Budget release 23rd March 2011
Relevant quick points - see below for full report.
Income tax - Higher rate to reduce from £37,400 to £35,000 from 06th April 2011
Corporation tax - reduced Small companies rate to 20% from 01st April 2011
Corporation tax - reduced from 28% - 24 % over 4 year period rate reduced further to
26% from 01st April 2011
25% from 01st April 2012
24% from 01st April 2013
23% from 01st April 2014
Enterprise investment Scheme: Tax relief increased from 20% to 30%
Approved mileage Increased from 40P to 45p 1st 10,000 miles from 06th April 2011
25p miles in excess of 10,001
Company car benefit 1% added from 6 april 2013 emissions 95-220 g/km
Company car fuel benefit increased from 18,000 to 18,800 from 06th april 2011
Employers National Insurance increased to 13.8% from 06th April 2011
Personal allowances £6475 increased to £7475 from 06th April 2011
£7475 incrreased to £8105 from 06th April 2012
Child care relief restricted to £900 per annum all taxpayers
Furnished holiday lets (FHL's) loss offset against same FHL
Pension annual allowance reduced from £255,000 to £50,000 from 06th April 2011
life allowance reduced from £1.8M to £1.8M
ISA exemption ££10,680 & £5,340
Capital gains annual exemption £10,600 from 06th April 2011
Entrepreneurs Relief lifetime limit raised to £10M 10% rate rather than 18% or 28%
Inhertitance tax £325,000 Nil rate band
VAT registration limit increased from £70k to £73K from 01st April 2011
Annual Investment allowance AIA decreased from £100K to £25K from 06th April 2012
The Budget 23rd March 2011 - The details
Corporation tax rates
The Chancellor had previously announced in the June 2010 a gradual reduction in the main rate of corporation tax
from 28 per cent to 24 per cent over a four year period.
In George Osborne's first spring Budget he has gone further and reduced the rate for the financial year beginning
1 April 2011 by a further 1 per cent to 26 per cent instead of the expected 27 per cent. Consequently, the main rate
of corporation tax will reduce to 25 per cent for the financial year commencing 1 April 2012.
The rate will therefore now reduce to 23 per cent for the financial year beginning 1 April 2014.
The Chancellor's aim is to restore the UK's attractiveness as a low tax regime to attract foreign investment and
thus accelerate economic recovery. However the small profits rate of corporation tax will reduce by just 1 per cent
as planned to 20 per cent for the financial year commencing on 1 April 2011.
Capital allowances and short-life assets
Nearly all recent Budgets have seen some changes to the capital allowance regime and this Budget is no exception.
Businesses can elect for assets to be treated as short-life assets (SLA) with the advantage that any disposal
before the cut-off period (currently four years) will enable the business to claim the full net cost of the asset
over the period of ownership.
The Chancellor has announced that the cut-off period will be extended to eight years thus making the election
more attractive for a wider category of assets. The measure takes effect for expenditure incurred by companies
on or after 1 April 2011 and 6 April for unincorporated businesses.
Capital allowances and energy saving technologies
The list of technologies and products which qualify for enhanced capital allowances has been extended to include
certain energy efficient hand driers. This will have effect on a date to be announced prior to the summer
Research and development (R&D) tax credits for small and medium sized enterprises (SMEs)
The Budget statement included a very significant increase in the credit which will be available to SMEs for qualifying
R&D expenditure. The Chancellor expressed a strong desire to restore the UK's manufacturing base
by encouraging innovation. Legislation will be introduced in the Finance Bill 2011 to increase the additional deduction
for SMEs from 75 per cent to 100 per cent of the qualifying R&D expenditure thus resulting in an effective 200 per cent
deduction for such expenditure (currently 175 per cent).
This will be increased further by the legislation to be introduced in the Finance Bill 2012 which will extend the
total effective deduction to 225 per cent. This is a very significant increase and should provide SMEs with a strong
incentive to fund R&D in the future. In addition, legislation will be introduced in Finance Bill 2012 as follows:
* the rule limiting a company's payable R&D tax credit to the amount of PAYE and National Insurance Contributions (NICs
it pays will be abolished;
* the £10,000 minimum expenditure condition will be abolished for all companies; and
* changes will be made to the rules governing the provision of relief for work done by subcontractors under the large
company scheme. These changes are subject to State aid approval.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT)
The Chancellor has announced a number of very significant changes to both schemes. The aim is to help smaller companies
to obtain finance by increasing the incentives for potential investors.
