Personal Taxes

The Personal Allowance (under 65) will be increase from £6,475 to £7,475 from April. This will leave those on basic tax £170 per year better off. To prevent those on higher incomes from benefiting from this the threshold at which individuals start to pay higher rate tax will be reduced. Exact threshold figure will be confirmed later this year (usually October). With this exception, the rates at which income tax is levied remain unchanged.

The point at which employers start to pay Class 1 National Insurance Contributions (NICs) is to be increased by an extra £21 above indexation but the previous Government’s 1 percent rise for employees remains. With effect from 6 April 2011, Employees will pay NIC at 12 percent (between the lower earnings limit and the upper earnings limit) and 2 percent above the upper earnings limit. The self-employed will also have to pay NIC at the higher rates of 9 and 2 percent.

The standard rate of VAT will rise from 17.5 percent to 20 percent from 4th January 2011. Children’s clothes, food, books and newspapers remain exempt. The effects of this increase will be widely felt, and include higher prices on may purchases for consumers and retailers unable to pass on the increase and thus take a hit on their own profit margins, education, charities and health sectors. This will also affect many large businesses, which are unable to fully recover their input VAT (e.g. those in finance and insurance sectors). Businesses will once again be required to make changes to their accounting software to account for the increase. 

The advanced notice of the change should allow partially exempt clients the opportunity to plan where the increase in costs may be managed or mitigated to some extent (e.g. by bringing forward budgeted expenditure or making pre-payments). Caution is required here, as HM Revenue & Customs have introduced anti-forestalling measures to prevent the use “artificial arrangements” which may provide an advantage.

Effective from the 23rd June 2010 there will be three rates of Capital Gains Tax:

• 18 percent for basic rate taxpayers
• 28 percent for higher rate taxpayers
• 10 percent on first £5M of lifetime gains qualifying for Entrepreneurs Relief

The 18% rate applies to non-business capital gains realised prior to 23 June 2010. The rate of 28% will apply to gains made by trustees and personal representatives on or after 23 June 2010 as well as for those individuals paying the £30,000 remittance basis charge. Capital losses and the annual exemption (maintained at £10,100) can still be set-off in the most beneficial way. Capital gains which have been deferred into an Enterprise Investment Scheme investment, will be taxed at the new tax rates where the deferral ceases on or after 23 June 2010.

The lifetime limit for Entrepreneurs Relief has increased from £2M (this higher limit came into effect from the 6th April 2010) to £5M for qualifying gains made on or after 23 June 2010. Gains made by individuals or trustees before 23 June 2010 in excess of £2M will not benefit from this increase. However, if additional qualifying gains are made on or after 23 June 2010, Entrepreneurs Relief will be available on an additional £3M of gains moving the maximum relief up to the new lifetime limit of £5M.

Insurance Premium Tax up with the standard rate moving from 5 to 6 percent and the higher rate to 20 per effective from 4 January next year.

Council Tax will be frozen for one year.

Alcohol, Tobacco and Fuel all escape rises. The 10 per cent rise in duty on cider, introduced by the Labour Government, will be removed. 

The Labour Government had tabled plans to abolish the beneficial tax treatment enjoyed by Furnished Holiday Lets following a European Union statement that it discriminated against EEA holiday lets in favour of UK properties. Planned legislation would have removed the beneficial treatment for furnished holiday lets from the start of the tax year (6 April 2010) however due to pressures from the then impending General Election the proposed legislation was dropped.

The new Conservative Liberal Coalition Government has announced that the beneficial tax treatment will continue during 2010/11 and will include qualifying EEA properties. This generous tax treatment will be reviewed later this year with any changes being implemented from 6 April 2011.

The Gift Aid Scheme has been extended to cover certain charitable organisations in the EU and in the European Economic Area from 24 March 2010. Previous legislation restricted the beneficial tax treatment to UK resident charities. This follows a recent judgment by the European Court of Justice (ECJ) in January 2009, which found that the law blocked tax relief for Charities not resident in the UK and thus contrary to EU law.

State Pension age will rise to 66 years-old.

The Government will end the requirement for members of registered pension schemes to use their pension to buy a Pension Annuity by age 75 this comes into effect from 6th April 2011. Those who have already reached 75 will not be eligible. Transitional measures have been introduced to allow those reaching 75 between 22nd June 2010 and 5th April 2011 participates in new products, which will be introduced by providers because of the change. In effect, these interim measures will allow a member of a money purchase scheme to defer purchasing an annuity until they are 77.

The highly complex proposed (effective April 2011) High-Income Excess Relief Charge for taxpayers with gross incomes in excess of £150,000 will be replaced by a maximum annual allowance. This allowance is expected to be somewhere between £35,000 and £40,000.

ISA (Individual Savings Accounts) allowances (currently £10,200 per annum, up to £5,100 of which can be invested as cash) will in future to increase in line with the Retail Price Index with effect from 6th April 2011.  The RPI increase will be rounded to the nearest multiple of £120.

Proposals to increase the current Inheritance Tax (IHT), contained in the 2009 Pre-Budget Report, nil rate band from £325,000 to £350,000 from 6 April 2010 have been abandoned. The Chancellor has also confirmed that the threshold will remain at £325,000 until 5 April 2015.

Business Taxes

Corporation Tax - large company rate down from 28 per cent to 27 per cent next year and by 1 per cent for the next three years to 24 per cent. Small company rate down from 21 percent to 20 percent.

The announced annual reductions in corporation tax rates are as follows:

As you can see from the above, deduction of carried forward tax losses from the recession will attract a lower rate of relief.

In an attempt to claw back some of the benefit of reduced corporation tax, Capital Allowances will be reduced from April 2012.

• The maximum expenditure on which a business can receive full relief in the year in which the expenditure is incurred (known as the Annual Investment Allowance) goes down from £100,000 to £25,000.
• The writing down allowance for the main pool goes down from 20 to 18 percent and that for the “special rate” pool from 10 to 8 percent.
• The introduction of a 100% first year allowance for zero-emission vans, originally announced in March 2010 Budget, was confirmed.
  

The forewarning of this change gives many opportunities to plan capital expenditure to maximise tax saving benefits.

National Insurance - the threshold at which employers start to pay will go up by £21 per week, above indexation, effective from April 2011,

A new tax scheme aimed at creating jobs outside of London, south east England and east England will be introduced over the next three years making new businesses exempt from up to £5,000 in NI Contributions for the first 10 employees.

The Government will extend the Enterprise Finance Guarantee Scheme and the creation of a new Enterprise Capital Fund. 

If you need to discuss the impact of the Emergency Budget  on you as an individual or on your company please call Moore Hill Accountants on 01925 830830. We will be happy to discuss the implication of the changes listed as well as how you may be able to plan you r affairs to mitigate any negative effects of the budget as well as maximise on any of the benefits.