Emergency Budget
22/06/2010
"Bad, but not as bad as it might have been..." was ASE plc's verdict on today's Emergency Budget presented by new Chancellor George Osborne
Today's Emergency Budget contained changes affecting many different areas of taxation including the anticipated announcement that the standard rate of VAT will increase to 20% from 4 January next year. Michelle Malone, ASE plc's VAT manager, said "This will bring back memories of last December when customers were clamouring to secure their purchase at a lower VAT rate causing major headaches for dealers.
"Dealers would be mistaken to think that they can wait until December this year to start considering how the change will impact their sales however. The long lead time on many models means that orders placed over the next few months could span the end of the year and care will need to be taken to ensure dealers do not inadvertently adopt incorrect VAT treatment. Dealers will also need to consider the impact of the VAT rise on any used stock held at the time of the change - without careful thought a part of the dealer's margin on these cars could be eaten up by the increased VAT cut for the Treasury"
Malone went on "The good news is that there is some time to prepare, and the rules used last year for the reversion back to 17.5% appear to have been adopted for this latest rate increase but this also includes the anti-forestalling legislation aimed at preventing artificial benefit from the change."
Changes to the Capital Gains Tax (CGT) regime were also widely predicted to be on the cards and the Chancellor did not disappoint. Gains of higher rate tax payers will be subject to CGT at 28% from midnight tonight leaving no time for transaction planning. Paul Brown, ASE plc's Tax Director said "The rate increase could have been worse with pre-Budget speculation of rates up to 40 or 50%. Presumably the Chancellor did not want to risk skewing the housing market by delaying the change and having a flood of second homes hitting the market as people tried to secure a lower rate of CGT."
"The real positive however is that Entrepreneurs Relief has been left in place and in fact extended. From now, the amount of gains that can benefit from a 10% Capital Gains Tax rate has been increased from £2m to £5m. In practice this means that the vast majority of dealers considering disposing of their business will only pay CGT at this lower rate."
Corporation tax ("CT") changes proved to be a mixed bag of news. The first change, to come in next April involves reducing both the main and small companies' rates of CT by 1% to 27% and 20% respectively. There is also a commitment to reduce the main CT rate by a further 1% for each of the following three years. Brown said "These cuts in the rates of CT will be paid for with reductions in allowances elsewhere. In particular, tax relief on the purchase of assets will be deferred by reductions in the rates of capital allowances from April 2012. From this date writing down allowances on both the main plant and machinery and special rate pools will be reduced by 2% per year."
There were minor concessions for employers and employees on the starting point for National Insurance Contributions ("NIC"), and also some help with NIC for new businesses outside London and the South East. Interestingly, however, the employers NIC rate for 2011/12 looks like it will remain at 13.8% with no sign of the much reported reversal of Labour's "tax on jobs."
With welfare cuts firmly on the agenda, there may be one indirect downside for the motor trade. There will be a tightening up of the qualification for the "Disability Living Allowance." Brown said "It will be interesting to see whether this has an impact on the number of people qualifying for the higher rate mobility element of the allowance, therefore reducing the number of potential Motability customers..."