24 March 2011

Budget March 2011

Having waded through the 240 pages of the Budget Notices I have extracted some points which may be of interest and disregarded the obvious headlines and remote or technical issues.

Mileage rates the first 10,000 miles of business miles can be claimed at 45p (currently 40p) with effect form April 2011. The 25p thereafter remains unchanged.

Corporation Tax the main rate applies to profits in excess of £300k per annum (divided by the number of Associated Companies) and will be 26% with effect from April 2011. The small company rate will be 20% as previously announced. Small companies with a number of Associates will benefit as the marginal rate will consequently reduce. A knock on effect is that companies paying the marginal rate did not really benefit from dividends as opposed to salary (apart from cash flow). With reducing marginal rates dividends will also be more attractive to this size of company.

50% rate of income tax applies for 2010/11 and 2011/12 for those with taxable income in excess of £150,000. The government intend reviewing this and as Tory philosophy has historically taken the view that lower rates generate more income and the reducing rate of Corporation Tax provide some scope for optimism that it may reduce back to 40% for subsequent years.

R & D Tax Relief increasingly we identify companies who qualify under these rules which enhance the tax relief to 175% of the expenditure incurred. This is increasing to 200% and then to 225%. This can be surrendered for a repayable tax credit which currently is restricted to the amount of PAYE paid. Although some time away this restriction is being removed with effect from April 2012 which is good news especially for start up businesses.

IR35 there had been some hope this may be replaced by a more workable solution to the government's perceived problem. Sadly not and there is to be some window dressing in amongst other things providing "greater pre transaction certainty" (would we really want to be told IR35 applies!)

VAT turnover threshold increases to £73,000 with effect form April 2011 and the de-registration threshold increases to £71,000.

Pension annuities the requirement to purchase an annuity at age 75 is to be removed. There have been discussions in this area and before we become too excited we need to examine the implications of the replacement rules.

Tax avoidance continues to be targeted by the government in a number of measures announced which will not impact on the majority of taxpayers apart from...

Disguised remuneration is a term used for extracting funds from a company by means of loans through a third party commonly an EBT or EFRBS. Provisional rules to prevent this by taxing any such loans through PAYE (income tax and national insurance) were announced on the 9th December which were draconian and could potentially catch "innocent" loan transactions. The initially proposed legislation has been scaled back and hopefully straightforward loans from Companies will not be caught by this. Additionally the new rules will not apply to existing pension savings which suggests those with existing EBT's and FURBS will not be affected.

EIS income tax relief is to be increased from 20% to 30%. EIS packaged schemes may be more attractive although this relief is of particular relevance where an individual invests up to 30% in shares in an otherwise unconnected business. While this does not apply to certain businesses (mainly property backed or professions) it is an important relief as it can also be used to defer a capital gain and the shares themselves are also free of Capital Gains Tax when sold.

Feed in Tariffs (FIT) the government has previously encouraged investment in solar panels by enabling power created to be sold to the national grid as a FIT. The budget acknowledges the capital allowance treatment for a business investing in solar panels is unclear and legislation will be introduced to clarify the rate of allowance which may be claimed.

Dishonest Tax Agents not something we want to be associated with and I refer to enhanced measures introduced by the government to enforce the fact our role is without doubt to mitigate tax liabilities within the rule of law.

SDLT a new relief for first time buyers which is only to be announced in the Autumn. Surely stimulation in this market place is urgently required. Where a vendor and purchaser transact more than one property this currently serves to increase the rate of SDLT. In future the rate payable on all properties will be based on the average price of the property and this may benefit director/shareholders wishing to extract properties from a company.

If any points stimulate a proposed course of action please advise or if you really want some light reading the detail can be found at http://www.hmrc.gov.uk/budget2011/overview.pdf.

Ian Stewart FCA CTA
Stewart Associates Shrewsbury Ltd
Chartered Accountants and Business Advisors