5% 37.5%Cash tax dividend rate 36.111% 36.111% 30.555%


Personal and employment taxesHigh earnersHigh earners

► No changes to tax reliefs on pension contributionsg p► Reduction in 50% rate to 45% from 6 April 2013► From 6 April 2013 restrictions on use of income tax reliefs► From 6 April 2013 restrictions on use of income tax reliefs

which are not capped and where claim for relief >£50,000, set at 25% of income► Charitable donations - possible restriction?

► Reduction in Personal Allowance for incomes >£100,000 remains

► Will not receive full benefit of Personal Allowance i i 2013/14 d t d i hi h tincrease in 2013/14 due to decrease in higher rate threshold


Personal and employment taxesChild Benefit income tax chargeChild Benefit income tax charge

► If a parent has adjusted net income >£50,000, an income p j , ,tax charge will apply at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000

► Parents can elect not to receive Child Benefit if they do t i h t b bj t t tnot wish to be subject to new tax

► For 2012/13, the tax charge is only levied on the Child Benefit received from 7 January 2013 to the end of the taxBenefit received from 7 January 2013 to the end of the tax year


Personal and employment taxesPersonal allowances and pensionersPersonal allowances and pensioners

► Personal allowances to be increased to £8,105 in 2012/13 ,and to £9,205 in 2013/14

► Income tax age-related allowances restricted to gindividuals born after 6 April 1948

► Age-related allowances frozen until they align with the personal allowance

► Combination of basic state pension and state second i i t t t i f f t ipension into one state pension for future pensioners

► Automatic review of the state pension age


Personal and employment taxesEmployee ownershipEmployee ownership

► Enterprise Management Incentive (EMI) schemep g ( )► Grant limits increased from £120,000 to £250,000 to be introduced

at earliest opportunity following State Aid approval► Entrepreneurs Relief available for gains on shares acquired

through exercising EMI options from 6 April 2012 (provided shares held for one year)y )

► Consideration of OTS’s recommendations for tax advantaged share schemes

► Internal HM Treasury review to examine role of employee ownership in supporting growth


Personal and employment taxesNon-doms residence and inheritance taxNon-doms, residence and inheritance tax

Non-doms, residence and ordinary residence, y► Previously announced measures for non-doms to be

introduced from 6 April 2012p► As previously announced the introduction of a statutory

residence test for individuals from 6 April 2013► Abolition of ordinary residence but retention of overseas

workday relief and placed on a statutory footingInheritance tax► Proposals for non-domicile spouses► Review of the taxation of certain trusts


Stamp taxes for residential property

► From midnight on Budget Day for residential property g g y p p yvalued more than £2m rate of SDLT increases from 5% to 7%

► Anti-avoidance rules where property (value >£2m) held by a non-natural person:► 15% rate applied to transfers to non-natural persons► Capital gains tax to apply from April 2013 following consultation► Consultation on an annual charge► Consultation on an annual charge

► From Budget Day new measures confirming the restriction of SDLT sub-sale reliefof SDLT sub sale relief

► Warning of retrospective legislation to block any new schemesschemes


Other taxes and dutiesEnvironmental taxesEnvironmental taxes

► Review Carbon Reduction Commitment in autumn with possible replacement by new environmental tax

► Changes to Air Passenger Duty (APD) as previously g g y ( ) p yplanned

► From April 2013, an increase in the standard rate of Landfill Tax by £8 per tonne to £72 per tonne, but the lower rate will remain frozen at £2.50 per tonneA i l d th f l d t i th t► As previously announced, the fuel duty increases that were due to take effect on 1 January 2012 will take effect on 1 August 2012on 1 August 2012


VAT ‘Correcting’ anomalies and closing loopholesCorrecting anomalies and closing loopholes

VAT anomalies and loopholes to be addressed applying VAT p pp y gto:► Approved alterations to listed buildingspp g► Certain hot food, cold food for consumption on the

supplier’s premises and sports drinks► Rental of hairdressers’ chairs► For purchase of holiday caravans► Between self-storage and other forms of storagebut to keep broad exemptions on food, books and childrens’ p pclothes


Other dutiesTobacco and gambling dutiesTobacco and gambling duties

► Tobacco duties to increase by RPI +5% from Budget Dayy % g y► New Machine Games Duty from 1 February 2013:

► Standard rate of 20%► Lower rate of 5%

► Remote gaming duty► Double tax relief► Place of consumption basis to be introduced in December 2014


Protecting tax revenuesGeneral Anti-Abuse Rule (GAAR)General Anti-Abuse Rule (GAAR)

► Consultation on details of a limited GAAR to be introduced from April 2013► Personal taxes► Corporate taxes


Protecting tax revenuesSpecific anti-avoidance measuresSpecific anti-avoidance measures

► Consultation on Transfer of Assets Abroad and capital pgains of non-UK close companies legislation – following recent European Commission ruling that such provisions are discriminatory

► Contributions by employers to an employee’s family b ’ i ill b t bl f 6 A il 2013members’ pension will be taxable from 6 April 2013

► Debt buy-backs by companies


Q&A

Chris SangerHead of Tax Policy, Ernst & Young

Telephone: +44 (0) 20 7951 0150Mobile: +44 (0) 7956 105 723Email: [email protected]

Patrick StevensTax Partner, Ernst & Young, g

Telephone: +44 (0) 20 7951 2334Mobile: +44 (0) 7775 818 926E-mail: [email protected]

Andrew GoodwinSenior Economic Advisor, ITEM Club

p @ y

E-mail: [email protected]


Thank you

22 March 2012

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