Emergency Budget James Cowper accountants
On Monday 17 May George Osborne announced the new coalition government’s first ‘emergency’ Budget to be held on 22 June. The government faces an enormous challenge and its emergency Budget is going to be the first clear indication of how it is going to approach the eye-wateringly large financial deficit.
And whilst there has been plenty of speculation as to what he might or might not do, Thames Valley accountants and business advisers James Cowper offers this advice.
Advice for businesses
Chris Lee, partner, James Cowper accountants and business advisers says: “Businesses still need real help in freeing up credit from the banks and a proper reduction in red tape – something many previous governments have promised, but failed to deliver.
The previous government assisted many entrepreneurial owner-managed businesses with tax incentives, such as R&D credits and an annual investment allowance for purchase of equipment. It is to be hoped that such incentives can be extended and refined; it would be very unwelcome if they were abolished or restricted on the grounds of simplification.”
Advice for second home owners and property investors
Ian Miles, partner and head of the Private Client department, James Cowper says: ““There has been much speculation around changes to Capital Gains Tax (CGT) and it is fair to expect that George Osborne will make some changes in his Budget on 22 June. Second home owners and buy-to-let investors are unlikely to sell property unless they absolutely have to. They are more likely to sit tight and hope that CGT rates drop at a later date.
If taxpayers do decide to sell something that is chargeable to CGT, such as a portfolio of shares, and they intend to sell before 5 April 2011, then they should consider selling it before the Budget next month in case the rate of CGT increases with effect from Budget Day. However, they should give careful thought as to whether the value of that asset will increase between now and June 11 and whether that increase will be large enough to compensate for any increase in CGT rates.
Those who are retiring and may wish to sell a second home over the next few years and those already in financial trouble with no choice but to sell assets are likely to take a hit. It is likely to be a bitter pill for many to swallow, but the country is in a poor financial state and George Osborne has some difficult decisions to take.”
Comment on VAT
Terry Dockley, VAT Director, James Cowper accountants and business advisers, says: “The UK is under pressure from the International Monetary Fund (IMF) to remove many of its VAT exemptions and reduced rates. According to the IMF halving the number of exemptions in the UK would raise 3.3% of the country’s economic output or some £50 billion a year.
The government could repeal the zero rate of VAT, which covers food, books, childrens’ clothes, new houses, prescription medicines and passenger transport among others. The demand for many of these items is inelastic and suppliers could pass on the increase to customers, which would undoubtedly be unpopular but would not affect businesses that much.
VAT exemptions are conversely often a money raiser for the government because a business cannot claim VAT relief for expenditure if its income is exempt. So, for example, private schools do not charge VAT on fees and cannot recover VAT when they build new classrooms. The government has some tough decisions to make and we can expect to see some changes to the VAT rates.”
Chris Lee, Partner, James Cowper LLP, Tel: +44 (0)118 9590261or email clee@jamescowper.co.uk
21.05.10