Chancellor of the Exchequer George Osborne delivered the 2011 Budget yesterday (23 March). The following is a summary of the main tax points of interest.
Corporation Tax: from 1 April 2011, the main rate of corporation tax will be reduced to 26% and then to 25% from 1 April 2012, 24% from 1 April 2013 and 23% from 1 April 2014.
Small companies' rate: as previously announced, this will be reduced to 20% from 1 April 2011. The effective rate of tax for profits between £300,000 and £1,500,000 is 27.5%.
Capital allowances: as previously announced, writing-down allowances will be reduced to 18% from April 2012 and the Annual Investment Allowance (AIA) reduced to £25,000. There are complex rules for computing both writing-down allowances and AIA for chargeable periods which straddle a rate of change. In addition, the Government will consult on plans to require businesses to pool their expenditure on fixtures within a building within a short period of acquisition, in order to qualify for capital allowances.
Capital allowances: short life assets - from April 2011, short life asset elections will be able to be made if a business acquires an asset and expects to sell or scrap it within an eight year period (up from the current four years). This will benefit businesses that spend more than the AIA.
Enhanced capital allowances: the energy-saving enhanced capital allowance scheme will, subject to State Aid approval, be updated during summer 2011. Also, the Government will consider introducing enhanced capital allowances to support the 21 new enterprise zones in situations where there is a strong focus on high value manufacturing.
Flat conversion allowances: these will be abolished not before 2012, with a final date set after consultation.
Mileage allowance payments: from 6 April 2011, 45p per mile (up from 40p) can be claimed for the first 10,000 miles per year travelled by an employee on business.
Company cars: the threshold of CO2 emissions used to calculate the company car tax benefit will be reduced from 6 April 2011. This means that the chargeable benefit will increase by 1% of the list price for many cars. For the fuel benefit charge, the figure used to calculate the charge will rise from £18,000 to £18,800 with effect from 6 April 2011.
Research and development: from 1 April 2011, the rate of the additional deduction available for SMEs undertaking R&D will increase from 75% to 100% of qualifying expenditure. From 1 April 2012, the deduction will increase by an additional 25%; the limit on a company's R&D tax credit being the amount of PAYE and national insurance it pays will be scrapped; the £10,000 minimum expenditure condition will be removed and the rules governing work done by subcontractors will be changed. All changes are subject to State Aid approval.
Fair fuel stabiliser: as part of the fair fuel stabiliser, the supplementary charge on profits from UK oil and gas production will increase from 20% to 32%. If, in the future, the price of oil falls below a set trigger ($75 per barrel subject to consultation) the charge could be reduced.
Bank Levy: this will rise from 1 January 2012 to 0.078% for short-term chargeable liabilities and 0.039% for long-term chargeable equities and liabilities.
Controlled Foreign Company rules: interim improvements to the CFC rules - including a mainly entity based system operating in a targeted and more territorial way by only bringing into charge the proportion of overseas profits that have been artificially diverted from the UK - will be made in the Finance Bill 2011, ahead of full reform in 2012. A partial finance company exemption will also be introduced.
Patent box: the Government will continue to consult on a reduced 10% corporate tax rate for patent profits, with draft legislation to be published in autumn 2011, and included in Finance Bill 2012 for implementation in 2013.
Taxation of foreign branches: as previously announced there will be an opt-in exemption from corporation tax on profits of foreign branches of UK companies. Changes in relation to the way the transitional rule and the anti-diversion rules are to work have been proposed.
Corporate capital gains simplification: as previously announced, the capital losses, value shifting and degrouping charges group rules will be simplified.
IR 35 legislation: following a review of the IR35 legislation, which imposes PAYE and national insurance liabilities on certain companies used to disguise employment, HMRC has decided to retain the legislation, but intends to improve its administration by increasing specialist help and consulting interested parties. In practice, this is unlikely to mean any relaxation of the rules.
Income tax: as previously announced in Budget 2010, the personal allowance will increase to £7,475 from 6 April 2011 and the basic rate will be reduced to £35,000. Budget 2011 has announced that, from 2012/13, the personal allowance will be increased to £8,105 and the basic rate limit reduced to £34,370.
National insurance: as previously announced, from 6 April 2011 employee's national insurance rates will increase from 11% to 12% below the upper earnings limit and from 1% to 2% above that, with employer's national insurance contributions rising from 12.8% to 13.8%.
Reform of income tax and national insurance: the Government will consult on options, stages and timing of reforms to integrate the operation of income tax and national insurance contributions. A consultation document will be issued later this year.
Enterprise Investment Scheme (EIS): the rate of income tax relief given under the EIS scheme will be increased from 20% to 30% from 6 April 2011. The maximum amount an individual can invest annually will rise to £1m from 6 April 2012. These changes are subject to State Aid approval.
EIS and venture capital trusts (VCT): Subject to State Aid approval, the threshold for the size of qualifying company for both EIS and VCT purposes will increase to 250 employees and no more than £15m of gross assets before investment. The annual amount that can be invested in an individual company through both EIS and VCTs will rise to £10m. All these changes have effect from 6 April 2012.
