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Budget 2011 review

24 March 2011 No Comment

“Forget the cuts, just fill up your petrol tanks” was the headline in the┬áGuardian this morning. While The┬áTelegraph weighs in with “Osborne puts fuel in the tank, but potholes lie ahead”. I personally wasn’t sure whether these comments were aimed at me or at Muammar Gaddafi until I drove into work this morning and discovered again the enormous pothole on the main road into Plymouth – perhaps it was aimed at us after all?

Having laid his strategy out in sweeping style in the Emergency Budget last year, Osborne maintained his route and refused to diverge from Plan A – cut, cut, cut to reduce national debt. This is slightly tempered by targeted reductions in tax where this will help to create what Osborne called a┬á”Britain carried aloft by the march of the maker”. Fine rhetoric for the country that invented the Airfix Kit.

The main changes:

Business Tax

  • The Emergency Budget in June 2010 announced measures to reduce the main rate of Corporation Tax from 28% to 24% through annual 1% reductions starting from 1 April 2011.┬áThe March 2011 Budget announced that the first rate reduction will be increased to 2% which means that the end rate will be 23% in 2014.
  • SME’s carrying out R&D activities are currently entitled to claim relief for qualifying expenditure so that, for every ┬ú100 of expenditure, tax relief of ┬ú175 is given. From┬á1 April 2011 relief of ┬ú200 will be available for every ┬ú100 of expenditure and from┬á1 April 2012 relief of ┬ú225 will be available for every ┬ú100 of expenditure. This is all subject to EU approval as it falls within the State Aid rules.
  • Businesses that invest in plant and machinery will, from April 2011 be able to elect for items to be treated as short life assets if they expect to sell or scrap them within eight years from the end of the accounting period in which it was acquired. Previously, short life asset elections were only beneficial where the useful economic life of the asset was less than four years.This is a useful relief as it provides significant mitigation against the reduction in capital allowance rates in recent years, given that many assets will have a useful life of less than eight years.┬á However, there are issues which might restrict the benefit to businesses in practice, in particular:

    – It is not possible to make short life asset elections for all assets.┬á Long-life assets, most cars and integral features are excluded – see, you thought it was too good to be true, and it was!
    – This measure will only be beneficial for businesses which spend in excess of the Annual Investment Allowance which is currently ┬ú100,000 but is reduced to ┬ú25,000 with effect from April 2012. Time to dust off your capital investment budgets and speak to your funders.

