Landline duty of £6 per year will not go ahead from 1 October 2010.
Alcoholic duty rates on strong cider will reduce from 30 June 2010, back to the levels which were in place before the March 2010 Budget.
A bank levy on bank’s balance sheet values will be introduced from 1 January 2011 at 0.04% , which will rise to 0.07%.
A corporate tax avoidance schemes has been blocked from 22 June 2010 that uses financial instruments to remove profits from UK tax or is used to create an artificial tax credit.
The Government is to consider whether a General Anti-Avoidance Rule would be effective in reducing tax avoidance. It will also examine the following anti-avoidance measures:
Change of Standard Rate
The standard rate of VAT will increase from 17.5% to 20% from 4 January 2011. Goods and services that are currently exempt from VAT or are subject to VAT at the zero, or 5% rates will not be affected by this change.
If you are planning to invoice or pay in advance to avoid the VAT rise, think again. There will be a special 2.5% VAT charge on such advance sales where the customer cannot recover all the VAT on the supply, and one or more of the following applies:
Flat Rate Scheme
Small businesses can start to use the flat rate scheme if their VAT exclusive turnover is no more than £150,000, but must leave the scheme if their VAT inclusive turnover exceeds £225,000. This exit turnover figure will rise to £230,000 on 4 January 2011.
The flat rates that are applied to gross sales under the flat rate scheme will increase on 4 January 2011 to reflect the increase in the standard rate of VAT. If your business will no longer benefit from using the flat rate scheme you can leave scheme at any time.
Payments on Account
Businesses who have annual VAT due of £2 million or more must make monthly VAT payments on account. This threshold will be increased in 2011.
Corporation Tax
The small profits rate of corporation tax will be cut from 21% to 20% from 1 April 2011, when it was previously expected to increase to 22%. The small profits rate applies to profits of up to £300,000 if there are no associated companies. The corporation tax rates for large companies will reduce from 28% to 27% from next April and then fall by 1% per year eventually down to 24%.
Capital Allowances
The previous Government was always messing with capital allowances in an attempt to incentivise businesses to invest in this or that type of equipment. The new policy is to cut back on capital allowances with effect from 1 April 2012.
The main pool rate is reducing from 20% to 18% from that date and the special pool rate from 10% to 8%. The Annual Investment Allowance (AIA) Limit is also reducing from £100,000 to £25,000 from 1 April 2012.
Small businesses will not be affected if all of their expenditure on equipment is within the annual investment allowance, which gives 100% deduction for costs in the year of purchase. Unfortunately expenditure on cars cannot be covered by the AIA. However, expenditure on new (not second-hand) low emissions cars and vans can be covered by a separate 100% allowance.
NIC - 2011/12
Although we know the rates of NI that will apply from 6 April 2011, (2010/11 rates + 1%), we don’t know the new thresholds, so we cannot construct a meaningful table for 2011/12. We know the employer’s secondary threshold for class 1 NICs will increase by £21 per week above the RPI increase. The RPI increase is based on the RPI to September 2010. The full NIC rates and thresholds table will be available in October.
NIC Holiday
The Treasury are feeling guilty about cutting loads of public sector jobs in the less prosperous regions of the UK, so they have come up with the idea of an ‘NICs holiday’. A business will be exempt from paying the employer’s class 1 NICs for 12 months for up to 10 employees, capped at £5,000 per employee.
This scheme will start in September 2010 but will apply to new businesses set up on and after 22 June 2010. It will only apply in Scotland, Wales, Northern Ireland, the North of England, Yorkshire, the Midlands and the South West regions. Certain businesses are excluded, such as those under the IR35 or Managed Service Company rules, and businesses in grant-supported sectors such as agriculture, fisheries and coal. More details are expected to be made available shortly.
Capital Gains Tax
The rate of CGT is to increase from 18% to 28% from 23 June 2010, but taxpayers with taxable income and gains below £37,400 will continue to pay CGT at 18%.
All trustees and personal representatives with any level of income and gains will also rise to 28% from 23 June 2010.
We thought the Government would not increase the rate of CGT in the middle of a tax year, as that would cause so many complications when calculating the tax due for 2010/11. However, that is exactly what George plans to do. The increase in CGT is not as high as many feared, as it is still well below the highest income tax rates of 40% and 50%. Although trusts are particularly badly hit as they will pay the higher rate of CGT on all gains and only have half the annual exemption of individuals. There are special rules for trusts for the disabled.
