The Chancellor will make his autumn speech on December 5. George Osborne will discuss the state of the economy in line with the latest forecasts from the Office of Budget Responsibility.
It is widely accepted that the Chancellor’s debt targets will be missed, according to the National Institute of Economic and Social Research. Osborne will need bigger spending cuts if he wants to hit those targets. The rumour is that the government will abandon its debt reduction target.
Also while unemployment has recently fallen and Olympic fever provided an initial lift, there is a general consensus that times ahead will still be tough. Youth unemployment is still a major problem and overall growth has been slower than expected from the Budget forecast.
Here’s what I’d like to hear…
1 Corporation tax avoidance
It’s a topic that can’t really be missed off the agenda. We need a clear message that the avoidance of tax by multi-nationals won’t be tolerated. An action we would like to see announced is a move to work with foreign governments through OECD to reduce the ability of multi-nationals to move their profits around the globe to low-tax countries.
2 Reduced rate of VAT
This would stimulate business growth in the SME market. We know that many businesses operate below the current VAT threshold and therefore their expenses have been pushed up by the 20% standard rate, without the ability to pass them on to customers.
3 An increase in the personal allowances above the rate of inflation
This was already pre-announced in the 2012 Budget. It is a commitment and a fundamental part of the 2010 coalition agreement. This will reduce the squeeze on household budgets and be of major benefit for everyone, including entrepreneurs and those starting businesses.
4 The 3p Fuel Duty increase set to be postponed
In an economic climate where UK fuel costs are already one of the highest in Europe, if there was an increase it would only serve as another burden on the economy, with a disproportionate effect on the SME community. Also higher relative fuel costs help to make UK manufacturing less competitive than competitors overseas.
And what the Chancellor won’t mention…
1 The introduction of real time information
Most small businesses will incur costs associated with the implementation of real time information and will feel the full impact of the changes more acutely than larger organisations. While advice is out there, HMRC needs to offer more services and support to help smaller businesses prepare for the changes and avoid hefty penalties.
2 The re-launch of business record checks
These have already caused dismay throughout parts of the SME community. While it is reasonable for HMRC to carry out compliance checks, the reality is that many small businesses feel ‘targeted’, incurring penalties of up to £3,000, which may force many owners into bankruptcy.
3 Capping of reliefs
We do not anticipate that the proposed introduction of legislation to cap unlimited tax reliefs at £50,000 or 25% of income announced in the 2012 Budget (due to be implemented in April 2013) will be postponed. The fact that lost relief for start-ups is likely to still be included in the capping provisions is likely to deter budding entrepreneurs, as they will be left particularly vulnerable.
With business leaders adopting clever business strategies, facing up to the recession has created unexpected opportunities for organisations. A focus on international trade, reshaping culture, outlook and getting innovative about financing has led to companies creating more efficient ways of working.
Research from HSBC Commercial Banking has found businesses with smart finance strategies are both more likely to be predicting growth over the next two years and projecting a growth in exporting- with access to finance, such as using trade and invoice finance being central.
Steve Box, HSBC Head of Trade and Receivables Finance Europe, particiapted in a webTV show where he answered questions about smarter ways of financing your business. Key topics covered include: How to form formal and informal alliances; maximising cashflow and how to free up working capital and investing assets for growth.
I have to say that the rules for this new child benefit tax charge are the most complicated I have seen and a huge challenge for me to explain in simple terms. Not only that, but also the most bizarre and random date for implementation has been chosen (7 January 2013 – part way through the month and almost at the end of the current tax year), without any obviously explanation. So much for the Government promising tax simplification and even launching an office devoted to that purpose!
What are the changes?
A tax charge will apply where one or other partner in a relationship earns more than £50,000 a year and where they or their partner receives child benefit.
The tax charge applied will be 1% of the full child benefit for every £100 of income over £50,000. It will be charged to the person with the income that exceeds £50,000 – regardless of whether they are the one who receives the child benefit.
It seems rather unusual for a taxpayer to suffer a tax charge as a result of someone else receiving income!
The tax charge on a taxpayer with income of more than £60,000 will be equal to the amount of the child benefit and at this level the advice is for the taxpayer or their partner to opt out of receiving child benefit.
However, the advice is that you should still register for child benefit to ensure that National Insurance credits are received, where applicable, even though you would opt out of receiving payment of the benefit.
When will you be charged?
The full amount of income for the tax year 2012-2013 will be taken into account and the amount of child benefit will be that paid from 7 January 2013 to the end of the tax year being 5 April 2013.
In subsequent years, the full amount of child benefit and full income in a tax year will be taken into account. The tax due for 2012-2013 will be paid in the tax year 2013-2014, so the taxpayer will always be in a catch-up situation.
There are many practical issues associated with this tax charge system. First of all, how does HMRC know who will be caught by the scope of this brand new tax charge? It promises to write to taxpayers, but it will be your responsibility to inform HMRC that you or your partner earn above £50,000, are in receipt of child benefit and complete a self-assessment tax return.
Circumstances change over time, of course. As and when this happens you will have to keep HMRC updated on your personal relationship changes if the changes affect the tax charge you incur. Not only that, but there is also clearly an expectation that everyone knows their partner’s income. I am not sure that this is always the case.
All in all, this seems like an administrative nightmare waiting to happen, although I do hope I’m proved wrong!
Using 20 years' experience spent working at some of the UK's leading businesses, award-winning chartered accountant Elaine Clark is the founder and managing director of www.cheapaccounting.co.uk.