  • The enhanced capital allowances scheme provides 100% first year allowances for certain designated energy efficient plant and machinery. This year it is to be extended to include certain energy efficient, wait for it……….. hand dryers. Relax, breathe deeply, I know it’s exciting but just try to keep calm!┬áThe product list is updated annually and this new technology will be included from summer 2011.
    – This measure will only have an impact where capital expenditure is in excess of the Annual Investment Allowance
  • There is news of feed-in tariffs and renewable heat initiatives – if you’re interested in this please give Bernice a call. She knows all about it, honest.
  • 21 new Enterprise Zones are to be set up across the UK. One will be in London and Boris gets to choose where it goes – he’s got his┬ápin ready now! Apparently, in the future the scope for introducing 100% capital allowances will be considered – promises, promises.
  • Business premises renovation allowance – this relief was expected to be withdrawn with effect from April 2012 but the Government announced its intention to extend the relief for a further five years.┬áIt allows businesses to claim 100% tax relief on qualifying expenditure in certain disadvantaged areas when bringing disused commercial premises back into use.
  • Fixtures Mandatory Pooling – no, nothing to do with the hunt for toilet facilities after a heavy night, much more relevant to the elections property owners make on capital allowances claims – these are to be shortened rather than remaining at the generous “during the period of ownership” as currently exists.
  • CFC’s – no, not that stuff that used to be in fridges, Controlled Foreign Companies. There is to be a wholesale rewrite of the rules surrounding CFC’s which will come into the 2012 Finance Act. This yearÔÇÖs changes include:
    – An exemption for certain intra-group trading and service activities with little UK connection.
    – An exemption for CFCs whose main business is intellectual property (IP) exploitation but which have minimal UK connection.
    – Extension of the grace period from one year to up to three years, where a UK-parented group acquires or reorganises a foreign group resulting in foreign subsidiaries entering the CFC net.
    – Changes to the de-minimis exemption to increase the limit from ┬ú50,000 to ┬ú200,000 and amendment to the basis of calculation to an accounts-based measure.
    – Extension to the transitional rules for superior and non-local holding companies until July 2012.
  • Foreign Permanent Establishments -┬áThe Government announced that Finance Bill 2011 will contain legislation to exempt the profits of foreign branches of UK resident companies.
  • Patent Box -┬áA longer-term reform scheduled to apply to relevant patent income arising from 1 April 2013.┬áThe aim is to encourage investment and innovation in the UK by providing a reduced 10% corporate tax rate for profits from certain patents.
  • Foreign Exchange schemes, Group mismatch schemes, Accounting derecognition schemes, Corporate Gains de-grouping, Value shifting, Depreciatory transactions, Pre-entry losses and Index-Linked gilt-edged securities – all schemes targeted by anti-avoidance legislation introduced today.
  • And if you’re thinking of issuing Sharia Compliant Bonds, you’ll be disappointed to hear that┬á”the unintended tax consequences of companies issuing certain sukuk bonds will be reversed with retrospective effect.” Interested in Sukuk Bonds? You’ll needSukuk News then.
  • There are to be changes in the way that accounting regulations disclose lease agreements in company accounts. The tax regulations have been changed to ensure that there is no change in tax treatment arising from this.
  • Small companies Corporation Tax rate and associated companies.┬áProvisions will be included in Finance Bill 2011 to ensure that companies are not treated as associated solely by virtue of (sometimes quite distant and difficult to monitor) relationships between shareholders and relatives. A level of commercial inter-dependence between the companies themselves will also be required to justify associated treatment in these circumstances. We await further guidance on how commercial inter-dependence will be interpreted but this has to be good news for many complex groups and will probably reduce the numbers of associated companies and therefore reduce the effective corporation tax rates paid.
  • Film tax relief is due to expire in 2012 due to the EU state aid rules – they’re going to go for something called “renotification” to enable its retention.
  • Banks – continuation of the bashing through bank levy
  • Oil & gas – new bashing due to fuel stabiliser – they get an increase in tax of 12%, we get 1p off at the pump – yeah, I know it’s a bit simplistic but even so…..
  • There are some slightly more esoteric changes to Stamp Duty Land Tax and the structure of REIT’s for property purchase and building but, to be honest they’re not that interesting.

Employment taxes

  • There were no changes to the rates announced in the June 2010 Emergency Budget. See our comments┬áhere
  • There will be a consultation on the integration of Income Tax and NIC – this has got to be sensible but could result in a high headline rate of IT!
  • IR35 – retained, simplified and now with a dedicated pre-transaction helpline, guidance and specialist teams.
  • Approved Mileage Allowance payments – This has been 40p per mile since the time of the great flood but from 6 April 2011 will be 45ppm for the first 10,000 miles. Other rates are remaining the same – that’s 25ppm and 5ppm for passengers which will be extended to include volunteers from 6 April 2011.
  • Employer supported childcare – tax relief for 40% and 50% tax payers to be restricted for new scheme joiners after 6 April 2011 to ┬ú28 and ┬ú22 respectively. Queue nicely now, we’re not in France you know!
  • Company car taxation -┬áThe Finance Bill 2011 will include a measure to freeze the company car tax charge for cars with CO2 emission levels of less than 95g/km at the current rate of 10%. However cars with CO2 emission levels between 95g/km and 219g/km will see a 1% percentage increase from 2012/13.
  • Company car and van fuel charge benefit – the company car rate is based on a fixed amount of ┬ú18,000 (producing a tax bill of between ┬ú1,800 and ┬ú6,300). The van rate is based on a fixed a charge of ┬ú500. These rates will be increased to ┬ú18,800 and ┬ú550 from 6 April 2011 which means that company car and van drivers with the benefit will have to drive more private miles for the benefit to be worthwhile – nice of the Chancellor to encourage a reduction in fuel use!
  • Disguised remuneration -┬áProvisions will be introduced to impose charges to income tax under PAYE and NIC where employers use arrangements that provide loans, reward or recognition through third parties.┬á The measures are targeted at employers who use employee benefit trusts (EBTs) and employer financed retirement benefit schemes (EFRBS) as a means of structuring remuneration packages and are aimed at schemes offered by various accounting firms.