The annual exemption remains at £10,100 for individuals and £5,050 for most trusts.
All gains that qualify for entrepreneur’s relief will continue to be taxed at 10%, whether the disposal is made before or after the changes on 23 June. There will be an increase from £2 million to £5 million in the lifetime limit on gains that can qualify for entrepreneurs’ relief from 23 June 2010 and this is very welcome, but many gains will never qualify for that relief. For example, the sale of a commercial property, which is not associated with the disposal of a trading business, will not qualify for the relief. Letting of commercial property does not count as a trading business for entrepreneurs’ relief.
If you are in the middle of arranging a large sale, you could escape the CGT rise if you have already exchanged contracts. This is because the disposal date for CGT is the date that unconditional contracts are exchanged, not the completion date for the deal. If the contract is conditional, the disposal date is the date those conditions are satisfied. The disposal date for a gift is the date the beneficial ownership passes.
Income Tax
The personal allowance for those under 65 will rise by £1,000 to £7,475 for 2011/12. However, this generous increase in tax free income will be limited to those who pay income tax at 20%, as the threshold at which 40% tax starts will be reduced to take into account the increased allowance. We won’t know the exact tax thresholds until the Autumn Budget statement, as the increases in threshold for 2011/12 will be based on the RPI to September 2010.
Child Benefit and Tax Credits
Child benefit is available to all parents of children under 16, and is not means tested. This benefit will be frozen at current levels until April 2014, and the money saved will be transferred to child tax credits.
Working and Child Tax Credits are to be withdrawn gradually from families with total income of £40,000 or more from April 2011. The special baby rate will be withdrawn at the same time, but the child element for less well-off families will increase by £150. There are a number of other changes planned for later years including a reduction in the period for which claims can be back-dated.
Child Trust Funds
Child Trust funds are special tax free savings accounts that are set up with Government funds for children born after 31 August 2002. Additional savings of up to £1,200 per year can be contributed to each account by anyone. Reductions in the funding for these accounts will be made from August 2010 and no further funding will be provided for new accounts from 1 January 2011. The accounts that are already open will remain in place until the child reaches age 18.
Retirement and Pensions
The state pension age (SPA), from which individuals can receive the state pension, is currently 65 for men and is rising to 65 for women. Legislation is already in place to increase the SPA to age 66 for everyone from 2026, but the Government wishes to bring this date forward.
From April 2011 the state pension will be increased by the greater of: the annual increase in earnings or prices, or 2.5%. The standard minimum income guarantee given under the Pension Credit will be increased by the same amount as the state pension.
When a member of a money purchase pension scheme reaches age 75 they are required to purchase an annuity to provide their future pension, or heavy charges can apply. This requirement to purchase annuity at age 75 is to be scrapped from April 2011. In the meantime if the scheme member has not reached age 75 by 22 June 2010, they can defer purchasing an annuity until age 77.
Tax relief for pension contributions is expected to be limited to around £35,000 per year per person from April 2011. This cap will replace the complex tapering of tax relief that was due to apply to individuals with total income of £180,000 or more.
Currently employees can be required to retire when they reach the default retirement age of 65. The Government is going to consult on how to remove this default retirement age.
Furnished Holiday Lettings
The changes that were announced by the previous Government will not be taking effect, although new measures will be considered to ensure the rules apply equally to properties in the EEA as well as increasing the number of days that properties have to be available for let and actually let as commercial holiday lets.
This was a pre-election Budget but without many give-away prizes. Many of the standard allowances and thresholds have been frozen for two to five years, which introduces hidden tax rises by way of fiscal drag.
This summary concentrates on the main tax issues businesses. The good news points for small businesses are the extensions of entrepreneurs’ relief and the Annual Investment Allowance. The bad news includes the new anti-avoidance rule for loans provided to participators in private companies. There are also a large number of complex measures which may not pass into law before this Government runs out of Parliamentary time.
Capital Allowances
The maximum Annual Investment Allowance (AIA) available to each business or group of companies will double to £100,000 for expenditure incurred from 1 April 2010 (6 April 2010 for unincorporated businesses). The cost of all qualifying equipment (not cars or buildings), that falls within the AIA limit can be deducted in full from the business profits in the year the equipment is bought.
