Smaller businesses

The chancellor has announced an intention to enter into consultation with smaller businesses aimed at reducing their compliance burden. This move is, of course, to be welcomed but it should be noted that the UK system of taxes is rapidly reaching a limit in relation to its level of complexity and radical initiatives are required in order to reduce the level of 'red tape' and to make a meaningful difference.

A 100% relief has been announced in relation to the capital costs arising on conversion or renovation of business premises in designated disadvantaged areas. Individuals or companies who own or lease property in disadvantaged areas that has been unused for at least 12 months will be able to secure full tax relief for any capital costs incurred in bringing those premises back into business use.

This provision will encourage the redevelopment of commercial property in specific areas and is to be welcomed.

However, it should be borne in mind that the provision will be a temporary feature and, in time, will be abolished. There is, therefore, a relatively short window of opportunity.

A limited number of taxpayers have implemented complex schemes aimed at securing a deduction under the intangible fixed asset regime.

The Revenue has confirmed its intention to introduce tax planning in order to mitigate the benefits of such schemes.

The chancellor reiterated his commitment to education and confirmed that from September 1, 2005 payments of up to £15,000 may be made free of tax and NIC by employers to employees who are in full time education. The payments must, however, relate to specific items of expenditure including accommodation and travelling costs. Tuition fees are specifically excluded.

There will be no tax charge for employees who buy, on an arm's length basis, computer equipment and bicycles previously loaned to them by their employer.

This move will simplify reporting of such transactions and remove a potential anomaly whereby employees were assessed to tax on the difference between the original value of the asset and the date of transfer.

The company car fuel benefit charge (calculated by applying company car tax appropriate percentage to a set figure) has been frozen for 2005/2006 at £14,400. The company car benefit charge is calculated using the car's manufacturer's list price, multiplied by a percentage determined by reference to the carbon dioxide content of the car's exhaust.

Tax deductions are available where cars are powered by alternative fuel such as electricity and road fuel gases.

Tax anti-avoidance

A number of measures have been announced specifically in order to counter specific financial schemes that have been disclosed by taxpayers and promoters to the Revenue under the FA 2004 tax disclosure rules. It is clear from the changes announced that the tax disclosure rules introduced by the chancellor are having a substantial impact in that they are providing the Revenue with advance warning of tax planning strategies deployed by tax payers and the Revenue, armed with this knowledge, has underlined its willingness to act decisively in those areas where it feels that abusive tax practices are being carried out.

Whilst the Revenue has confirmed its intention to act in relation to specific schemes it is not clear whether the relevant legislation will be drafted so as to catch only these specific abuses, or whether the provisions will be more widely drafted on a "catch all" basis.

Stamp Duty and Stamp Duty Land Tax

A raft of changes has been announced including the withdrawal of an exemption for Stamp Duty Land Tax in relation to commercial property transfers in disadvantaged areas. In addition, the government has extended the scope of the tax disclosure rules introduced by the Finance Act 2004 to Stamp Duty Land Tax schemes and introduced measures to counteract specific Stamp Duty and Stamp Duty Land Tax planning strategies.

VAT From April 1, 2005, the annual VAT registration and deregistration thresholds will be increased by £2,000 to £60,000 and £58,000 respectively. An extension has been announced to the disclosure rules to include two new schemes, namely the exploitation of differences between the UK and other EU member states of vouchers and arrangements involving the option to tax in relation to supplies of land and property.

Pensions A number of technical amendments were announced in relation to pension schemes principally as a precursor to the introduction of the new pension tax regime on April 6, 2006.

The government has also announced that the Pension Protection Fund will be tax exempt and will, accordingly, not be subject to tax in relation to its income and gains.

Furthermore it will not be required to account for tax on the payments made to potential claimants.

Trust taxation In the 2004 Budget the chancellor announced a series of proposals that were intended to simplify the taxation of UK trusts. During consultation with various professional bodies a number of concerns were raised. The main points raised during the consultation process were published on March 16, 2005.

It has been announced that the Inland Revenue will carry out further development work and a discussion paper has now been published. Draft legislation is likely to be published later this year and further consultations will be initiated before the proposed legislation is introduced in next year's Finance Bill.

In the meantime, it is proposed that legislation will be introduced in the current Finance Bill to implement two measures that were proposed in 2004: A new tax regime for trusts with vulnerable beneficiaries (now to be backdated to take effect from April 6, 2004), and a standard rate band of £500 for all trusts paying tax at the rate applicable to trusts (effective from 6 April 2005).

The proposal for a 40% tax rate applicable to trusts to combat tax avoidance remains in place.

Conclusion

The elimination of tax antiavoidance and other perceived abusive tax practices represent a very personal crusade for the chancellor - this can only reduce the opportunities for significant tax planning in future.