An increase in tax investigations will hit smaller businesses this autumn as a result of an initiative that tax inspectors are calling a "dash for cash".

According to Abbey Tax, the coming months will see an upturn in the number of small firms being scrutinised under HM Revenue & Customs' inquiry process.

The initiative is intended to help the coalition government plug the £158bn hole in the public finances.
David Marples, a group manager at Abbey Tax, told the news provider: "We expect the number of HMRC inquiries into small businesses to go on increasing over the coming months.

"The inspectors we have spoken to have told us they are being tasked to bring in as much money as possible, as quickly as possible."

The tax clampdown is expected to focus on affairs of small firms and self-employed workers during the current and fourth quarters of 2010.

According to the British Chambers of Commerce (BCC) revised economic forecast the UK will see GDP increase by 1.7% this year and 2.2% in 2011.

This represents a rise on the 1.3% and 2% that the organisation originally forecast for the two years and follows the publication of the latest Office for National Statistics report, which revealed GDP increased by 1.2% in the last quarter.

David Frost, the BCC's director-general, said: "There must be a relentless focus on ensuring that business is able to deliver growth and create employment.

"We need policies that rebalance the economy towards wealth-creating businesses and enable the private sector to invest, export and create new jobs. Failure to get this right poses the biggest risk to recovery."

The coalition plans to restrict pension tax relief for higher earners may be even more aggressive than those put in place by the Labour government. 

Alistair Darling, the shadow chancellor, originally proposed to cut tax relief for those earning more than £130,000.  At the moment the amount a pension pot can grow tax free is £255,000 a year but the new coalition has received support from the National Association of Pension Funds (NAPF) for its plans to reduce the tax exemption to as little as £40,000 a year, after which an extra tax bill would be generated.  By 2014-15, an annual allowance of just £40,000 would raise an extra £4.6bn in tax.

Chas Roy-Chowdhury of the Association of Chartered Certified Accountants (ACCA) said the coalition's plans might affect more people in the tax net who were considerably lower paid than those targeted by Labour’s plans for a £130,000 limit.

"It is still likely that many earning a lot less than the £130,000 could be affected where they are in a defined benefit (final salary) scheme," he said.

"This will depend on the valuation method and length of enrolment in the scheme but could affect even those on half the £130,000 especially if they make additional voluntary contributions (AVCs).”

This means that older workers will not be forced to retire at 65 and will have an option to stay on after this age. 

It is widely supported by workers and employers groups, and the Government says the extra money raised in taxes will be used to help support an ageing population.  However there also concerns that some businesses will be left with staff who are too old to do their job.
There will be exemptions for certain professions, like police officers or air traffic controllers.

According to the Nationwide building society, house price inflation in the UK continued to ease off in July. The latest monthly survey shows that prices fell by 0.5% in July, taking the annual rate of house price inflation down from 8.7% to 6.6%.  Price rises were easing off as more homes were being put up for sale.

"A combination of restrictive credit conditions and uncertainty about the future economic outlook continues to limit the pool of buyers to those with relatively large financial resources," said the society's chief economist Martin Gahbauer.

TAX

Corporation Tax
Corporation tax will be reduced by 1% in each year for the next four years, the rate will fall from today’s 28% to 27% next year, and then by a further 1% in 2012 to 26%. It will then be cut further until it reaches 24% in 2014. 
The small companies tax rate will be cut to 20%.

VAT
VAT will rise from 17.5% to 20% from 4 January 2011. The lower rate will remain at 5%. The measure is expected to raise £13bn. Food, books and children's clothes will remain exempt from the tax.

Capital Gains Tax
CGT will rise to 28% from midnight tonight for taxpayers earning over £40,000 a year. For low and middle earners, the rate of 18% will remain. The 10% lifetime limit for entrepreneurs’ relief rate will be extended from the first £2m to the first £5m of gains made over     a lifetime.

Big cuts in public spending and significant tax increases are expected to be announced in an emergency budget due on Tuesday.

Chancellor of the Exchequer George Osborne will deliver the Conservative-Liberal Democrats' budget to parliament at 12.30pm.

Osborne confirmed on Sunday that his emergency budget would include a levy on banks.

"What I'm determined to do is to make sure that the measures are tough but they're also fair," Osborne told BBC television.

"What we're clear about is that all parts of society are going to have to make a contribution."

In his letter to the Chancellor, Richard Lambert, director general of the business group, welcomed the Coalition's plans to focus on spending cuts rather than tax increases, but warned that the government should seek to protect spending on capital infrastructure to support growth.

"We believe that the currently-planned sharp cuts in capital expenditure need to be reconsidered, as they risk further undermining the productive capacity of the economy," he wrote.
"Capital spending must, therefore, be returned to 2.25pc of GDP as soon as possible, " he said.

The CBI said it would like to see most of the deficit reduction process achieved through spending cuts rather than tax rises, based on a ratio of 4:1.  The Government should focus on cutting current spending, with changes in the way public services operate to ensure they deliver more with less.  Taxes should be kept to a minimum, and those that pose a threat to economic recovery should be avoided altogether.

"A radical re-engineering of public services is a must if damaging tax rises are to be avoided. Only an effective cost reduction strategy can safeguard future growth".

The CBI said it had "major concerns" about the Government's proposed reforms to capital gains tax (CGT). It said it wants to see a broad definition of business assets – which the Coalition has said will be excluded from a potential rise – to prevent disincentives to investment or start-ups. It also said that any change should be structured to minimise the impact on long-term investments.

Interest rates in the UK have been held again at the record low of 0.5% by the Bank of England for the 15th month in succession. 

The Bank’s Monetary Policy Committee voted not to change the base rate or to alter the £200 billion limit on quantitative easing.

Many analysts are forecasting no change in rates before the end of year as the Bank attempts to boost the UK's economy.

"We fully support the decision to maintain interest rates at 0.5% and the size of the quantitative easing programme at £200bn. Given the dangers still facing the economy, the MPC must persevere with expansionary policies that help businesses to invest and grow," said David Kern, chief economist at the British Chambers of Commerce.

"Any consideration of raising interest rates or reducing the QE stimulus must be delayed until there is concrete evidence that economic growth is secure. The UK's recovery is fragile and businesses are still facing acute pressures."

In his first major speech as Business Secretary, Vince Cable committed the government to taking a tougher line on parts of the banking system that have "not served enterprise in this country as well as they could".

Addressing an audience at the Cass Business School in London, Mr Cable promised to "redouble our efforts to ensure that bank lending agreements from banks that have benefited from taxpayer subsidy are being honoured - especially for SMEs".

He resisted arguments that there was little demand for business loans, pointing the finger of blame at the high cost of much business credit.

Mr Cable said: "If the bar is set too high, of course no one is willing to jump. The current risk aversion by banks in the SME sector will stifle recovery and, if it does, will actually rebound on the banks through bad debt."

He set out three possible routes to improving the present squeeze on lending: separating retail and investment banking, resolving the question of a levy on the banks to reflect the fact the taxpayer is providing insurance, and ensuring that banks' lending agreements are being kept.

In a broad ranging speech, Mr Cable touched on other areas where measures were needed to help business and to re-balance the economy away from too great a reliance on household demand and public sector spending.

As well as overhauling the business regulatory system, the government will look to create new apprenticeship schemes.

He committed himself to making the UK a "place where enterprise and innovation can succeed".

Referring to the problems in the eurozone, Mr Cable conceded that while the "worst of the crisis" was over there was still a risk that difficulties could resurface.