Emergency Budget 2010
Originally sent: June 23, 2010Business Taxation
In the April Budget we had the unexpected increase in Entrepreneurs Relief from £1,000,000 to £2,000,000. In yesterday’s Emergency Budget the Coalition Government gave our entrepreneur clients an even greater boost – the relief has now increased to £5,000,000.
More good news for our corporate clients is that starting April 2011 the Main Rate of Corporation Tax will reduce from 28% to 24%. The Lower Rate will reduce from 21% to 20% in April 2011 but no announcement has been made of any further rate cuts for smaller companies.
The Annual Investment Allowance, which was increased from £50,000 to £100,000 in the April budget will be cut back to £25,000 from next year.
There is an increase in the facility provided under the Enterprise Finance Guarantee, together with the publication of an expected processing time of 20 days. This should make it easier and quicker for small and medium sized enterprises to obtain badly needed finance.
A Growth Capital Fund has also been announced, to provide equity capital to smaller companies. This will be funded two thirds by the Government and one third by private investors.
New businesses starting up in targeted areas (this would appear in the main simply to be outside London and the South East) will not have to pay up to £5,000 Employers National Insurance on their first ten employees.
IR35 is to be reviewed. Expect an announcement shortly.
Personal Taxation
The personal tax allowance, which was frozen in the previous budget, will be increased by £1,000 in April 2011. This is more than a 15% increase. It will then increase over the next few years to £10,000. This should be by April 2013 if a similar rate of increase is maintained.
There will be corresponding reductions in the 40% income tax threshold and the 2% National Insurance threshold in order to ensure higher rate tax payers pay more or less the same tax as they would have done if the allowance had not been increased.
The 50% Additional Rate of Income Tax remains.
The additional 1% National Insurance announced in the Pre-Budget report will go ahead, but not the further 1% announced in the April Budget. An increase in the threshold by £21 plus inflation in April 2011 means many lower paid workers will no longer pay National Insurance.
Capital Gains Tax has increased from 18% to 28% for Higher Rate and Additional Rate taxpayers, but remains at 18% for Basic Rate payers. The Capital Gains Tax exemption will increase in line with inflation but remains frozen at £10,100 this year.
Standard Rate VAT will rise to 20% from 4th January 2011.
The special tax concessions for Furnished Holiday Lets will now not be removed, as proposed in the April Budget, although there are likely to be restrictions once the Government finishes its consultation.
Life Insurance Deficiency Relief will not be extended to the Additional Rate of tax but still applies to higher rate. This still leaves a wide open tax planning loophole, but at the same time means care should be taken when recommending bond withdrawals to Additional Rate taxpayers.
Pensions
The Finance Act 2010 Pension Tax legislation will be repealed when the Government has considered what it will do to replace it. In the meantime the Anti-Forestalling rules still apply. It is suggested the annual allowance might be reduced from £255,000 to around £30,000 to £45,000 to raise the same amount of revenue.
The rules effectively requiring annuity purchase by age 75 will be abolished from April 2011. As an interim measure the age limit is immediately increased to 77 provided the scheme member had not reached 75 before 22nd June 2010. The penal tax charges on post 75 death benefits and the stricter maximum and minimum withdrawal limits will immediately no longer apply to members aged between 75 and 77.
Basic State Pension will increase by the greater of:
- Earnings (AEI)
- Prices (CPI)
- 2.5%
In April 2011 the increase will be RPI if this is higher.
There was no mention of NEST as such, but the budget report stated quite clearly the Government supports auto-enrolment.
It is proposed to phase out the default retirement age from April 2011.
Benefits
From April 2011 benefits will be linked to CPI rather than RPI. This does rather make sense, as CPI excludes home ownership costs, but it is significant that CPI is usually lower than RPI.
Child benefit is frozen for three years. Child Tax Credit will increase, but the threshold above which it will not be paid is lower. Backdating of tax credits has been reduced from three months to one month. This makes it even more important for those with fluctuating or uncertain incomes (which includes most business owners) to make a “protective” claim even though they may not yet have entitlement.
The Savings Gateway, which was planned to be introduced next month, has now been abandoned. In case you were not aware, this was a scheme where the Government would add 50p to every £1 saved – provided you were so poor that you probably could not afford to save in the first place.
Tax Policy & Avoidance
The Government has announced its intention to have better consultation on tax policy, to introduce greater clarity in the tax legislation, and to slow down changes in tax legislation.
The General Anti-Avoidance Rule has raised its head again. The Government is only considering this at the moment, but could well decide to introduce it. Watch this space!
IHT in trusts may be brought within the Disclosure of Tax Avoidance Schemes regulations.
The Government is also looking carefully at Stamp Duty Land Tax avoidance and may change the rules to eliminate this.
Finance Acts
There will be two more Finance Acts this year, making three in total.
The first of the two additional Finance Bills will be published shortly and will contain what the Government refers to as the “key priorities” of this budget. It is intended this will very quickly pass through all the stages and become law shortly.
In July a third Finance Bill will be published with the intention of it passing through the various stages in the Autumn. This will contain all the provisions the Government feels need full discussion in Parliament.
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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