Legislation will be introduced in the Finance Bill 2011 to increase the rate of income tax relief from 20 per cent
to 30 per cent for of the amount subscribed for shares qualifying under EIS.
Further changes will be introduced in the Finance Bill 2012 to increase:
* the thresholds for the maximum size of qualifying company for EIS and VCTs to 250 employees and gross assets
of £15 million
* the maximum annual amount that can be invested in an individual company to £10 million
* the annual amount that an individual can invest under EIS to £1 million.
The above three changes will apply from 6 April 2012.
The Chancellor made two important announcements:
* The small business rate relief holiday will be extended by one year from 1 October 2011
* The business premises renovation allowance will be extended for a further five years from 2012.
Abolition of tax reliefs
After a period of consultation, the Government intends to abolish a number of tax reliefs next year as part
of a simplification process including late night taxis, luncheon vouchers and the cycle to work days (provision of meals).
On 8 February 2011 the Chancellor announced an increase in the levy for the remaining 10 months of the 2011
calendar year which increased these tax revenues by nearly 50 per cent. In the Budget statement it was announced
the levy rates to be applied from 1 January 2012 would be increased to offset some of the reduction of the corporation tax
Taxation of foreign branches
UK companies with foreign branches are subject to layers of taxation. The foreign branch will be subject to local taxes in a foreign jurisdiction and then the branch profits are also subject to UK corporation tax with credit for the foreign tax already suffered. This reduces the UK's attractiveness as a location for the parent body of the business. It also creates an anomaly between foreign branches and foreign subsidiaries.
One of the Chancellor's stated aims in this Budget is to create a more competitive tax system and therefore legislation is being introduced in Finance Bill 2011 to allow companies to elect for the exemption of branch profits from UK corporation tax. This may look attractive but the election is irrevocable and in the circumstances where branches turned out to be loss making then a tax deduction against UK corporation tax might well be lost.
Collective investment schemes (UCITS)
With the stated aim of maintaining UK competitiveness in the financial services sector the Chancellor has announced that there will be no adverse tax consequences in the UK when a foreign UCITS fund is managed by a UK resident manager. The draft legislation will be included in the Finance Bill 2011.
Controlled foreign companies (CFCs)
Any UK companies with foreign subsidiaries can be affected by the CFC rules. Legislation will be introduced in the Finance Bill 2011 to:
* Exempt commercially justified activities that do not erode the UK tax base
* Introduce improvements in the rules that will make it easier for UK businesses to make overseas acquisitions and carry out reorganisations
* Help non-UK businesses that want to invest or locate in the UK.
Approved mileage allowance payments
If an individual uses his or her own car for business it is currently possible to claim reimbursement from the
employer at a mileage rate of 40p per mile for the first 10,000 business miles in a tax year and 25p per mile thereafter.
These rates have been in place since April 2002. Finally, the higher rate is being increased to 45p per mile
with effect from 6 April 2011.
Volunteer drivers may also use the revised rates. An exemption for passenger payments currently in place for
employees at 5p per mile will be extended to volunteers.
Company car benefit
For employees and directors who are provided with a company car, the table of percentages used to calculate the benefit
charge is being changed from 6 April 2013. This will broadly add one percentage point to all rates for emission
levels between 95 g/km and 220 g/km and result in an increase in the value of the benefit in kind
for income tax and class 1A national insurance.
Company car fuel benefit
The company car fuel benefit is calculated by multiplying a factor by the same percentage as is used to calculate
the car benefit. Employees and directors who are provided with a company car and who also receive free fuel
from their employers will see the multiplier on which the fuel benefit charge is calculated increase from
£18,000 to £18,800 from 6 April 2011.
National insurance contributions
The Government has announced that it is working toward the integration of the income tax and national insurance systems
in order to make the system more user friendly. A consultation document will be published later this year.
The Government has stated that:
* the contributory principle will be maintained
* National Insurance Contributions will not be extended to pensioners or to pensions income, savings income or dividends.
From 2012/13 the basis for indexing the national insurance contribution rates will be the Consumer Prices Index (CPI)
rather than the RPI for the following rates, limits and thresholds:
* class 1 lower earnings limit and primary threshold
* class 2 small earnings exception
* class 4 lower profits limit, and
* rates of class 2 and 3.
