LAST week's Budget was more interesting for its politics than its changes to the tax system. There were a lot of half-baked measures in the tax announcements ... things to come into effect later or put out for discussion.
The top rate of income tax and top rate of corporation tax were cut, the cost of which is supposed to be met by taxes on houses costing more than £2m. 37p on a packet of cigarettes and VAT on pasties will also go some way to paying for the top rate tax breaks.
Someone buying a house for £2m now has to pay £140,000 tax. A company buying a house for £2m has to pay £300,000 tax, but houses already in companies aren’t caught, they can be bought without a tax charge. This just closes the door after the horse has bolted.
There is to be a general rule against avoiding tax but not until 2013, in effect drumming up next year’s business for tax planning firms.
The income tax threshold is going up so you start paying tax at £8,105 (£9,205 after April 2013). At first glance that is good but paying income tax engages people in society far more than, say, VAT or fuel duty.
A low rate for all earners on the first £12,000 would have a better social effect. Pensioners are no longer to be allowed higher income before paying tax.
The best new measures for technology businesses were announced a while ago. The new “seed EIS” relief makes it far easier for businesses less than two years old to attract up to £150,000 of investment, as the investor gets 50% of his money back as tax relief. This helps fund development.
Increased relief on development costs broadly give technology companies a £4,500 tax saving on every £10,000 in development costs, but stops at the point you commercialise your product.
A new relief is coming in which means profits are taxed at 10% if you get a patent on your software or technology.
Share options are a great cash-free way of recruiting developers, but for the last few years the tax relief didn’t really work for people on smaller salaries. That will be fixed in 2013.
Tax breaks for UK films are going to be extended to UK animation and computer games. Any help for those sectors has to be good, but the current tax relief doesn’t quite work. Some of the most common tax planning involves putting money into films, but UK films often don’t benefit. It would be better to make it more attractive for that money to stay in the UK.
:: Simon Briton is a technology-focused tax adviser with regional accountancy firm Clive Owen & Co LLP