The AIA was introduced in April 2008 with a cap of £50,000, which was sufficient to cover the annual capital expenditure for about 90% of businesses. This increase in the AIA limit means the capital expenditure of about 99% of businesses will be covered by the AIA, and thus will be allowable in full when incurred. Any capital expenditure in excess of the AIA limit is taken into the relevant capital allowance pool where it receives tax relief at either 10% or 20% per year.
Partnerships where one or more of the partners is a company do not qualify for the AIA. Also a group of companies only qualifies for one AIA limit for the whole group.
Loans to Participators
This is bad news for private companies. It undermines an arrangement that is becoming popular in owner-managed companies; where the director takes a loan from his company to spread the taxation of that income into a future tax year. When the loan is written-off or released by the company, the director is taxed on the value of the loan as if it was a dividend. However, the Taxman may also insist that the company pays class 1NICs on the loan write-off where the loan may have been substituted for part of the director’s remuneration.
Before today’s Budget the company could claim a deduction in its accounts for the value of the loan written-off as well as any NICs paid on that amount. For loans written-off on or after 24 March 2010 the company will not be able to claim a deduction in its accounts for the value of the loan, which will make the whole exercise very expensive. This new rule applies where the loan is provided by a privately owned company to a participator of that company, which includes all shareholders, directors and loan creditors of the company and their associates.
Corporation Tax
The corporate tax rate for small profits remains frozen at 21% for the financial year that runs from 1 April 2010 to 31 March 2011 (2010/11). The small profits rate applies where a single company has profits of no more than £300,000. Companies with profits of £1.5 million or more pay corporation tax at 28%. Profits that fall in the band £300,000 to £1.5 million are taxed at a marginal rate of 29.75%.
Where a company is part of a group or has associated companies the profit thresholds that determine where each tax rate applies are divided by the number of associated or group companies.
Business Rates
Businesses that occupy premises in England with rateable values of up to £6,000 per year will be able to claim full exemption from business rates for 12 months from 1 October 2010. In addition those businesses in properties with rateable values of up to £12,000 will be able to claim reductions in their business rates from that date. Different business rates relief schemes apply for properties in Wales and Scotland, but details of those schemes were not given in this Budget statement.
Income tax Allowances
All personal tax allowances have been frozen for 2010/11 at the 2009/10 levels as follows:
Under 65 - £6,475
65-74 - £9,490
75 and over - £9,640
Minimum marriage allowance* - £2,670
Marriage one partner born before 6 /4/1935* - £6,965
Blind person’s allowance - £1,890
Income limit for allowances for those aged 65 or more - £22,900
* given at 10% rate only
This freezing of allowances for everyone amounts to a hidden tax increase as the value of the allowance is reduced in real terms by inflation, which from the latest measure of the consumer prices index (CPI) is now 3%. Unfortunately the annual adjustment in allowances is based on a different measure of inflation: the Retail Price Index (RPI) as reported for the year to September which was a negative number: (-1.4), which has resulted in frozen personal allowances for 2010/11.
Another hidden tax rise lies in store for those with total income of £100,000 or more. From 6 April 2010 those individuals will lose £1 of their personal allowance, for every £2 of their total income that exceeds £100,000. This equates to a marginal tax rate of 60% on that slice of income.
Income Tax Rates
The tax thresholds for 2010/11 at which each tax rate is imposed have also been frozen at the 2009/10 levels. This also introduces a subtle tax increase for those people whose income has increased, if that increase takes their taxable income over one of the tax thresholds.
Savings rate* - 10% - £0 - £2,440
Basic rate - 20% - £0 - £37,400
Higher rate - 40% - £37,401 to £150,000
Additional rate - 50% - Over £150,000
* Only applies to savings income such as interest where earned income is covered by allowances or is also within this band.
The 50% tax rate only applies on income over £150,000, it does not replace the 40% tax rate.
Capital Gains Tax
The much anticipated increase in the rate of capital gains tax (CGT) did not emerge, the CGT rate remains at 18% for 2010/11. The CGT annual exemption is also frozen for 2010/11 at £10,100, with the exemption for trusts set at £5,050.