The secondary threshold for class 1 employers' national insurance contributions will continue to rise by the
increase in the RPI from April 2012 to 2015/16.
The increase from 12.8 per cent to 13.8 per cent will go ahead as planned on 6 April 2011. The annual levels of the
class 1 upper earnings limit and the class 4 upper profits limit will continue to be aligned with the income tax
higher rate threshold [the sum of the personal allowance and the basic rate limit].
Income tax and personal savings
Income tax personal allowances
The Coalition Government announced in 2010 a long term commitment to increase the personal allowance for individuals
aged under 65 to £10,000. For 2011/12 this is being increased from £6,475 to £7,475, and being further increased
to £8,105 with effect from 6 April 2012.
The enabling legislation will be contained in Finance Bill 2012 and the basic rate limit will be reduced to £34,370.
For 2012/13 all other income tax personal allowances and limits that are subject to indexation will be increased
in line with the Retail Prices Index (RPI).
Changes to non-domicile taxation including the annual charge
The Government will be consulting on a number of potential changes to the taxation of non UK domiciled individuals,
with a view to implementation in April 2012, including the following:
* removing the tax charge when non-UK domiciled individuals remit foreign income or capital gains to the UK
for the purposes of commercial investment in UK businesses
* increasing the prevailing £30,000 annual charge to £50,000 for non-UK domiciled individuals who have been UK resident
for 12 or more years and who wish to retain access to the remittance basis of assessment
The £30,000 charge will be retained for those non UK domiciled individuals who have been UK resident for
at least seven of the past nine tax years
* the simplification of some of the administrative burden.
The Government will also be consulting on the introduction of a statutory definition of UK tax residence to provide
greater certainty for taxpayers.
Reduced child care relief for higher earners
The playing field for tax relief on child care payments will be levelled with effect from 6 April 2011.
At present basic rate taxpayers can receive income tax relief of up to £900 per annum, whilst higher rate and
additional rate taxpayers can receive up to £1,200 and £1,500 of support through employer-supported childcare schemes
The relief will be restricted to £900 per annum for all taxpayers.
Furnished holiday lets
This measure was previously announced in the Finance Bill 2011. From April 2011, loss relief available from a
Furnished Holiday Let (FHL) business may only be offset against income from the same FHL business.
UK losses can relieve UK FHL income only and similarly with the European Economic Area losses. From April 2012
to qualify in a year, a property must be available to let for at least 210 days and actually let for 105 days.
Businesses meeting the actually let threshold in one year may elect to be treated as having met it in the
two following years ("period of grace"), providing certain criteria are met.
Restricting pension tax relief
The Government announced on 14 October 2010 that the annual allowance for tax relief on pension savings for individuals
will be reduced from £255,000 to £50,000 from 2011/12, and the lifetime allowance will be reduced from £1.8m to £1.5m
from 2012/13. Draft legislation was published for comment on 9 December 2010.
ISA annual exemptions annual indexation
The ISA annual exemption will also be increased on an annual basis by reference to the CPI rather than the RPI
from the 2012/13 tax year. The limit for 2011/12 has already been announced in October 2010 as £10,680 and £5,340
for the cash ISA.
Introduction of junior ISAs
The Government will be introducing a junior ISA scheme for UK resident children who do not have a child trust fund account.
It is expected that these will be available from Autumn 2011.
Subsistence allowances paid to experts seconded to EU bodies located in the UK
Legislation will be introduced in Finance Bill 2011 to provide a new income tax exemption for subsistence allowances
paid by a body of the EU located in the UK to experts who are seconded by their employers to work for the UK body.
The measure will be effective in respect of periods beginning on or after 1 January 2011
Charities and charitable giving
In order to encourage individuals and companies to make larger donations to charities, the annual limits on the benefits
that may be received by the donors from those charities are being increased from £500 to £2,500.
The qualifying donation to the charity will need to be a minimum of £10,000 under Gift Aid to benefit from the change.
The existing rule is that the benefit must not exceed 5 per cent of the gift and this will remain.
The change will have effect for benefits received by donors from charities as a consequence of donations made by
companies in accounting periods ending on or after 1 April 2011 and donations made by individuals on or after
6 April 2011.
HMRC will publish revised guidance on Gift Aid benefits in April 2011 to clarify a number of problematic areas.
