Budget 2011
Against a background of rising inflation,
considerable public debt and borrowing requirements, George Osborne has
stepped up to the plate today to confirm his changes to the UK tax system.
Prior to the event we were advised that he would be confirming significant
increases to personal allowances, taking steps to help with rising petrol
prices and perhaps simplifying the tax system, in particular a possible merger
of National Insurance and Income Tax.
This update summarises
some of the changes disclosed today. And finally, note that the growth
forecast for 2011 has been downgraded to 1.7%.
New tax changes announced today
Enterprise Investment Scheme and
Venture Capital Trusts — the
rate of income tax relief given under the Enterprise Investment Scheme (EIS)
will be increased from 20% to 30% with effect from 6 April 2011, subject to
State aid approval.
Capital Gains Tax Entrepreneurs’
Relief — The lifetime limit on
gains qualifying for entrepreneurs' relief is to be increased from £5 million
to £10 million with effect from 6 April 2011.
Capital Gains Tax Annual Exempt
Amount — This will increase to
£10,600 with effect from 6 April 2011.
Corporation Tax Rates:
- The
main rate of corporation tax is being reduced by 2% to 26% for the
financial year commencing 1 April 2011.
- The
main rate of corporation tax will be further reduced to 23%, at the rate
of 1% for each of the following three financial years commencing 1 April
2012, 2013 and 2014.
- The
small profits rate of corporation tax will decrease to 20% from the
financial year commencing 1 April 2011.
Capital Allowances: Short Life
Assets — Businesses incurring
expenditure on an item of plant or machinery from April 2011 onwards will be
able to make a short life asset election in respect of that item if they
expect to sell or scrap it within an eight-year cut-off period. This is an
extension from the current four year period.
Research and Development Tax
Credits for SMEs — The rate of
the additional deduction for expenditure on research and development
(R&D) for companies that are small or medium sized enterprises (SMEs) is
to increase from 75% to 100% from 1 April 2011, giving a total deduction of
200%.
Supplementary Charge — To help fund fuel duty decreases announced today,
the rate of the supplementary charge levied on profits from UK oil and gas
production will increase from 20% to 32%.
Bank Levy — The Bank Levy rates will be increased from 1
January 2012 to offset the benefit to banks of the further decreases in
corporation tax rates.
Business Rate Discounts in
Enterprise Zones — The
Government announced the creation of 21 new Enterprise Zones. 100% business
rate discount for five years will be offered to businesses located in
Enterprise Zones.
Extend Small Business Rate Relief
(SBRR) Holiday — The SBRR
holiday will be extended by one year from 1 October 2011.
Gift Aid Donor Benefit Limits — The maximum value of benefits that individuals
and companies may receive as a result of making a donation to a charity of
more than £10,000 under Gift Aid is to be increased from £500 to £2,500. The
new limit will be subject to the existing rule that the benefit must not
exceed 5% of the gift.
VAT: Registration and
Deregistration Thresholds —
The following changes will be made to the VAT registration and deregistration
thresholds from 1 April 2011:
- the
taxable turnover threshold, which determines whether a person must be
registered for VAT, will be increased from £70,000 to £73,000;
- the
taxable turnover threshold which determines whether a person may apply
for deregistration will be increased from £68,000 to £71,000; and
- the
registration and deregistration threshold for relevant acquisitions from
other EU Member States will also be increased from £70,000 to £73,000.
Anti Avoidance Measures – A number of complex anti avoidance measures are
to be introduced. In summary the schemes affected include:
- Sale
of lessor companies
- SDLT
anti-avoidance
- Corporate
gains: degrouping charges
Time To Pay — Budget 2011 also confirmed that HMRC will
continue its Business Payment Support Service to provide advice and time to
pay to viable businesses experiencing temporary financial difficulty.
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Company Car Tax Rate 2013-14
Legislation
will be introduced in Finance Bill 2011 to reduce the appropriate percentages
by 1% for all vehicles with carbon emissions between 95g and 220g from April
2013. Zero emissions cars will remain at 0% and ultra-low emissions cars with
emissions up to 75g will remain at 5%
Fuel Benefit Charge 2011-12
Employees
and directors who are provided with a company car and who also receive free
fuel from their employers are subject to the fuel benefit charge. The cash
equivalent of the taxable benefit is determined by multiplying a set figure
(currently £18,000) by the appropriate percentage for the car, based on its
CO2 emissions (grams per kilometre). This set
figure will increase to £18,800 with effect from 6 April 2011.
Approved Mileage Allowance Payments Rates from 2011-12
Where employees use their own cars for
business mileage, they can claim reimbursement from their employers through
the approved mileage allowance payments rates (AMAPs). These payments are not
treated as taxable benefits. The current higher rate of 40p per mile for the
first 10,000 business miles is to be increased to 45p. The rate for mileage
over 10,000 miles remains at 25p.
Fuel Duty Rates — The following changes in fuel duty were announced
today:
- The
main fuel duty rate has been reduced by 1p per litre (ppl) from 6pm on 23 March 2011;
- The
1 April 2011 increase will be deferred and implemented on 1 January 2012
when the main fuel duty rate will increase by 3.02p per litre.
