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Budget 2010 – would you like some more Vanilla with that?

25 March 2010 4,789 Comments

Well, that was exciting wasn’t it?┬áInstead of the normal pre-election bribery, this time we had a bunch of IOU’s being spread around like an over-used library card. As a politicking exercise it was pretty bland with Darling using his time at the despatch box to set out the rationale for the Labour economic policy for the election.

For all we know, this budget may last only as far as the election date plus 50 days – and that’s not long. And while it was a statement that was rather short of headlines, there were some useful items for businesses even if the net give-away is only around ┬ú30 per person.

And the reaction? Well, a couple of headlines will set the scene admirably…… From the left, The Daily Mirror lead with “A safe pair of eyebrows” and the Sun responds from the right with “Budget Battering” and what it calls ” a squalid attempt to save Labour votes”. Away from the Red-tops, the Times says that ” in a speech that lasted almost an hour, a┬áskilful┬áMr Darling managed to say almost nothing” while the Independent says that the “budget defines the political debate but leaves the economic outlook clouded”.

And so to the detail….

Business & corporate

  1. There were no changes to either the mainstream or small companies rates of Corporation Tax which remain at 28% and 21% respectively
  2. There’s good news on the Annual Investment Allowance which has been increased from ┬ú50,000 pa to ┬ú100,000 pa from 1 April 2010 for corporation tax and 6 April 2010 for income tax. Accounting periods which span these dates will be given a pro-rata allowance. This applies to most expenditure on general and special rate pools excluding cars and will mean that many businesses will get full tax relief on their capital expenditure. It goes some way to rebalancing the removal of the 40% first year allowance which was withdrawn in the last budget.
  3. Tax relief has been removed for a write off of loans to participators in close companies – in English this means that one of the most tax efficient routes to correct an overdrawn director’s loan account has been removed.
  4. HMRC have tightened the rules requiring disclosure of tax avoidance schemes and brought forward the trigger point for informing them of the existence of “actively marketed schemes”.
  5. There are loads of new anti-avoidance measures aimed at specific schemes and loopholes many of which are highly esoteric.
  6. There’s an extension to the list of energy efficient technologies for enhanced allowances including the sub-technologies “permanent magnet synchronous motors” and “biomass fired warm┬áair heaters”. If anyone knows what the first of these is or understands how it works…..click.┬áSeriously though, 100% allowances are available on energy or water efficient technologies and there have been some minor amendments to the list of approved kit.
  7. Expenditure on zero emission goods vehicles will be eligible for 100% first year allowances provided the vehicle is new and does not produce CO2 under any circumstances.

Employment taxes

  1. There is an amendment to the childcare tax allowances scheme which many business run through salary sacrifice. The amendment appears to allow businesses to apply salary sacrifice to all employees including those on minimum wage who have been effectively excluded before.
  2. While we have known that zero emission cars had 0% benefit in kind since the pre-budget report in 2009, this budget introduces a new category of Ultra-Low Emission Cars which will have a 5% benefit in kind charge from 6 April 2010 to 5 April 2015. This low rate coupled with the 100% first year allowances and exemption from vehicle excise duty in the first year (also announced) for vehicles producing less than 130g/km of CO2 may make these the go-to car for many company schemes.

Personal taxes

  1. There have been no changes to personal allowances which hadn’t been announced in the Pre-Budget report but don’t forget the new ┬ú150,000 50% rate (42.5% for dividend income) starts on 6 April 2010.
  2. From 6 April 2010, ISA limits are increased to £10,200, half of which can be into a cash ISA. From 6 April 2011, it is proposed that ISA limits will increase with RPI, but who knows what the other lot might do!
  3. The IHT nil rate band of ┬ú325,000 has been frozen for the next 5 years – further erosion of the limit against the inflation many expect.
  4. Due to a decision by the European Courts of Justice, you can now claim Gift Aid on donations to EU Charities and those in Norway and Iceland (It’s possible that the last one of those is the Icelandic Government? Just saying….)
  5. Rule changes dictated by EU decisions mean that the VCT/EIS legislation will be extended to businesses having a “permanent establishment” in the UK which will therefore allow overseas business investment through tax incentivised schemes.
  6. There have been changes to EMI and approved share schemes to comply with EU law and close various tax loopholes and further hardening of the HMRC attitude to Employee Benefit Trusts (EBT’s).
  7. The Lifetime and Annual Allowances levels for Pensions will be frozen at the 2010/11 levels for the next two years.
  8. Between 2012 and 2016, on a phased basis, all UK employers will┬áneed to automatically enrol all their eligible employees into a Qualifying Workplace Pension Scheme (QWPS – how are we going to say that acronym then?) or NEST (National Employer Savings Trusts – do you think there will be an automatic gift aid to the RSPB?).

