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UK Pre-budget report - Key analysis


The forthcoming UK general election has precipitated the introduction of populist measures. Alvarez & Marsal Taxand UK explore the finer details of the pre-budget report, discuss the impacts with Taxanders from around the world and analyse the deeper implications for businesses in their latest newsletter.

  • There is to be a one-off tax on bankers bonuses exceeding ?25,000 . It is estimated that this will generate ?550m of
    revenue; however, smart tax planning is likely to be underway already to reduce the impact of this. The Chancellor estimated that over 25% of tax revenues are collected from the financial services sector and then proceeded to introduce an additional tax burden on this sector.
  • The VAT rate has been increased back to 17.5% with no further changes. The UK retail sector had called for an extension of the 15% rate; at least the rate has not gone up further than 17.5% - for now.
  • It is astounding that national insurance contributions have increased by 0.5% making it more expensive to hire workers (to the tune of a 2.3bn hit to UK business) at a time when it is critical to stimulate employment.
  • A reduced corporate tax rate on income from patents or 'patent box' has been introduced. This reduced rate becomes effective in April 2013 and so companies will have to wait a while before the impact is felt.
  • Personal tax thresholds have been frozen for higher rate tax payers (so called 'fiscal drag' by not increasing these allowances in line with wage inflation).
  • Additional anti-avoidance measures have been introduced this year; however, the impact is likely to be small. We continue to work with clients to establish sophisticated, commercially based tax planning which would not be subject to an anti-avoidance challenge.
  • A new regime to tackle offshore evasion will be introduced with swingeing penalties which could amount to 200% of the unpaid tax.

An opportunity was missed to provide much needed stimulus to UK business (despite recommendations provided by the CBI Tax Task Force and the IoD Tax Committee).

Taxand's Take

The changes are focused around headline grabbing initiatives (such as the one-off tax on bankers bonuses). Henry David Thoreau spoke of tax collections being the only time in the year when we come face to face with Government. Despite a handful of populist measures, 2010 will be an election year in which taxpayers will have their voice heard.

"The tax on bonuses is another example of rushed through legislation from the current government. This type of legislation does nothing to enhance the UK as a place to locate your business. While the Patent box idea is good the
timing is bad and it won't do a lot to encourage the decision makers of today. The detail as usual in the UK will kill the incentive anyway."
Martin Phelan, Taxand Ireland

"The Netherlands will have a new regime in 2010 for IP (the innovation box) with an effective tax rate of 5% (down from 10%). Belgium and Lux of course also have such regimes. A 10% rate in the UK (as of 2013) will therefore not be very
competitive but may reduce the outflow of IP out of the UK."
Marc Sanders, Taxand Netherlands.

"To give in to the current sentiment towards bankers and introduce a super-tax will certainly result in short term
sympathies but the government should keep in mind that incentivising key employees is essential to the stabilization of the banking systems and is not as inflexible as it was. The decision to introduce a beneficial taxation regime in
relation to IP is a refreshing change compared to the German exit taxation of the transfer of functions and IP which constrains corporate reorganisations."
Arianne Jerey-Hener, Taxand Germany.

Your Taxand contact for further queries is:
David Pert
T. +44 207 715 5208

Download the full pre-budget analysis from Taxand UK here:

Taxand's Take Author