Below is a run down of the main issues which were included in the budget.
Reduction of corporation tax rates
The main rate of corporation tax is 28% in the 2010/11 tax year, this will be reduced to 26% for 2012/13 and again to 25% for 2013/14.
|Up to £300,000||20%||21%|
|£300,000 to £1,500,000||27.5%||29.75%|
Enterprise Investment Schemes and Venture Capital Trusts
Both of these reliefs were under review resulting in a holding off of investment. Now these have both been supported within the budget which will remove the uncertainty, allowing funds to be invested.
Associated companies for corporation tax rates
Where companies are associated, the corporation tax band limits are divided by the number of associated companies, which in essence reduces the tax thresholds applied. A new rule will ensure that companies are not held to be associated solely by personal relationships between individuals (eg husband & wife), but only where there is no commercial interdependence between the companies. This will take effect for accounting periods ending on or after 1 April 2011.
Capital allowance changes
Previously announced reductions to capital allowances will take effect from April 2012. If you have any capital procurements to make in excess of £25,000 then it could well be worth making them in the next 12 months. From April 2012:
• a reduction in the 100% Annual Investment Allowance for investment in Plant & Machinery from the current £100,000 to £25,000
• a reduction in annual writing down allowance rates by 2%, in essence increasing taxable profits
There is good news for SME owners in the form of improvements to Entrepreneurs Relief.
Entrepreneurs' relief is available for 'qualifying business disposals' and reduces the effective rate of capital gains tax to 10%. There is a lifetime limit on the relief which is to be increased from £5m to £10m for disposals after 6th April 2011.
In terms of income tax, the changes to the tax thresholds were already well publicised. Those on lower incomes will see some benefit but as more households will now contain a higher rate taxpayer many will be feeling the pinch.
Approved mileage allowance payments (AMAP)
The AMAP rates can be used to claim the cost of business mileage in an employee's own vehicle. Where an employer pays less than the published rates, employees can make a claim for tax relief for the shortfall.
From 6 April 2011 the rate will be increased from 40p per mile to 45p per mile for the first 10,000 miles of business travel in the tax year. The rate for mileage above 10,000 miles will remain at 25p per mile.
Company car fuel benefit charge
Employees who are provided with a company car and who also receive free fuel from their employers are subject to the fuel benefit charge. The benefit charge is calculated by multiplying a set figure by the appropriate percentage for the car based on its CO2 emissions. The current set figure of £18,000 will be increased to £18,800 from 6 April 2011.
Company car tax rate 2013/14
The Finance Bill 2011 will include legislation to reduce the appropriate percentages by 1% for all vehicles with CO2 emissions between 95gm/km and 220gm/km from April 2013. Zero emission cars will remain at 0% and ultra low emissions cars with emissions up to 75gm/km will remain at 5%.
Employer supported childcare
From 6th April 2011 the provision for employers providing qualifying childcare, which at present gives an amount of £55 per week free from income tax and NIC, is to be restricted for higher rate taxpayers joining the scheme. The effect will be to ensure that higher rate taxpayers only get the same relief as basic rate taxpayers.
Anyone in a scheme by 5 April 2011 will not be affected by these changes as long as they remain within the same scheme.
The Government continue to talk about cutting all of the red tape and the setting up of an Office for Tax Simplification certainly makes the right noises. Their brief is to simplify the tax system and reduce compliance for businesses and individuals. I am sure as individuals and business people we all welcome that.
Overall, no real surprises. For most individuals, particularly the increasing number of those in the higher rate bracket driven by the reductions to the basic rate tax upper limit, no real good news. The budget was really aimed at the SME sector to drive investment and development, but the key question remains; is it really enough to give the economy the boost it requires? If you would like to discuss any of the above with the TaxWise team please give them a call on 01455 852 555.