Professional Tax Consultancy

We hope that you are not too depressed after George Osborne's first budget. There were clearly a lot of cuts to services which we do not propose to go into. This concentrates on the Tax changes that have been introduced.

George Osborne said that he would tell everything in parliament and not leave anything for the small print. This is not exactly true as there are further details in the press releases, and in fact nothing was mentioned regarding anti avoidance, although there have been releases on this. So let's consider the issues that were included either in the speech or press releases.

Tax wise there was not actually a great deal.

Businesses

The corporation tax rates are to reduce over the next 4 years with the full rate reducing to 24%. The small companies' rate will also reduce.

The most interesting changes for businesses relates to the capital allowances. The rate of relief will reduce to 18% and 8% for longer life assets.   The annual investment allowance that was increased in the last budget to £100,000 is to be reduced to £25,000.  All these changes are deferred to April 2012. Clearly this is to encourage businesses to make investments into qualifying plant and machinery before then.

A banking levy will be introduced from January 2011. Details are still to be finalised regarding this.

Reform to Corporation Tax is on its way. The Chancellor will issue a consultation document later regarding this. It will then provide us with certainty over the tax for the future.

NIC

Although not officially a tax the majority of us do feel that it is. The employer's threshold has already been increased for the next tax year by £21 to £131 per week. But the main headline is the regional NIC holiday for employers. This allows an employer of a company that is set up after budget day in regions outside London and the South East not pay up to £50,000 of NIC.  It will relate to the first £5,000 for each of the first 10 employees of the company over a three year period.   It appears that EU agreement is required for this as the scheme will not start until at least September. 

Full details of this scheme and the legal requirements have yet to be made available. I am sure that there will be provisions to stop any major exploitation of this. However, you could see employers starting up companies to just handle their employees and other benefits and use this relief on the first 10 employees. Additionally, they will need to make it clear what can be considered as a qualifying business in the required region or country. For example:  I am considering setting up a number of companies in the midlands with the registered office  in Birmingham, which would be available to anybody setting up in say Guildford so that they can obtain the relief through my companies.   I am sure they will stop this by perhaps insisting that the employees can only be based in the qualifying region.

One thing that has been put in the Q and A document is that no relief will be available in the coal industry and restricted relief will be applied in the agricultural and fisheries industries. Other industries will be added.

VAT

The headline is the increase on 4 January of the VAT rate to 20%.  As per the last two changes in the rate, anti forestalling rules have also been introduced. Equivalent changes to the flat rate schemes will apply.

Capital Gains Tax

This was probably the most talked about change before the budget, and it turned into a bit of a damp squib.  As predicted gains will be added to the income and if the total is still under the basic rate limit then the gain will continue to be taxed at 18%. For gains above this the rate will be 28%. You can have gains tax at both rates depending on your income.  It was said by the Chancellor that this would stop people from changing income to capital. I am not sure this is the case. Surely a differential of 22% is still worth exploring the possibility of doing so?

Entrepreneurs Relief life time limit, which was increased under the last budget to £2 million, has now been increased to £5 million.  Both these changes occur from midnight on budget day.

Anti-avoidance

Unusually no major measures have been introduced against anti-avoidance. The releases state that they are looking to include measures from April 2011. We will have to wait and see what they are.

Individuals

There are no major changes to the taxation for individuals. The main ones relate to the changes to tax credits.  The full rules will need to be digested regarding this to see how it will affect your clients. We will update you with figures at a later date.

The previous furnished holiday letting changes have been abolished, apart from the ability to include property in the EEA, for now.  However, another consultation will be put in place to look at reforming these rules.

I wonder if the Chancellor's neighbours are happy with the child trust fund and health in pregnancy grants being abolished.  Although they may still be around for Samantha to claim it.

The government is also looking at reforming the non-domicile tax rules again. I wonder how Lord Ashcroft will be taking this.

Overview

There are not many measures that make major changes to the tax system.  Over all there are no bombshells, unlike the pre-budget report a few years ago when taper relief was abolished without warning.

There are a few things that we will need to get to grips with regarding things like tax credits and there still appear to be opportunities for some tax planning. As yet tax mitigation schemes are not affected although changes are likely to occur in April 2011.