Personal taxes

  • The Chancellor is still aiming at a personal allowance of ┬ú10,000 per person so as a step along that route the PA for the under 65’s for 2012/13 will be increased to ┬ú8,105 – but the basic rate of tax threshold stops at ┬ú34,370.
  • CGT – the annual exempt amount will be increased from ┬ú10,100 to ┬ú10,600 from 6 April 2011. That’s ┬ú140 in tax saving. From 6 April increases will be governed by CPI, not RPI.
  • Entrepreneurs’ Relief -┬áThe rate of CGT on gains qualifying for ER remains at 10 per cent, but the lifetime limit for ER is to be doubled from ┬ú5m to ┬ú10m for gains made on or after 6 April 2011.The doubling of the lifetime limit could lead to a maximum CGT saving for a husband and wife of ┬ú3.6m.

    It is therefore even more vital that owners of a business/company review their specific situation, to ensure that they will fulfil all the qualifying requirements on a disposal of their business/company, in order to obtain the optimum ER tax benefits. It is, unfortunately, very easy to fall foul of one or more of the many legislative provisions. If you think that this could be relevant, please call either Bernice or Nicola on 01752 203600.

  • The IHT nil rate band has been frozen at ┬ú325,000 until April 2015 and the headline rate remains at 40%. Also, where 10% or more of the estate is left to charity, there will be a 10% reduction in the IHT rate to 36%.
  • The Chancellor announced a consultation on residence and domicile – if you don’t know where you live you can call 11 Downing Street and they will tell you!
  • Non-doms who have been UK residents for 12 or more years will pay ┬ú50k per year rather than the ┬ú30k previously charged. I’m sure that this will make a massive difference to the tax take from this measure – Not! Oh, and this won’t take effect until 2012 either.
  • The maximum value of benefits an individual or company can receive through a charitable donation under Gift Aid of more than ┬ú10,000 has been increased from ┬ú500 to ┬ú2,500.┬á The benefit still must not exceed 5% of the gift.┬á This applies to donations made on or after 6 April 2011 by individual donors and accounting periods ending 1 April 2011 by corporate donors. This should encourage individuals and companies to donate to charity.
  • Junior ISA’s are to be introduced in Autumn 2011 to compensate for the removal of the Child Trust Funds in the June budget
  • The rules relating to the taxation of furnished holiday lettings (FHL) are to be amended from April 2011 following a period of consultation.┬á It was originally proposed that the rules should be extended to qualifying properties anywhere in the European Economic Area (EEA) and then abolished.┬á The rules will now be retained but with modifications as follows;
    – From April 2011 loss relief may only be offset against┬áincome from the same FHL business.
    – UK losses can relieve UK FHL income only and similarly with EEA losses.
    – From April 2012 a property must be available to let for 210 days (previously 140) and actually let for 105 days (previously 70) in a year
    – Having met the ‘actually let’ condition in one year businesses may elect to be treated as meeting it in the next 2 years if certain conditions are met.
  • No changes to the pension contributions rules announced in June 2010 so relief on contributions is reduced from ┬ú225k pa to ┬ú50k pa. Lifetime allowances reduced from ┬ú1.8m to ┬ú1.5m from 6 April 2010.
  • Pensions taxation -┬áAs expected, the requirement for members of registered pension schemes to buy an annuity by the age of 75 is removed from April 2011.┬á Those who choose to draw a pension income directly from their fund rather than purchase an annuity will be able to continue to do so after age 75, with the pre-75 income limits continuing to apply.For all members, the tax charge on death for pension funds will become a flat rate of 55%.┬á This rate will apply to funds which are not used to provide a continuing income for a spouse.┬á This increases the charge from 35% to 55% for those who die before age 75, but reduces the charge from 82% to 55% for those who die aged 75 and over. That still seems extremely high but remember that these funds have been relieved on the way into the scheme.