Vehicle Excise Duty — From 1 April 2011, VED rates will increase by
indexation only apart from VED rates for heavy goods vehicles which will be
frozen in 2011-12.
Alcohol Duty Rates
Changes announced today will add:
- 4p to the price of a pint of beer,
- 15p to the price of a bottle of wine, and
- 54p to the price of a bottle of spirits.
The
changes will take effect on 28 March 2011.
Tobacco
Tobacco duty rates will increase by 2% above
the rate of inflation. Duty on hand rolling tobacco will increase by an
additional 10%. The Government is also restructuring cigarette duty. Ad
valorem duty on cigarettes has been reduced to 16.5% and specific duty has
been increased by 25% above inflation. These changes came into effect at 6pm
on 23 March 2011.
Tax reliefs to be Abolished – As part of the Governments Tax Simplification
process the following tax reliefs are withdrawn from April 2011:
- Charities
- transitional relief on distributions
- Millennium
Gift Aid
- National
Savings Bank ordinary account interest
- Payroll
giving 10% supplement
- Exemption
for certain assignments by seamen
- Instruments
relating to National Savings, and
- Transfers
in relation to ships and vessels
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Future
changes announced today
Income tax and NICs Reform
The
Government has announced that it will consult on the options, stages and
timing of reforms to integrate the operation of income tax and National
Insurance contributions (NICs). If this progresses to legislation, it will be
a major reform of the UK tax system.
Enterprise Investment Scheme and
Venture Capital Trusts
Subject to State aid approval, legislation
will be introduced in Finance Bill 2012 making the following changes to the
Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) which
will have effect on and after 6 April 2012:
- an
increase in the thresholds for the size of qualifying company for both
EIS and VCTs to fewer than 250 employees and to the company having no
more than £15million of gross assets before the investment;
- an
increase in the annual amount that can be invested through both EIS and
VCTs in an individual company to £10million; and
- an
increase in the annual amount that an individual can invest through EIS
to £1million.
Inheritance Tax Changes:
- The
inheritance tax nil rate band is frozen until April 2015.
- The
Government has announced that a reduced rate of inheritance tax (IHT)
will apply where 10% or more of a deceased’s net estate (after deducting
IHT exemptions, reliefs and the nil rate band)
is left to charity. In those cases the current 40% rate will be reduced
to 36%. The new rate will apply where death occurs on or after 6 April
2012.
Business Premises Renovation
Allowance — The Government has
confirmed it will extend the allowance for a further five years from 2012.
VAT:
- Registration,
deregistration and changes in registration details will have to be
completed online from 1 August 2012.
- VAT
registered traders at April 2010, that are presently not legally
required to file returns online (those with turnover under £100,000),
will be brought into the online filing net for returns beginning on or
after 1 April 2012.
Review of Non-Domicile Taxation — At the June Budget 2010, the Government confirmed
that it would review the taxation of non-domiciled individuals. The
Government will introduce the following reforms:
- remove
the tax charge when non-domiciles remit foreign income or capital gains
to the UK for the purpose of commercial investment in UK businesses;
- simplify
some aspects of the current tax rules for non-domiciles to remove undue
administrative burdens;
- increase
the existing £30,000 annual charge to £50,000 for non-domiciles who have
been UK resident for 12 or more years and who wish to retain access to
the beneficial tax regime (the remittance basis). The £30,000 charge
will be retained for those who have been resident for at least seven of
the past nine years and fewer than 12 years;
- additionally,
a statutory definition of residence is to be created to provide greater
certainty for taxpayers.
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Changes previously announced for 2011-12,
now confirmed
Income Tax Personal Allowances:
- Personal allowance under 65, £7,475
- Personal allowance aged 65 to 74, £9,940
- Personal allowance aged 75 or over, £10,090
Income
limit for aged related allowances is £24,000.
Income Tax Rates
unchanged at 20%,
40% and 50%. Basic rate limit £35,000.
Review of HMRC powers, deterrents and safeguards security for PAYE
and National Insurance contributions
Legislation will be introduced in Finance
Bill 2011 to give HMRC the power to require a security from employers for
PAYE and NICs that are seriously at risk of non-payment. It will be treated
as a criminal offence if security is not provided when required.
Furnished Holiday Lettings (FHL) – The following changes are confirmed from April
2011:
- Loss relief may only be offset against income from
the same FHL business.
- UK losses can relieve UK FHL income only and
similarly with the EEA losses.
From
April 2012, to qualify as a furnished holiday lettings business, a property
must:
- Be available to let for at least 210 days and
actually let for 105 days in a year.
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.
Employer-Supported Childcare — Relief is to be restricted for higher earners who join
employer-supported childcare schemes from 6 April 2011.
Restricting Pensions Tax Relief — Changes announced are:
- 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.
Pensions Annuitisation — The requirement to annuitise
by the age of 75 is to be removed from April 2011.
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