The good news for all ambitious business people is that entrepreneurs’ relief is to be extended. Entrepreneurs’ relief reduces the effective rate of CGT to 10% on gains arising on the disposal of businesses and certain business assets. Taxpayers are limited to claiming this relief on up to £1 million of gains made from 5 April 2008 to the end of their life. This lifetime limit is to be increased to £2 million for disposals made after 5 April 2010. No additional relief is given for gains realised before 6 April 2010 that exceed £1 million.
Inheritance Tax
The nil rate band for inheritance tax has been frozen at £325,000 for 4 years. Although widows and widowers can benefit from the transfer of any unused nil rate band from their deceased spouse or civil partner, this freezing of the IHT zero rate represents an hidden tax rise in real terms.
Savings Income
The tax-free ISA limits have already been increased for 2010/11 to £10,200, of which £5,100 can be saved in a cash form such as a bank savings account. These limits will now be increased by the rate of inflation (RPI measure) every year from 6 April 2011. If the RPI is negative the ISA limit will not be reduced. The amount that can be saved in a cash form will continue to be half the value of the full ISA limit for stocks and shares.
Special Annual Allowance Charge
Taxpayers with total income of over £150,000 will have to pay a special annual allowance charge (SAAC) of 20% to 30% of the irregular pension contributions they make that exceed £20,000, or in some cases £30,000, in 2009/10 or 2010/11. Irregular contributions are defined as those made less frequently than quarterly. The measure of income is the taxpayer’s total income before deductions for the current tax year, or in either of the two preceding tax years.
Employees with total annual income before deductions of £130,000 or more can also be caught by the SAAC if the sum of their income plus value of the pension contributions made by their employer on their behalf totals £150,000 or more.
From 6 April 2011 tax relief on pension contributions will be tapered down to the basic rate of tax for those earning between £150,000 and £180,000 or more.
Annual Allowance Charge
Tax relief on pension contributions is capped at the lower of 100% of the taxpayers’ relevant earnings, or the annual allowance. This annual allowance is to be frozen at £255,000 for the tax years 2010/11 to 2015/16. Where the pension contributions made exceed the annual allowance the taxpayer must pay an annual allowance charge (AAC) of 40% of the excess pension contribution. The SAAC and the AAC can apply on the same pension contributions, but the amount subject to the SAAC is reduced by the amount of contributions already subject to the AAC.
The detailed rules that govern exactly how these charges apply are very complex, so if your pension contributions or earnings are likely to break any of the thresholds mentioned please ask us for tailored advice.
New Obligations on Employers
In spite of these excessive tax charges on high pension contributions the Government wants all workers to be a member of a pension scheme. From a date to be announced in 2012, all employers will be required to ensure that their employees are members of a pension scheme. If the employee is are not already a member of a registered pension scheme he will be automatically enrolled in the Government scheme known as the National Employment Savings Trust (NEST). The employer will be required to make contributions to NEST or the employee’s registered pension scheme.
One of the give-aways of this Budget is relief from Stamp Duty Land Tax (SDLT) due on buying residential properties that cost up to £250,000, where the property transaction is completed between 25 March 2010 and 25 March 2012. The issue is that this zero rate only applies to first-time buyers, and the relief will have to be claimed by those individuals, it will not be given automatically.
To help fund this tax relief an additional rate of SDLT is to be introduced at 5% on properties costing £1 million or more from 6 April 2011. So if you are planning to buy that million pound home, get on with it!
Rates
The rates of VAT have not been changed. The standard rate remains at 17.5%, the reduced rate is 5%.
Registration Threshold
The level of turnover that triggers a requirement to become a VAT registered trader within 30 days is to rise by £2,000 to £70,000 with effect from 1 April 2010. The turnover threshold below which traders can apply to become deregistered for VAT increases by £2000 to £68,000 from the same date.
Postal Services
Certain commercial postal services provided by the Royal Mail and ParcelForce, will become subject to standard rate VAT from 31 January 2011. Services provided to private individuals, such as stamped mail, will continue to be exempt from VAT.
Off-shore Income
The Taxman has been gathering information about off-shore accounts held by British residents from banks based in the UK and in tax havens such as Liechtenstein. Now three further tax havens; Belize, Grenada and Dominica are about to sign information exchange deals with the UK.