Gift Aid - online filing and record keeping
HMRC is intending to introduce a new online system for charities to register their details for Gift Aid and
to make Gift Aid claims in 2012/13. Four new forms will be introduced to facilitate the collection of information
and provide automatic checks on the data.
From April 2013 charities that receive small donations of £10 or less will be able to apply for a Gift Aid repayment
without the requirement to obtain formal Gift Aid notifications to support the repayments.
The maximum amount of small donations that can utilise this less formal method will be £5,000 per charity per annum.
Only charities that have been dealing with Gift Aid for at least three years and also have a good compliance record
will qualify for the new regime.
Withdrawal of the Self Assessment (SA) donate scheme
Under the SA donate scheme, taxpayers may currently elect that a repayment of tax due to them from HMRC be paid
to a charity of their choice. Gift Aid may be applied to the donation if the taxpayer has paid enough tax to cover
the charity's repayment claim.
Due to the low usage of the scheme and the possibility of fraudulent claims the scheme is being withdrawn in
relation to repayments of tax in respect of:
* tax returns for the tax year 2011/12 onwards; and
* tax returns up to and including 2010/11 where the repayment is made on or after 6 April 2012.
Gifts of art
The Government is considering the introduction of a tax reduction for taxpayers who make a qualifying donation
of a work of art or historical object of national importance to the State. A consultation process will take place
in the next few months
Capital gains tax (CGT) annual exemption
The CGT annual exemption will increase in line with statutory indexation to £10,600 with effect from 6 April 2011.
For future years the annual exemption will be increased in line with rises in the CPI rather than in the RPI.
Parliament will still be entitled to override automatic indexation and set a different figure.
With effect from 6 April 2011, the lifetime limit on gains qualifying for capital gains tax entrepreneurs' relief
is increased from £5 million to £10 million. Qualifying gains are taxed at a rate of 10 per cent rather than
at 18 or 28 per cent. There are no other changes to the rules or conditions relating to entrepreneurs' relief
and the change is not retrospective.
Inheritance tax - nil rate band
No changes were made to the nil rate band which remains at £325,000
Inheritance tax - reduced rate
The Government has announced that a reduced rate of inheritance tax will apply where 10 per cent or more of a
deceased person's net estate (after deducting IHT exemptions, other reliefs and the nil rate band) is left to charity.
The tax rate of 40 per cent will be reduced to 36 per cent where death occurs on or after 6 April 2012
and a qualifying gift to charity is made. A consultation document will be issued in the summer.
Value added tax
Changes to VAT registration and VAT deregistration thresholds
From 1 April 2011, the taxable turnover threshold, which requires a person to register for VAT, will be increased
from £70,000 to £73,000 per annum. The threshold below which a VAT registered person may apply to deregister
will be increased from £68,000 to £71,000 per annum, and the relevant registration and deregistration
threshold for Intra-Community acquisitions will also be increased from £70,000 to £73,000 per annum.
Online VAT registration and similar measures
From 1 August 2012, online registration for and deregistration from VAT, and the notification of changes,
will become compulsory for all. Furthermore, VAT-registered businesses with a VAT exclusive turnover
under £100,000 per annum will be required to file returns online from 1 April 2012. Since April 2010, this requirement
has only applied to those with an annual, VAT exclusive turnover, exceeding £100,000 and newly registered businesses.
Other changes will include the removal of the VAT registration threshold for businesses not established in the UK.
Further consultation documents on these issues are expected in June 2011.
Fuel scale charges
As usual, changes have been made to fuel scale charges and the new rates are applicable to VAT return periods
starting on or after 1 May 2011. The new rates can be found in Annex B of the document 'Overview of
Tax Legislation and Rates' in the March 2011 Budget Documents.
Fuel duty and the fair fuel stabiliser
With effect from 6pm on 23 March 2011 the current fuel duty escalator is replaced by a fair fuel stabiliser.
This is intended to lessen and even out the impact of fuel increases arising as a consequence of the fluctuating
price of oil. Instead of the pump price of fuel increasing by between 4 pence and 5 pence in April there is
a reduction in the main fuel duty rate of 1 penny per litre. The next increase in the cost of fuel as a
result of increasing fuel duty has been deferred to 1 January 2012 when New Year celebrations are dampened
by the increase in fuel of about 3 pence per litre. That is then to be followed by a further increase on 1 August 2012.