Property taxes

  1. The lower Stamp Duty Land Tax (SDLT) limit has been doubled to ┬ú250,000 from 25 March 2010 and there is a new upper limit of 5% from properties over ┬ú1m which starts from 6 April 2010. And guess what, the lower limit change is only for 2 years, the upper limit change is permanent – cynical? Moi?
  2. There has also been a crack-down on various avoidance schemes for SDLT which have become prevalent on expensive and commercial properties over the last few years.

VAT and other indirect taxes

  1. VAT registration threshold has been increased to £70,000 from 1 April 2010 with de-registration increasing to £68,000.
  2. From 1 April, VAT payments will only be treated as paid when they are cleared into HMRC bank account. If you pay your VAT by cheque this mean that you will need to send your cheque at least a week before the due date. It’s all part of the push for electronic payment which also gives a cashflow incentive.
  3. Fuel Scale Charges are going up from 1 May 2010 – but then you’d already guessed that hadn’t you?
  4. Despite the Chancellor saying “I have no further announcement to make on VAT..” from 1 February 2011, although stamped mail will remain exempt from VAT, other Royal Mail services will become chargeable.
  5. New legislation will be introduced in the next Parliament to introduce another EU decision on assets with private use. Businesses will only be able to recover the VAT relating to business use up front rather than reclaiming the whole amount and then accounting for output VAT on private use during the period of ownership.
  6. Landfill tax has been increased from £40 to £48 per tonne from 1 April 2010 and will rise to £56 per tonne in 2011 to encourage recycling (or as seems to be the case fly-tipping?)
  7. Can we draw any conclusions from the 1% increase in tobacco duty, the 2% reduction in Bongo duty and the 10% increase in cider duty? No, thought not. But you will no doubt be pleased that the fuel excise duty increase has now been staggered over the coming year, probably in part due to the amazingly high price of fuel anyway.
  8. And don’t forget the new Landline duty of 50 pence per month expected in from 1 October 2010.

Other stuff

  1. Penalty regimes have been standardised across most taxes with a maximum penalty of 100% of the tax due. If there’s offshore regimes involved that increases to150% for countries we exchange information with and 200% where we don’t. Nice thought!
  2. Where HMRC believe that the payment of PAYE/NIC is “seriously at risk” they will insist on security being made available and if this isn’t provided a criminal offence which could lead to a fine of up to ┬ú5,000. There are already similar provisions for VAT and this ┬ámay increase the drive for incorporation and the protection of limited liability.
  3. HMRC have announced that they will be “naming and shaming” people involved in the evasion of tax of ┬ú25,000 or more – you’ll be pleased to know that there is an appeal process before you end up on the HMRC Facebook page.
  4. Only offences committed after 1 April 2010 will be included in the new legislation.
  5. The disclosure regime for health professionals ends in June 2010 but will no doubt be replaced by a new regime aimed at similar professions. The regime allows a fixed penalty of 10% for full disclosure of tax under-declarations going back up to 20 years.

Well, there it all is. If you’ve read this far through I commend your attention to detail and hope that you’ve gained something from the last five minutes. If you want further details I have attached the Taxline3d budget commentary. It’s aimed at the profession but is well written and as clear as this stuff can be. If you’re interested in any specific advice please contact Bernice Constantine or Nicola Cowie on the e-mail addresses above or phone 01752 203647. We will of course be contacting many of you who we feel may require specific advice on opportunities in the next week or so.

Finally, no doubt you’ll all be pleased to know that┬áHMRC want to introduce new legislation to penalise tax agents┬áwho assist clients in tax evasion or promote tax avoidance schemes. Some commentators believe that it is so widely drafted that┬áany tax advice which reduces a tax liability could┬ábe seen as a ÔÇÿwrongdoingÔÇÖ by the agent. At best these suggestions need some serious redrafting. I’m just off to check the retirement provisions in our partnership agreement!

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