Tax evaders with off-shore accounts were given until 12 March 2010 to come clean and declare all their off-shore income and gains to HMRC. If they persist in their tax evasion tactics after 1 April 2011 and hide money in a country that does not have an information exchange agreement with the UK, they will find themselves subject to penalties of up to 150% of the tax due. If the tax evaded is £25,000 or more, HMRC may publish the taxpayer’s name and address as part of their name and shaming powers.
Security for PAYE
Currently the owners or directors of new business may be asked to provide a lump sum to HMRC as security before the business is permitted to become VAT registered. The Tax Office tends to demand such payments where the business owners have previously been involved in a business that failed owing VAT. From 6 April 2011 HMRC will also be able to ask for security payments from the business owners before the business is permitted to operate a PAYE scheme.
Disclaimer: The above summary has been compiled from publicly disseminated information and should not be relied upon as a definitive interpretation. Individuals and businesses should seek their own analysis before making any fiscal decisions.
In our Budget weblog we mentioned that UK residents could now make claims for tax reliefs associated with furnished holiday-let property situated in other EEA countries. The EEA countries are the 27 EU countries plus Iceland, Liechtenstein and Norway.
The tax reliefs that could be claimed include:
If this applies to you a claim may be made for tax relief, which may be due.
Income Tax
The 50% rate of income tax will apply from 6 April 2010 on income above £150,000. This replaces the proposed 45% rate, which was going to come in a year later on 6 April 2011. Dividend income above £150,000 will be taxed at 42.5%.
The tax free personal allowance (£6,475 for 2009/10) will be tapered down to nil for those individuals who have taxable income of £100,000 or more from 6 April 2010. So once you have taxable income of about £113,000 you will completely lose the benefit of the tax free personal allowance.
If you have a significant amount of funds retained within your own company you may consider withdrawing some of those funds in the current tax year while the highest rate of tax is only 40%, or 32.5% on dividends, and you have full use of your personal allowance.
Pension Contributions
Pension contributions currently attract tax relief at your highest rate of tax however much you earn. This tax relief is thus worth more to those who pay tax at 40%, than basic rate taxpayers. With the increase in the top rate of tax to 50% from 6 April 2010 the tax relief on pension contributions would become even more valuable.
The Government has foreseen this and plans to restrict the tax relief given on pension contributions for those who pay tax at 50%. From 6 April 2011 the tax relief will be tapered down from those earning over £150,000 so that those earning £180,000 or more will only get the basic rate tax relief on all their pension contributions. The delay until 2011 in changing the tax relief would offer a window for pension planning, but that window has been blocked immediately for those earning £150,000 or more. If such an individual increases their current pension contributions beyond their normal contribution level, and those total contributions exceed £20,000 per year, a penalty rate of tax will apply.
Savings
The Chancellor has made two adjustments to help savers and pensioners who have been hit hard by the reductions in interest rates:
Savers who lost money when their bank went into liquidation will generally be compensated under the Financial Services Compensation Scheme (FSCS). This scheme returns the capital that was lost and an amount in respect of lost interest. The savers will now be taxed on the compensation received in respect of the interest lost, as if that amount was interest payable by a bank.
Capital Gains
The annual capital gains exemption for 2009/10 has been set at £10,100 for individuals and £5,050 for most trusts. This exemption remains in place irrespective of the levels of gains made in the tax year. The rate of capital gains tax for 2009/10 is set at 18% for all taxpayers. These two measures mean that most individuals pay far less tax on capital gains than they do on earnings, savings, dividends or profits.
Losses
Businesses that make trading losses can generally carry back the loss to set against profits made in the previous accounting period. This one-year carry back facility was extended to three years last November, but only for sole-trader or partnership accounting periods ending in the year to 5 April 2009 (2008/09), or for company periods ending in the year to 23 November 2009. As the recession is now expected to last longer than first thought, this loss relief extension will now apply to the following accounting periods:
For each loss making period an unlimited amount of loss can be carried back one year, but a maximum of £50,000 can be carried back to the previous two years. The losses must be used against the profits of the later period first.
If you are having difficulties paying the tax due on the profits made in the earlier accounting period, which will be partly or wholly cancelled out by losses made in the current year, you can ask HMRC for time to pay the tax due. The HMRC officers should now take into account the expected loss that will be carried back, but they may want to talk to us as your accountant to verify the scale of the loss.