Similar changes are also made to heavy oil, biodiesel, bioethanol, light oil and Avgas.
With motorists hit by ever increasing costs it is suggested by the Government that this will save a motorist
driving a Ford Focus £56 in 2011/12 while a haulier should see a reduction of £100 compared to an increase of
almost £1,950 under the changes previously announced. However, the Government's supporting documentation did not go
as far as to indicate what the cost of fuel increases would be in 2012 as a result of increasing fuel duties.
Stamp duty land tax (SDLT)
As previously announced a new 5 per cent rate of SDLT applies to the purchase of property in excess of £1 million
acquired on or after 6 April 2011.
Purchasers who acquire more than one dwelling will have their SDLT based on the mean value of the transaction.
This will be calculated by dividing the number of dwellings by the aggregate consideration, but subject to a minimum
rate of 1 per cent. This change takes effect on or after the date on which the Finance Bill receives the Royal Assent.
Carbon price floor
From 1 April 2013 a carbon price floor is to be introduced. Supplies of fossil fuels used in most forms of electricity
generation will become liable either to the climate change levy (CCL) or fuel duty from that date. Such supplies
will be charged at the relevant carbon price support rate, depending on the type of the fossil fuel used, which
will be determined by the average carbon content of each fossil fuel. The carbon support rates will reflect the
differential between the future market price of carbon and the floor price determined by the Government.
The 'carbon price support rates' for CCL and, in the case of oils, fuel duty will be equivalent to £4.94 per tonne
of carbon dioxide. However, suggested rates for the following two years are £7.28 per tonne of carbon
rising to £9.86 in 2015/16.
The purpose of this change is to encourage additional investment in low-carbon power generation by providing greate
support and certainty to the carbon price.
With effect from 6pm on 23 March 2011 the rates of duty on all tobacco products increases. For cigarettes,
the quantity-based duty is increased by 25 per cent above retail inflation, whilst the price-based duty is reduced
from 24 per cent to 16.5 per cent of the retail price. Duty on hand-rolling tobacco increases by 12 per cent
while for other tobacco products the rate of duty increases by 2 per cent above retail price inflation.
This announcement follows on from the March 2010 Budget when it was announced that tobacco duty rates would increase
by 2 per cent above retail price inflation.
Typically this will add 33 pence to a packet of premium cigarettes, 50 pence to a packet of economy cigarettes,
67 pence to a packet of hand rolling tobacco and 10 pence to a packet of 5 small cigars.
High and low strength beer
A new duty commences on and after 1 October 2011 regarding beer exceeding 7.5 per cent alcohol by volume (abv).
This new duty will be known as High Strength Beer Duty (HSBD) and is a levy over and above existing beer duty.
The rate will be 25 per cent of the general beer duty at the time of introduction. This will have the effect of
increasing the cost of these beers by about 25 pence on a 500 ml can of beer at 9 per cent abv.
However, a lower rate of general beer duty is to be introduced that will see the cost of duty reduced for beer
exceeding 1.2 per cent abv but not exceeding 2.8 per cent abv. These measures are aimed at tackling problems
such as drink driving. Further, it is envisaged that HSBD will reduce the availability and affordability of
"super strength" lagers associated with problem drinking.
Aggregates levy rate
The levy increase planned for 1 April 2011 is repealed but from 1 April 2012 the aggregate levy increases by
10 pence per tonne to £2.10.
Climate change levy (CCL)
A number of changes are introduced that affect:
* Those who are electrified freight train operators and a limited number of operators of public passenger rail services
* Suppliers of taxable commodities liable to account for CCL and recyclers of aluminium and steel that currently
claim exemption from the levy, and
* Gas and electricity utilities, suppliers of solid fuels and liquefied petroleum gas and energy-intensive
businesses with climate change agreements.
If you are in any of these industries or think you are affected please contact us for further details of the announcements.
Other measures announced
As expected, the Budget contains several provisions to clamp down on what is seen as unfair tax avoidance.
These provisions are outlined in more detail below.
Disguised remuneration is where an employee or director is paid by a third party (often a trust) in an attempt
to avoid PAYE and national insurance. Measures have been announced to ensure that disguised remuneration is taxed
on the same basis as normal pay.
