ON YOUR MARK
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The Budget effectively fired the starter gun for a spring election, hut once you take away the headlines what's in it for smallto medium-sized hauliers? Robert Maas investigates. Gordon Brown's latest budget was a strange affair. It certainly did not look like a pre-election budget, but seems to have given the popular press, at least, the strong feeling that it was an election winner.
There were few significant immediate tax changes. Indeed, what seems to have pleased Joe Public is what the Chancellor did not do. He did not increase taxes on petrol or vehicle excise duty, he did not increase stamp duty, he did not increase tax on alcohol and the increase in tax on tobacco at 6p a packet of cigarettes was smaller than most people expected.
For the haulage industry the key change, apart from the freezing of duty on petrol and diesel and the reduction in duty on ultralow sulphur diesel—permanently, unlike the corresponding petrol change—is the reform of vehicle excise duty for lorries. From i December 2001 there will be only seven duty bands for lorries. The duty for a band A lorry will be LI65, rising through steps of £200, f450, £650, £1,200 and £1,5oo to it,85o for a band G one.
The band into which a lorry falls will be determined partly by reference to tonnage and partly by reference to number of axles. Full details are available in a Treasury/DETR press release which can be downloaded from either web site.
We are becoming used to the Chancellor's "forward-looking" strategy, under which instead of immediate tax changes there are lots of promises for the future. For the family, double children's tax credit in the year of birth of a new child, but not until 2002.
Large companies receive a form of rollover relief on share investments, but not yet. Very small companies get a flat rate of VAT, but only after consultation—which is likely to highlight a lot of fairly obvious problems. For small companies there is consultation on a radical proposal to base tax solely on the company's accounts from some unspecified date. Although this is an interesting concept, every time it has been looked at before the Revenue concluded that the problems outweighed the benefit. There is yet more consultation on reforming the taxation of intangible assets— this is a record fourth round of consultation.
Accounting
What is in the tax changes for the small business? Not much. The doubling to £600,000 of the turnover limit below which a small business can use VAT cash accounting is an important change. Cash accounting is good clews as it means both that the business does not have to finance VAT on debtors and that it gets automatic bad debt relief It is probably not suitable for capital intensive businesses because the downside is that it delays input tax relief on expenditure, but for most businesses that is not a major problem. The similar doubling of the limit for VAT annual accounting to £600,000 may be helpful to some, but for most people annual accounting is riot that good an idea.
It is not wholly clear what the offer from the Small Business Service of up to £2,000 of help for a start-up company in drawing up its business plan means. Most start-ups don't have, and in many cases probably don't need, elaborate business plans. But if the /2,000 can be used for general business advice that is certainly useful. It is also unclear if the unincorporated new business will be able to benefit from this handout.
The VAT reliefs for urban regeneration also look interesting for the property investor, although the small print often waters down VAT reliefs fairly alarmingly. The first proposal is that VAT will be chargeable at a reduced rate of 5% on work on renovating dwellings that have been empty for three years or more, converting houses into flats or residential homes and converting commercial property into dwellings. This operates from the time that the Finance Bill is passed by parliament—possibly this April but more likely to be next January.
The second proposal is that from August the sale of renovated houses that have been empty for to years will be zero-rated. Although the EC won't let Brown introduce his 5% reduced rate for repairs to churches that are listed buildings, he has got round this by introducing a 12.5% grant instead.
If the 15o% tax deduction for the costs of cleaning up contaminated land succeeds in bringing a lot of such land back into productive use that should help regenerate inner cities. Because much of the land is urban sites, it is likely to be good for businesses. Whether it will do so remains to be seen.
There is not much for the employee. The car fuel tax charge goes up by 14%. Car mileage rates for those that use their own cars are frozen at last year's rates, with the exception of cars under 1,500cc where there is an increase in the tax-free amount to 40p for the first 4,000 miles. The tax-free allowance for 2002/03 will be 4op-25p after 4,000 milesirrespective of the size of the car, which means reduced allowances for cars over I,500cc. Furthermore, the alternative of charging the actual cost plus capital allowances plus car loan interest is scrapped. These tax-free amounts, of course, also apply to calculate the IR35 charge.
Businesses
And there's not much for businesses either, unless one counts the correction of a lot of errors made in rushing last year's changes through Parliament. The most significant is the abolition of withholding taxes on interest and royalties paid by one UK company to another. On the face of it this will save a lot of paperwork. The reality though is that it replaces one lot of paperwork by another, as the payer remains liable for the tax if it turns out that the recipient is not UK resident. This means the payer may need to do a fair amount of checking to satisfy himself on this.
The headline change for the individual was the increase in the to% tax band, but this is actually worth only £43 a year. Of more importance is the increase of personal allowances and the basic rate tax band in line with inflation which was announced last November. The effect of these is that a person now needs about £34, oo o of taxable income before hitting the 40% tax bracket.
The main capital gains tax change is the very generous extension of capital gains tax business asset taper relief to all shares held by employees, even in an investment company, except where the employee and associates together control over 0% of the company.
The narrow definition of a trading company under the current rules has caused a lot of problems where a company owns some investments or even simply has a lot of surplus cash. The change will largely eliminate these difficulties. The exception for TO% plus shareholdings is to prevent individuals transferring their share or property investment portfolio into a company. The capital gains tax annual exemption also goes up by Doc, to f7,500.
Other changes include an increase in the pension schemes earnings cap by £3,600 to L95,400, an £8,000 increase in the inheritance tax threshold to £234,000, an increase in the VAT registration threshold to £54,000 and an increase in the exemption limit for small business gifts to £5o for both tax and VAT.
Overall there is little here for business and indeed very little in the way of jam today rather than jam tomorrow for everyone.
• by Robert Maas Robert Maas is the tax partner in the City accounting firm Blackstone Franks.