Capital Allowances
All businesses can now claim 100% capital allowances for plant and machinery purchased each year under the Annual Investment Allowance (AIA). The AIA is generally capped at £50,000 per year for each business or group of companies. Any expenditure in excess of the AIA cap goes into the relevant capital allowance pool and receives tax relief at either 10% or 20% per year.
Now for one year only the excess expenditure, which is not covered by the £50,000 AIA limit, can qualify for a 40% first year allowance. This 40% allowance will cover plant and machinery purchased in the year ending on 31 March 2010 by companies, or to 5 April 2010 by unincorporated businesses, but not cars, integral features, long life assets or leased equipment.
Employers
The changes to capital allowances on cars have already come into effect for cars purchased after 31 March 2009 by companies, and after 5 April 2009 by unincorporated businesses. The main changes are that cars with CO2 emissions exceeding 160g/km are allocated to the special rate capital allowance pool, where the cost receives tax relief at only 10% per year. Other cars go into the general pool and receive tax relief at 20% per year, unless the car has very low emissions of 110g/km or less when it can qualify for a 100% first year allowance.
The disadvantage of pooling the expenditure on cars is that when a car is sold, the disposal proceeds are deducted from any other costs in the pool, but any unrelieved cost of the car remains in the pool to be gradually written-off at 20% or 10% per year. Cars owned at the April start date are treated separately, so the unrelieved cost is given as an allowance when the car is sold. The Government is introducing anti-avoidance rules to prevent businesses taking advantage of the old rules for cars by selling the vehicles at less than market value, or by artificially closing down the company to claim the allowances.
Employees
The taxable benefit for having use of a company car is to increase again from 6 April 2011. The scale of CO2 emissions that sets the taxable amount of the vehicle’s list price will start at 15% for cars with CO2 emissions of 121-129g/km. Although cars with CO2 emissions of no more than 120g/km will continue to produce a taxable benefit of 10% of their list price. The taxable benefit of driving an electric car is 9% of the list price. The list price that is taken into account is currently capped at £80,000, but this cap will be removed from 6 April 2011. Various discounts for alternatively fuelled cars will also be removed.
Car Scrappage Scheme
If you have a car which is more than 10 years old you will be able scrap it and get £2,000 off the price of a brand new car, but only for a limited period until March 2010. You will have to show you have been the registered keeper of the vehicle for the previous 12 months before ordering the new car.
Rates
The Chancellor confirmed that the standard rate of VAT will revert to 17.5% on 1 January 2010. If businesses try to avoid the VAT rate increase by paying early or by invoicing early at the current rate of 15%, they will have to pay a supplementary charge of 2.5%.
Registration limit
The compulsory VAT registration threshold will increase by just £1,000 to £68,000 on 1 May 2009. Businesses are obliged to register for VAT once their turnover for any 12 month period exceeds this limit, or if they expect their turnover to meet this threshold in the next 30 days. The turnover threshold, below which a business may apply to be de-registered for VAT, will increase to £66,000 on 1 May 2009.
International Transactions
If you buy or sell goods or services across international borders you need to be aware of changes in the VAT rules which are going to be phased in between 1 January 2010 and 1 January 2013. Currently only businesses that sell goods into other countries need to complete an EC sales list, but from 1 January 2010 businesses that supply services to customers in other countries will need to complete this document every quarter. The rules that govern when and where a service is treated as being supplied are also changing.
From 1 January 2010 it will be easier to reclaim VAT incurred in another EU country, as the claim will be made directly to HMRC in electronic form.
Stamp Duty Land Tax
As the property market slumped last summer the Chancellor was forced to announce an increase in the threshold where Stamp Duty Land Tax becomes payable on a property transaction. This threshold was raised from £125,000 to £175,000 for just one year to 2 September 2009. However, as the property market has still not recovered this higher threshold will now remain in place until midnight on 31 December 2009, when presumably the recession will be over!
Stamp Duty Land Tax is a big expense for leaseholders of flats who wish to acquire the freehold of their property from the landlord. The law is to be changed to allow relief from this tax when a group of leaseholders come together to acquire the freehold of the whole block.