These arrangements have also been used in an attempt to provide a tax-advantaged pension above the statutory limits.
The new provision will apply to assets or sums that are earmarked to provide income to an employee or director.
The employer will be required to operate PAYE and class 1 national insurance on those sums or on the value of
A loan provided to an employee by a third party will also be taxed as pay. This change applies from 6 April 2011.
Sale of lessor companies
There is a further change to the law when a leasing company is sold. The objective is to ensure that all profits
from leasing are taxed over the lifetime of the lease.
If a leasing business is sold to a new owner who has sufficient reliefs or losses, these could be offset against
the leasing profits with the result that the leasing profits are not taxed. As a lease earns commercial profits
before being taxed, this is seen as tax avoidance. There is a complementary provision to avoid double taxation
of leasing profits. To prevent this, the law was amended to tax deferred profits when the company is sold.
As a result of the recent economic crisis, this law was amended in December 2009 to allow the new owner to opt
out of the charge. A consequence of doing this is that the profits are ring-fenced for the period remaining
on the lease.
There is evidence that the amended law may fail to identify a company carrying on a leasing business,
or may not tax the full amount of deferred profits. The law is being further amended for changes in ownership
from 23 March 2011. Where the opt-out election has been exercised, the full value of the asset is taken into
consideration in calculating the disposal value. The right to opt out is withdrawn from 23 March 2011.
The rules on de-grouping charges are tightened up. Companies in a group may generally transfer assets on a
no gain/no loss basis. If the company then leaves the group, it was possible for the capital gain of the asset
to escape tax. This is known as "enveloping".
To counter this, a de-grouping charge may be made which taxes the value of any such gain on an asset transferred
up to six years before the transferee company leaves the group.
There is an exception if the transferor and transferee companies leave the group together. This is known as
the "associated companies exception", and is set out in Taxation of Capital Gains Tax Act 1992 s179(2A).
Arrangements have been developed to exploit this exception. These include the transferee company leaving its new group
to become a member of yet another group under the control of the original group. The relevant section of the 1992 Act
is being rewritten so that the law operates as originally intended.
Stamp duty land tax
Three changes are introduced to prevent stamp duty land tax (SDLT) being avoided on the purchase of an interest in land.
Dishonest tax agents
Proposals are being developed to deal with dishonest tax agents. These include seizing their papers and
publishing details on the HMRC website.
Time to Pay
Time to Pay is a scheme that allows tax to be deferred where a solvent business is experiencing short-term
financial problems. The scheme was launched in 2008 and has been extensively used. The Chancellor has confirmed
that this scheme will continue.
HMRC will be given a new power to collect data for risk assessment purposes. There will be a penalty for deliberately
giving false data.
The Government has concluded that it cannot repeal the IR35 provisions but will simplify their administration.
IR35 refers to when an individual sets up a company to provide his or her services in conditions which would otherwise
Disclosure of tax avoidance
The scope of the regulations for Disclosure of Tax Avoidance Schemes (DOTAS) is to be extended to include:
* income tax and national insurance avoidance schemes for employees
* schemes that incorporate offshore schemes to avoid corporation tax
* artificial loss schemes.
There is a separate initiative to look at areas of the tax code which have been repeatedly exploited in tax avoidance
schemes. The first two areas are income tax losses and unauthorised unit trusts. Consideration will be given to
rewriting the law so that it can better withstand such exploitation.
HMRC will publish a list of schemes that have already been disclosed and which it believes are ineffective but
which are still being marketed.
Consideration is being given to devolving tax powers to the Northern Ireland Executive. This will include allowing
it to charge a lower rate of corporation tax to compete with the low rates offered in the Republic.
As part of the process of simplifying tax law, legislation is being removed for various reliefs that have not been
claimable for five years or more.
2011 Finance Bill
The coalition government has taken the new and welcome step of publishing draft clauses for next year's Finance Act.
Although details of proposed changes have already been announced, the detailed provisions often show possible problems
in implementing them, as we saw this year with restriction on tax relief for pension contributions. In areas such as
anti-avoidance, a provision designed to catch an avoidance scheme can catch perfectly valid commercial transactions
Indeed the change on substantial donor rules is designed to deal with that problem.
These clauses were published at the beginning of December. The next Budget is schedule for 23 March 2011.
So publication is in keeping with the promise to give three months' notice of technical amendments.
