Budget 2012: what you might have missed

Mark Caldicott, partner at travel accounting firm White Hart Associates LLP, delves deeper into this week’s Budget announcement and finds some nasty hidden surprises.

"This budget rewards work. Britain is going to earn its way in the world. There is no other road to recovery". So said the Chancellor George Osborne yesterday, but while he did deliver some good news for travel businesses (particularly the larger ones), there were one or two nasty surprises hidden away in what he didn’t say.

For example, the additional 1% cut in the top rate of corporation tax is to be welcomed, and it would appear that the Chancellor’s aim is to ultimately align this with the basic rate of income tax and the small companies rate of corporation tax of 20%. However, one thing that wasn’t specifically mentioned will hit business of all sizes in the next few weeks. The increase in business rates, which comes into force next month, is linked to the previous September’s RPI figure, which last year hit a 20 year high of 5.6%. Therefore, those businesses caught by this are going to have to perhaps use funds that were otherwise earmarked for new staff or development.

Similarly, for those companies looking to attract potential investors there was good news and bad. As announced last year, the limit for EIS (Enterprise Investment Scheme) investment, whereby investors can enjoy a 30% income tax rebate, rises from UKGBP 500,000 to UKGBP 1m from 6 April 2012, and the very generous Seed EIS (SEIS) whereby investors in shares in a new small trading company (less than two years old) can enjoy a tax rebate of 50% for up to UKGBP100,000 invested, and potentially also exempt capital gains arising in the year if such funds are so invested, also kicks in from 6 April 2012. However, the Chancellor was concerned about the "abuse" of such reliefs and so it is proposed to introduce a limit for people claiming more than UKGBP50,000 of a relief where there is no other statutory restriction – the maximum would be 25% of their total income, although this is intended to apply from 2013/14. : It would therefore seem advisable for both investor and investee to finalise the arrangements before 5 April 2013

The Chancellor also attempted to make employee share ownership more attractive by increasing the limit that can be given in tax efficient Enterprise Management Incentive (EMI) options from UKGBP120,000 to UKGBP 250,000. Providing the conditions are satisfied, the ‘profit’ made by the employee on the subsequent disposal of the shares is charged to capital gains tax (CGT) rather than income tax, where the rates are generally lower. This measure does however require ‘State Aid’ approval.

The Chancellor also repeated his desire to merge income tax and national insurance to "relieve the burden on businesses". This ‘goal’ is an admirable one, but the differences between the two regimes make it difficult to achieve.

Finally, there was also an interesting potential ‘U-turn’ on the creation of a new airport or additional runways, something which was ruled out when the coalition first came to power. "I also believe this country must confront the lack of airport capacity in the South East of England   we cannot cut ourselves off from the fastest growing cities in the world," said Osborne. Anything that encourages/facilitates more people to travel must be good news for travel businesses!