Inheritance Tax
The Government has suddenly realised that a number of tax rules that restrict tax relief to land in the UK are against EU law. These rules include the inheritance tax reliefs for agricultural property and woodlands, which until now only applied to land in the UK, the Channel Islands and the Isle of Man.
This inheritance tax relief can now be claimed on any qualifying agricultural land or woodlands situated in a country in the European Economic Area (EEA), which comprise the EU countries and a few more. If inheritance tax has been paid on such non-UK property since 23 April 2003 the executors of the estate can claim a refund.
Furnished Holiday Lettings
Another tax relief that currently only applies to UK property is that for furnished holiday lettings. If the strict conditions apply to the property the letting business is treated as a trade, so losses can be set-off against other income and gains on the property may be rolled-over. HMRC has now been forced to accept that property in other EEA countries can qualify as furnished holiday lettings, and taxpayers will be able to make claims for the associated reliefs where those claim periods are still open. However, rather than expand the scope of this tax relief to the whole of Europe, HMRC are withdrawing the tax relief completely from April 2010.
No Budget would be complete without announcements designed to discourage those that deliberately evade tax.
This year the Chancellor has decided to use the name and shame tactic. The names, addresses, and professions of taxpayers who are found to have deliberately understated their tax liabilities by £25,000 or more will be published on the HMRC web site. This will apply to businesses as well and individuals, but only after the case has been closed and the penalties have been agreed. Any taxpayer who makes a full disclosure of the tax due to HMRC will not be named in this way.
Another way of clamping down on tax evasion by large companies is to make the company accountant personally responsible for the accounting system which is used to hide the tax evasion. The accountant will have to pay any penalties for tax evasion personally. This will only apply to companies defined as large by the Companies Act 2006, which is really very large, but it is an interesting new approach.
Finally there will be no escape for tax defaulters. Where HMRC has lost track of a taxpayer who owes them money, an employer or company will be forced to hand-over contact details of that individual.
And finally; this summary is based on the most recent reading of the budget announced in Parliament on Wednesday 22nd April 2009 by the Chancellor of the Exchequer. True to form there may be subsequent amendments and clarifications and before acting on any issue contained in this article you should seek secondary professional advice.
The Pre-Budget Report has clarified the future tax relief available on the purchase of cars and motorcycles.
Cars purchased by companies from 1 April 2009 (and by unincorporated business from 6 April 2009) will attract tax relief depending on the vehicle’s CO2 emissions:
Under this system it will take longer to achieve full tax relief for the cost of a car, particularly for the higher polluting vehicles. When a post March 09 car is sold the balance of the unclaimed cost remains in the pool of business equipment to be deducted at the normal rate of 10% or 20%. So full tax relief is not given even though the car is no longer owned.
Currently, on the disposal of a car that cost over £12,000 the unrelieved purchase cost is claimed as a balancing allowance. Cars that are acquired before 1 April 09 will continue to attract a balancing allowance on sale for a transitional period of five years. After 31 March 2014 all pre-April 09 cars will be added into the relevant pool for business assets. Therefore, if looking at purchasing this type of car, it could be advantageous to purchase before April.
Cars used by partnerships and sole-traders will attract tax relief at the same rates as for company owned cars. However, a balancing allowance will still be available on sale where the car has been used privately by the business owner. So ensuring some private usage may be beneficial.
From April 2009 all motorcycles purchased by businesses will qualify for the Annual Investment Allowance, which will normally give 100% deduction in the year of purchase.
Business Rates
From 1 April 2008 most empty business properties became liable to business rates, when previously empty properties were exempt from rates. After much protest, and a number of instances where properties were demolished, the exemption from business rates is to be applied to all properties with a rateable value of less than £15,000 for the tax year 2009/10 only.
Car tax (vehicle excise duty)
There was a lot of fuss after the Budget in March 2008 over the proposed increases in car tax (VED) for older cars registered after 1 March 2001. These increases in VED have now been scaled back to £5 per car per year for most cars for 2009/10, but larger increases will apply for new polluting cars.
Excise Duties
Just to prove this was a real Budget the duties on cigarettes increased from 6pm on 24 November 2008. Duties on wine and spirits go up from 1 December 2008. To compensate for the reduction in VAT, fuel duties are also to increase from 1 December 2008 and then again on 1 April 2009!