The current rate of 24% is due to reduce to 23% from April 2013 and it was planned that this would go down to 22% in April 2014. The Chancellor said the reduction to 21% will give the UK "the lowest rate of any major western economy".
However, banks will not benefit from the reduced rate as the bank levy rate will be increased to 0.130% next year.
The annual investment limit will be increased from £25,000 to £250,000 for investment in machinery and plant made on or after 1 January 2013 for two years. The annual investment allowance enables businesses to obtain 100% capital allowances for expenditure on machinery and plant up to the annual threshold. It was reduced from £100,000 in April 2012. "This capital allowance will cover the total annual investment undertaken by 99% of all the business in Britain", said the Chancellor.
On tax avoidance, the Chancellor stressed that HMRC will not have its budget cut over the next two years and, as he announced earlier in the week, it will have an additional £77 million more to spend "on fighting tax avoidance and evasion".
Part of this money will fund more expert resource to challenge multinationals' transfer pricing arrangements. But the Chancellor stressed that the UK is "leading the international effort to prevent artificial transfers of profits to tax havens". He said that the UK will use the presidency of the G8 to seek consensus on making it a priority to support the OECD's work on base erosion.
Jason Collins, a tax expert at Pinsent Masons said: "It is good to see the Chancellor resisting a knee-jerk protectionist change in the UK - international action is the only way to achieve sustainable change on transfer pricing principles".
The Chancellor also confirmed that the General Anti-Abuse Rule (GAAR) will be introduced. Heather Self, a tax expert at Pinsent Masons said: "The aim of the GAAR is to tackle artificial avoidance - but there will be a lot of uncertainty until the boundaries become clear, and legitimate tax planning could be swept into the net".
The Chancellor announced that he would be "closing down with immediate effect four loopholes associated with tax avoidance schemes". These schemes involve a tax mismatch scheme, property return swaps, manufactured payments and payments of patent royalties where income tax relief for non trade payments is to be abolished. Heather Self commented that these anti avoidance measures tackle avoidance schemes which aim to exploit complex corporate tax legislation. "The cat and mouse game therefore continues - will it ever stop?" she said.
In a written ministerial statement issued by David Gauke, the Exchequer Secretary to the Treasury said: "Due to the repeated use of partnerships and similar collective structures in tax avoidance schemes, the Government will be considering the area of the taxation of partnerships and similar structures as part of its review of high risk areas of the tax code".
Corporate tax expert John Christian from Pinsent Masons said of the announcement: "It is not clear what this is targeting – it could be film partnerships and the like or it could go wider".
Pinsent Masons tax disputes expert James Bullock points out that "buried in the small print" is a statement that the Cabinet Office and HMRC will "consult on the use of the procurement process to deter tax avoidance and evasion".
"This suggests that any contractor wishing to be engaged by HM Government will have to ensure that they have a clean Tax compliance record," said Bullock. "Given the significant expenditure allocated to infrastruture projects such as roads and the Battersea park Northern Line extension, major construction and infrastructure companies wishing to get a slice of this action need to check that they, and potentially their senior executives as well, have a clean tax record and have not participated in tax avoidance or evasion."
The Chancellor has announced that £5 billion will flow back into the UK from Swiss bank accounts over the next six years as a result of the UK/Swiss agreement.
"It is unclear what this figure is based on, as Swiss banks do not have this information," said Phil Berwick, a tax investigations expert at Pinsent Masons. "That said, the Swiss deal is likely to be very lucrative for the Treasury, either through direct re-patriation of funds, or where Swiss account-holders disclose through the Liechtenstein Disclosure Facility."
The Chancellor confirmed that there will be no new tax on property. He explained that it would require a revaluation of "hundreds of thousands of homes". He said "In my view it would be intrusive, expensive to levy, raise little and the temptation for future Chancellors to bring ever more homes into its net would be irresistible."
George Osborne also announced that the government will press ahead with the introduction of “Employee Owner” contracts. Matthew Findley, an employee incentives expert at Pinsent Masons commented that this is not surprising, although there has been widespread criticism of the proposals "given the amount of political capital originally invested in the idea".
“Critically, the income tax position of employee owner shares has yet to be addressed. The Government has said that it is considering the position and that it may introduce special rules for employee owner shares under which employees will be deemed to have paid £2,000 for their shares. If implemented, presumably this must be intended to mean that, at least in some cases, there would not be any income tax charge triggered by the initial acquisition of the shares. However, it is not immediately clear how this would make the proposal any easier to implement.” Findley commented.
The Chancellor also announced that the lifetime allowance for pensions contributions will be reduced from £1.5 million to £1.25 million from 2014–15 and the annual allowance will be reduced from £50,000 to £40,000.,
The annual allowance is the amount that can be contributed each year to a pension scheme and can qualify for tax relief. The lifetime allowance is the overall amount that can be built up in a pension scheme without incurring a tax penalty. The Chancellor estimates that these changes will save £1 billion by 2016/2017.
The annual allowance was lowered from £255,000 to £50,000 from April 2011 and the lifetime allowance fell in 2012 from £1.8 million to £1.5 million.
"At a time when, through auto-enrolment, the Government is trying to boost confidence in pensions saving, pecking away at some of the benefits may be counterproductive," said Simon Tyler, a pensions expert at Pinsent Masons. "Savers need to know that the rules of the game won't keep changing each time the Government needs to raise more tax revenue."
The cut will have implications that may not at first be appreciated, Tyler explained. As a result of the way that the annual allowance is measured for members of defined benefit schemes, some individuals who would not usually be considered very wealthy could be affected by the lower annual allowance. Most public sector workers are in a defined benefit scheme. Some doctors and police officers were already affected when the annual allowance was lowered from £255,000 to £50,000 in 2011, according to Tyler.