Key changes proposed will affect:
* income and national insurance tax rates and thresholds
* employer supported childcare
* furnished holiday lettings
* substantial donor rules
* pension tax relief, and other pension changes
* corporation tax and capital allowance rates
* controlled foreign companies and foreign branches
* associated companies
* international accounting standards
* duty on beer and goods vehicles.
Employer supported childcare
There is a technical change to the rules regarding childcare provided in the workplace.
The tax and national insurance concessions only apply if the scheme is available to all employees on equal terms.
However, an issue arises if a salary sacrifice scheme is used. This is not available to lower paid employees who would
otherwise earn less than the national minimum wage. The change allows such low-paid workers to be excluded
from the scheme. This change is backdated to 2005.
It is worth noting that salary sacrifice schemes are only effective for tax if they change the contract of employment.
We can advise you on whether a proposed scheme complies.
Changes are being introduced to bring within the PAYE charge various forms of "disguised remuneration" such as
using investments and trusts to pay employees. These new provisions will only be of relevance if you have a
tax avoidance scheme for paying staff.
Furnished holiday lettings
A long-running issue is whether a person who lets property for holidays is running a trade or merely making an investment.
The former is preferable as it means the owner can claim capital allowances, loss relief and capital gains relief.
The loss relief against other trades is particularly valuable.
Among the conditions that must be met are that the accommodation must be available for 140 days a year and
actually let for 70 days. (There are restrictions on letting to the same person for more than 31 days.)
The government has long proposed increasing these two limits by 50% to 210 days and 105 days. It now announces that
these changes will be brought into effect from 6 April 2012. There is a new relaxation, that a failure to meet the
"actually let" condition for up to two years will not result in losing the tax advantages.
There are other provisions relating to such lettings, including other changes that take effect in 2011.
We can advise on this matter to see if such lettings can continue to attract favourable tax treatment.
This provision is a relaxation of a rule relating to large donations to charity.
It was introduced in 2006 to counter some tax avoidance schemes where the donor and the charity are linked.
Charities have complained that these rules create unnecessary paperwork and catch innocent donations.
The present law requires an analysis of donations of £25,000 or more in one year or of £150,000 over six years.
Consideration must then be given to whether there are any "value extracting transactions" between the donor and charity.
The new provisions replace the analysis test with a purpose test, and to shift the compliance burden from the charity
to the donor. We can provide further details.
Associated company rules
The government is, as expected, proceeding with the plans to restrict the associated company rules to where there
is interdependence between the companies.
At present, the threshold for the small profit rate of corporation tax can be triggered by an accident of family
circumstances, such as on the marriage of two people who are already each running a business. A measure of relief
is already provided by extra-statutory concession C9. This is now to be put on a statutory basis.
The main change is the reduction of the annual allowance from £225,000 to £50,000. Any person whose pension fund
increases by more than the annual allowance may be liable to pay additional tax, as we explain elsewhere.
There are also provisions regarding drawdown of pension.
There are some consequential provisions regarding drawdown pensions, and inheritance tax. We can assist you in
explaining the tax provisions of the new provisions on pensions.
The rates of corporation tax are being reduced, as are the rates for capital allowance for plant and machinery.
The annual investment allowance is reduced from £100,000 to £25,000 from 6 April 2012.
Controlled foreign companies
The rules on controlled foreign companies (CFCs) are being changed in two stages.
The first stage is intended to apply to accounting periods that start after 31 March 2011, and so will not most
companies for almost two years. The changes proposed are to:
introduce an exemption for some intra-group trading transactions where there is little connection with the UK,
and it is unlikely that UK profits have been diverted
introduce an exemption where the main business relates to businesses that deal with intellectual property
introduce a statutory exemption for three years when a foreign subsidiary comes within the scope of a CFC
for the first time
increase the de minimis exemption from these provisions for companies with UK chargeable profits of
£50,000 to £200,000 a year
extend transitional rules for non-local holding companies until July 2012.
Details of the second stage have yet to be announced, beyond that they will be a more fundamental reform.
If you are a shareholder of a foreign company largely controlled by UK residents, you may be affected by these provisions.
Value shifting refers to tax avoidance arrangements where a company reduces the value of an asset before its disposal,
and then receives additional value by other means, usually in a tax-free form. These provisions are onerous
for businesses that are not engaged in tax avoidance schemes.
