Pre-budget statement..MacIntyre Hudson comments...

Glad tidings of comfort and joy?

Chancellor promises red tape for Big Business, worse for Small and trusts beware!

Nigel May, tax partner at the North London office of Chartered Accountants and Business Advisers, MacIntyre Hudson, comments on the Chancellor's pre-Budget statement:

Gordon Brown, in an era of so-called open government, if looked at charitably, seems to be developing a habit of hiding the bad news in the small print.

The bad news for big business was made relatively clear: transfer pricing rules will apply to transactions within the UK from 1 st April 2004. The Government openly acknowledges that this change results in additional administrative burdens. To minimise the impact, the rules will only be applied to large businesses.

The result of the new rules will be to compel the use of an arm's length charge for all intra-group charging and charges between associated companies for corporation tax purposes. Crucially, it would appear that an absence to make an intra-group charge that is due will be as damning as the making of a charge at an over-value. Worse still, for companies caught, under the self assessment regime it is for them to get it right, at the risk of penalties.

The bad news for small business is more carefully hidden and builds upon the IR35 and settlement legislation assaults on small business' use of companies.

The pre-budget report promises specific proposals for action in Budget 2004, to ensure that "the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company". This looks likely to result in increased costs for extracting profits from small business.

For those in the construction industry, whether big or small, life is to become even tougher: a construction contractor will be obliged to declare that the employment status of a subcontractor has been considered and more time is to be spent in monitoring the sector. The greatest commercial threat to the normal family building company is the activities of the black economy. It appears that the Revenue will be spending more time monitoring the activities of companies that are seeking to comply rather than attacking those who seek to stay outside of the system.

Finally, the bad news extends to those families who make the use of trusts for the purposes of asset protection and estate planning. Dividend income for discretionary trusts, already unattractive as a result of changes made by Gordon Brown in 1998 is to be attacked again. Further trust gains are to be taxed at 40% regardless of the underlying CGT rates for the beneficiaries.

It is the Christmas season and perhaps one should therefore look for glad tidings. Good news, if it can be found, seems to be the capacity for childcare costs up to £50 per week to be on a tax-free basis.

Whilst this is welcome, one cannot help but believe that this will result, as happened with previous Government generosity in simple tax fraud that will add further to the burdens of an Inland Revenue seeking to deal with Gordon Brown's previous additions to the legislation book.
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