    Lump sum benefits will not be subject to a tax charge for those who die before age 75 and had not previously drawn benefits.┬á However, the 55% tax charge will become payable on all funds remaining in the scheme if a member dies aged 75 or over. I’m reminded of one client who informed me he had booked the date he was going to die – I don’t recommend this as a strategy.

  • Pensions consultation introduced and 66 to be the age of retirement from 2020.
  • EIS & VCT – from 6 April 2011, ┬áincome tax relief raised from 20% to 30%. From 6 April 2012, EIS investment doubled to ┬ú1m but rules on what these companies can do and their size are tightened up.

VAT & other duties

  • Changes will be made to the Low Value Consignment Relief with effect from 1 November 2011.┬á The limit on which VAT will not be payable on goods imported from outside the European Union will be reduced from ┬ú18 to ┬ú15 per consignment – this means you will get less split deliveries from Amazon!
  • The VAT registration turnover threshold has been increased with effect from 1 April 2011 to ┬ú73,000, which is a larger than expected increase from the current threshold of ┬ú70,000.
  • Zero-rating will be removed from printed matter if it is supplied with a service that is liable to VAT at a different rate, but the supply of publications is made by a separate entity. This provision will only apply if the printer matter and services would have been seen as a single supply if they were supplied by the same person. This is aimed at the Telewest case decided at the Court of Appeal.
  • A VAT refund scheme will be introduced for academy schools to allow them to obtain a refund of any VAT that they are currently unable to recover as a result of them supplying education for no charge. The scheme will apply to purchases made on or after 1 April 2011. This will give the new academies parity with Local Authority controlled schools which enjoy VAT deduction under a special scheme.
  • Finance Bill 2011 will contain legislation to allow HMRC to proceed with and develop the newly announced Machine Games Duty, which will be a profits-based duty. This new duty will replace Amusement Machine Licence Duty, and any games played on machines liable to the new tax will become exempt from VAT.
  • All tobacco products that are manufactured or imported into the UK will suffer increased rates of duty┬áfrom┬á23 March 2011. Changes to EU legislation have allowed the Government to change the ratio of the price versus quantity for calculating duties charged on tobacco products, resulting in higher duty of budget brands. The Government has also increased the duty on hand-rolling tobacco by 12% above the Retail Price Index. ┬áSo, if you smoke rollies or cheap fags you’re stuffed!
  • Vehicle excise duty will be increased for certain higher emitting lorries
  • An increased rate of duty will apply to beer with a strength above 7.2% alcohol by volume (ABV) and a reduced rate of duty will apply to boy’s beer with a strength at or below 2.8% ABV.┬á Home brewing of beer will remain exempt from Beer Duty, and the new high strength Beer Duty. The changes will come into effect from Autumn 2011.

Administration & other guff

  • “Time to pay” arrangement extended. Crucially we would advise that businesses seek advice prior to defaulting on a payment date, help is available only to “viable businesses” with a “genuine business need” and business owners must be taking steps to rectify the situation with cost cutting and other approaches.
  • In certain PAYE non-payment situations security will be demanded and a criminal offence will occur if this is not forthcoming.
  • New penalties introduced for late filing of returns and late payment of tax – they’re not that different to the ones that already exist
  • Lots of anti-avoidance aimed at┬áLichtenstein┬á(I remember typing that last June and do you know what, I have not used it since surprisingly), Offshore tax evasion and Plumbers/heating engineers.

And finally, the Government is asking for views on extending Air Passenger Duty to journeys flown in private jets.

PRIVATE JETS?

I’m sure the Nom-doms will appreciate the warning – another year before their annual charge goes up from ┬ú30k to ┬ú50k and the jet could cost a bit more to run. I would have thought that most of us would have expected the government to know our views on whether the owners of private jets ought to be paying APD. But perhaps it’s me who is out of touch?

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