From the day Finance Act 2011 receives Royal Assent (probably around July 2011), the existing rules will be replaced
by a targeted anti-avoidance rule. The existing criteria will be replaced by a simpler purpose rule.
This change only affects companies that have either used such a tax avoidance scheme, or who believe that a
genuine commercial transaction has been accidentally caught by these rules.
A degrouping charge may apply when a company leaves a group as a result of a disposal of shares. It applies if the company has acquired an asset from a fellow group company within the previous six years, and any gain or loss on that asset has been deferred under Taxation of Chargeable Gains Act 1992 s171.
The degrouping charge will be treated as additional consideration for the disposal. The charge may be reduced if there
is also a chargeable gain on the shares. The change will have effect from Royal Assent to Finance Act 2011
. The proposed changes have been subject to many amendments since the clauses were put out for consultation.
The broad effect of these changes is to avoid the degrouping charge where "it is just and reasonable to do so".
This will be based on the amount of share capital involved and the circumstances for the company leaving the group.
The changes are otherwise very technical, but we can advise you if you believe you may be affected.
Changes to accounting standards
It is expected that the International Accounting Standard on leases will change in 2011, followed by a similar change
to UK accounting practice in 2013.
The law is to be changed so that leases continue to be taxed on the current basis. Any change from adopting the
new standard had not been introduced.
The changes relate to long-funding leases and to some anti-avoidance provisions. The provisions are technical,
but we can advise when you change to the new accounting standard.
VAT on samples
A business may provide a succession of free samples for marketing purposes. The current law allows VAT to be charged
on the second and subsequent sample; only the first is relieved for VAT. Following a European case, the law is to be
changed to relieve second and subsequent supplies, provided they are for genuine marketing purposes.
VAT on printed matter
A provision will be introduced to end the zero-rating for books and other printed matter that are supplied separately
for another standard-rated supply. An example is when an instruction book is supplied separately from the equipment.
A new rate of duty is to be introduced for strong beers. This will be compensated by a reduction in duty for
low-strength beers. The change will take effect in autumn 2011.
From 1 April 2011, there will be a new "exceptional rate" of vehicle excise duty for large goods vehicles.
Income tax rates and thresholds
There is no change in the three main rates of income tax. The personal allowance rises from £6,475 to £7,475 as announced.
The 40% rate starts at taxable income of £35,000. This is a reduction from the current figure of £37,400.
This means that "higher rate taxpayers" will usually be those earning £42,475 a year, rather than £43,875.
This can have a significant impact in terms of pension tax relief and capital gains tax rates.
It also makes the provision of tax-advantaged benefits in kind worth reconsidering. We can advise in these areas.
Of more significance are the changes to national insurance rates.
The lower earnings limit is increased by 5.1% from £97 to £102 a week. This is the threshold for statutory sick pay
and similar benefits, and the threshold at which a week's pay counts towards the state retirement pension.
As few low-paid and part-time workers can expect a pay rise above 5%, this means that many will now no longer qualify
for these benefits or pension.
The earnings threshold for an employee increases from £110 a week to £139, but this is compensated by an increased rate.
Employees earning between £110 and £510 a week will pay less national insurance; above the threshold,
they pay a little more.
Capital losses on a change of ownership
This change affects a company that makes a loss on the disposal of a capital asset and then changes ownership,
such as by a takeover or merger.
The present rules restrict how far the capital loss may be offset. Broadly, the capital loss may be offset only newly
acquired assets of the company used in the same trade as before acquisition. This is known as streaming of losses.
The consequence is that a group can find that it has still not fully relieved a capital loss, years after assets
have been disposed in a wholly commercial merger.
Finance Act 2011 will remove the restriction that pre-acquisition loss relief may only be claimed where the company
carried on a trade.
This change is expected to affect no more than ten companies a year.
From a date yet to be announced in 2011, there will be changes to the law relating to UK businesses that operate
through foreign branches.
The change broadly exempts the profits from foreign branches from the amount chargeable to UK tax.
This will be done by allowing a company to make an irrevocable election for all its foreign branches wherever
located in the world.
There are some special provisions to deal with countries whose treaties include non-discrimination articles.
There are also transitional and anti-avoidance provisions.
This is a complex area of specialist tax. Most companies affected are in the oil and banking industries.
If you believe you may be affected, please contact us.