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Budget 2011

Yet another bumper Budget – Victoria Bishop, Tax Partner at robinson+co, provides her expert opinion….

The Chancellor was pleased to announce that he has abolished 43 complex tax reliefs, cutting 100 pages out of the UK tax legislation. Unfortunately his paper saving has not stretched to the Budget papers themselves, with several hundreds of pages detailing the policies and changes announced on 23 March 2011.

The 43 abolished tax reliefs are somewhat esoteric and are unlikely, on the whole, to be missed. The nationalisation scheme introduced in 1946 for example is certainly no longer relevant! However there may still be some people gaining the advantage of the 15p luncheon voucher exemption, and some cyclists will miss their tax free meals on cycle to work days! Another tax relief abolished is the exemption for providing taxis for staff after 9pm if they have to unexpectedly work late and this may be more missed than the other 42 reliefs.

Headline Measures

The measures winning headlines are the further reduction in the main tax rate of corporation tax, the further increase to the personal allowances, and, of course the changes to fuel duty.

The decrease to 26% of the main rate of corporation tax, leading towards a rate of 23% in 2014, suggests that the small companies rate (currently 20%) is likely to be abolished in 2014 when the rates are only 3 percentage points apart – watch this space!

The increase to the personal allowance in 2012/13 to £8,105 will undoubtedly take more people out of the tax system, and takes the Coalition Government a further step towards the Liberal Democrat aim of a £10,000 personal allowance. At £8,105 people will have to earn about £156 per week before paying tax – and that equates to approximately 27 hours at the national minimum wage.

As expected the Chancellor delayed the increases to fuel duty. Whilst he abolished the Fuel Duty Escalator introduced by Gordon Brown, the RPI increase has been merely postponed until January 2012, although a 1p immediate reduction in the duty is now effective. The Chancellor emphasised that he cannot be held responsible for the price of crude oil, but no doubt it will be pointed out that taxes and duty still form the largest proportion of the cost of petrol and diesel at the pump.

Business Mileage

Mr Osborne rightly gave himself credit for increasing the approved mileage allowance which employees can claim for business mileage. This is to increase to 45p per mile with effect from 6 April 2011. This rate applies for the first 10,000 business miles. The secondary rate of 25p per mile for mileage above 10,000 has not changed. As the Chancellor stated this rate had not increased since 2002 when it was introduced by Gordon Brown.

Taken with the changes to the Fuel Duty Escalator and fuel duty this is a welcome aid for those using their own car for business purposes.

robinson+co will be contacting their employer clients to ensure that they are aware of this change.

And hauliers had more good news with the announcement that VED rates for HGVs will be frozen.

Enterprise Zones

Regrettably nowhere in Cumbria is one of the new Enterprise Zones so it is to be hoped that we will be remembered in the second tranche of zones to be announced in the summer of 2011.

Business Lifetime

Entrepreneur’s Relief doubles to £10 million per person. This means that capital gains arising on the sale of a business will be taxable at 10% rather than 18%/28%.

And whilst Entrepreneur’s relief is targeted at the end of a business’ life, the Chancellor was keen to also be seen to be supporting new and growing businesses. One way of doing this is by encouraging the use of the Enterprise Investment Scheme. Investments into a business within the Enterprise Investment Scheme attract income and capital gains tax reliefs and the limits for such reliefs has increased from 20% to 30% on a maximum £500,000 – a tax saving of £50,000. If within EU rules, it is hoped that the maximum investment will increase to £1million in 2012.

The time in between was also not forgotten with it being announced that the “Time to Pay” arrangements will continue for taxpayers having difficulty meeting their tax liability. However, the Budget release talks of supporting “viable businesses experiencing temporary financial difficulty” which is a subtle change of emphasis from previous releases. If you require help in arranging the payment of your tax liability, do not hesitate to contact Victoria Bishop on 01900 603623 or victoriabishop@robinsonco.co.uk.

Junior ISAs

Junior ISAs are to be up and running by autumn 2011. These are the Coalition Government’s replacement for Child Trust Funds and will not be available if a child already has a Child Trust Fund.

Contact Christine Lumsden on 01900 603623 or christinelumsden@robinsonco.co.uk for an appointment to discuss this matter with our Independent Financial Adviser.

“Big Society”

Yet again, the silence around Inheritance Tax was deafening, although the suggestion of a 10% discount in your inheritance tax bill if at least 10% of the estate is left to charity is novel in the extreme (an effective rate of 36% rather than 40%), and a nod to David Cameron’s “Big Society.” However, a consultation paper will be issued in the summer so don’t change your wills quite yet!

The influence of the “Big Society” can also be seen in several measures to simplify the administration of the Gift Aid scheme. This will particularly help smaller charities reliant on volunteers but from 2012/13 the charity will need access to the internet as administration will be done online. As well as simpler forms, charities will no longer need to obtain Gift Aid declarations for donations under £10, up to a maximum of £5,000 per year. To do this, charities will have to have a good compliance record with H M Revenue & Customs, and also have been within the system for at least 3 years.

Please contact our Charities Expert Jason Spires on 01900 603623 or jasonspires@robinsonco.co.uk for further help.

“IR35”

IR35 is a phrase to strike terror into the hearts of many one man companies and unfortunately Mr Osborne has decided that the rules should stay. However, more help is to be available from H M Revenue & Customs by:

• Setting up a dedicated Help line to provide greater pre transaction certainty
• Providing more guidance on what is thought by H M Revenue & Customs to be within the scope of IR35 and, more importantly, what is not within the scope of the rules
• Setting up an “IR35 Forum” to allow more effective engagement with interested parties
• Restricting reviews to high risk cases carried out by “specialist” teams

If you require any advice regarding this complicated and worrisome area of tax compliance please contact Peter Ellwood on 01900 603623 or peterellwood@robinsonco.co.uk.

Furnished Holiday Lettings

The owners of Furnished Holiday Lettings have had two years of uncertainty. Alistair Darling first mooted the possibility of abolishing the generous tax reliefs for such lettings in the 2009 Budget. This was confirmed in 2010 but then postponed in view of the May 2010 election. The Coalition Government announced its plans in December 2010 and the 2011 Budget now confirms these plans - see Victoria Bishop’s article on our website and do not hesitate to contact Victoria on 01900 603623 for more information. Please click here to visit our news archive and read our article on Furnished Holiday Lettings.

Domicile and Residency

In a surprise move the Chancellor increased the extra tax charge payable by “non doms” by £20,000 up to £50,000, once they have been in the UK for 12 years. Whilst this remains a drop in the ocean for the Abramovichs of the world, it will no doubt impact adversely on the moderately rich.

Mr Osborne also announced a consultation into the introduction of a statutory definition of residence.

VAT

Another resounding silence was VAT. It appears that increasing the standard rate to 20% in January was enough for the Chancellor and other than the annual increase to the registration limit there were no VAT measures announced.

Important figures:

2011/12 

2012/13

 

£

£

Personal Allowance

7,475

8,105

Basic Rate Band 

35,000 

34,370

Capital Gains Tax Annual Exemption 

10,600

*

Pensions Saving – Annual allowance 

50,000

*

Pensions Saving – Lifetime allowance 

1.8million

*

Inheritance Tax Nil Rate Band 

325,000 

325,000

ISA limit 

10,680 

*

Small Companies Corporation Tax Rate

20

*

Corporation Tax Rate

26

25

VAT Registration Threshold

73,000

*

VAT Deregistration Threshold 

71,000

*


*Amounts will be announced in 2012.

A successful Budget?

Towards the beginning of his speech Mr Osborne listed the hallmarks of a good tax system – efficiency, simplicity, fairness, ease, predictability. Has he succeeded? Perhaps only time will tell but whilst the measures for charity do offer simplicity and ease, others – such as the continuation of IR35 – do not. And the area which Mr Osborne correctly highlighted as a major complicating factor in the British Tax system – is not yet addressed.

This is the interaction of tax and national insurance contributions. Whilst a consultation has been announced the Chancellor admitted that it would be “years” before any changes would happen. So inefficiency, complexity, unfairness, difficulty and unpredictability are still going to be around for a while yet.

Please contact Victoria Bishop on 01900 603623 or victoriabishop@robinsonco.co.uk for further information on any matter arising from the 2011 Budget.

Disclaimer:
• These notes are not a full resume of the Budget Report issued on 23 March 2011
• All care has been taken in preparing this material. However no responsibility can be accepted for any losses arising to any person acting or refraining from acting as a result of this material
• Any comments are those of Victoria Bishop and do not necessarily reflect the views of
robinson+co

 

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