Disguised remuneration: as previously announced, legislation will be introduced to tackle third party arrangements including EBTs and EFRBS, which aim to avoid or defer income tax and/or national insurance. Changes to the draft legislation have been made to exclude arrangements that cannot be used for tax avoidance purposes, for example certain short-term loans, some deferred remuneration arrangements, and employment-related securities schemes.
Non-domiciles: from April 2012, the remittance basis charge will increase to £50,000 annually for non-domiciles who have been UK resident for 12 or more years. Also, the tax charge will be removed where non-domiciles remit foreign income or capital to the UK in order to make a commercial investment in UK businesses. Some other aspects of the current tax rules will be simplified to remove undue administrative burden. The Government will be consulting on these measures in June.
Statutory residence test: the Government will issue a consultation document in June and intends, from April 2012, to introduce a statutory definition of residence to provide greater certainty.
Inheritance tax: as previously announced, the threshold for the nil-rate band is frozen until April 2015. In addition, where 10% or more of a deceased's net estate is left to charity the rate of IHT will be reduced to 36% from 6 April 2012.
Capital Gains Tax: the annual exemption for 2011/12 will rise to £10,600.
Entrepreneurs' Relief: from 6 April 2011, the lifetime limit of gains which can benefit from ER will rise to £10m.
Gift Aid: the maximum value of benefits that individuals and companies may receive as a result of making charitable donations of more than £10,000 will increase from £500 to £2,500, subject to a 5% of the value of the gift limit. From April 2013, charities that receive donations of £10 or less will be able to apply for a gift aid style repayment without having obtained gift aid declarations, capped at £5,000 per year per charity.
Individual Savings Accounts: the annual limit is to be increased to £10,680 for 2011/12.
Junior ISAs: these will be available from autumn 2011 for any UK-resident child that does not currently hold a Child Trust Fund.
Stamp Duty Land Tax (SDLT): as previously announced, a new 5% rate for purchases of residential property will apply from 6 April 2011.
SDLT: bulk residential purchases - a relief will be introduced for purchasers who acquire more than one residential property. The rate of SDLT will be determined by the mean consideration (i.e. the aggregate consideration divided by the number of dwellings) subject to a minimum rate of 1%.
SDLT: anti-avoidance - the legislation will be included in Finance Bill 2011 to make it clear that three types of SDLT avoidance schemes do not work. The changes relate to clarifying how the sub-sale and alternative finance rules interact; and how 'financial institution' is defined for alternative finance purposes and countering the effect of an engineered reduction in market value where properties are exchanged.
SDLT: first-time buyers - the outcome of the review of the SDLT relief for first time buyers will be announced in the autumn.
Business rates: a discount of up to 100% on business rates worth up to £275,000 over a five year period will be offered to businesses located in the new enterprise zones.
Small business rate relief (SBRR): the SBRR holiday will be extended by 1 year from October 2011.
Business Premises Renovation Allowance (BPRA): BPRA will be extended for a further five years from 2012.
Real estate investment trusts: the Government will consult on reducing the barriers to entry and investment and reducing the regulatory burden, with legislation to be included in Finance Bill 2012.
Enterprise Zones: the Government intends to create 21 new enterprise zones. A business in an enterprise zone will enjoy several advantages:
- 100% discount on rates
- enhanced capital allowances
- relaxed planning obligations
Furnished holiday lettings: as previously announced, from 2011/12 losses from furnished holiday lettings can only be set against furnished holiday lettings income rather than against total income. In 2012/13 there will be increases in the qualifying periods of availability and letting for determination of what qualifies as a furnished holiday letting.
Registration and de-registration thresholds: the registration threshold will increase to £73,000 and the de-registration threshold to £71,000. Both changes apply from 1 April 2011.
Low value consignment relief (LVCR): the threshold at which LVCR operates is being reduced from £18 to £15 from 1 November 2011. The Government is going to explore ways with the European Commission to limit LVCR and will look again in Budget 2012 about reducing the threshold further if this proves unsuccessful.
Cost-sharing exemption: consultation will continue on the options for implementing the VAT cost sharing exemption into UK legislation to allow organisations such as charities and housing associations to make efficiency savings where they work together.
Online registration: from 1 August 2012, VAT registration, de-registration and notification of changes will have to be done online.
HMRC and TAX ADMINISTRATION
Time to Pay: HMRC will continue to offer Time to Pay to all viable businesses experiencing temporary financial difficulty.
Small business: the Office of Tax Simplification will look at how to improve administration for small business with recommendations to be made for Budget 2012.
Financial security for PAYE and NICs: from April 2012, HMRC will be able to require security from an employer where there is a serious risk that PAYE and/or Class 1 NICs will go unpaid.
Review of Reliefs: following the work done by the Office of Tax Simplification, a number of reliefs including late night taxis, luncheon vouchers, flat conversion allowances, disadvantaged area relief and land remediation relief will be abolished.
Data-gathering: legislation will be introduced to enable HMRC to collect data for risk assessment and to impose a penalty if a person is aware of an inaccuracy when providing information or documents.
Disclosure of tax avoidance schemes: further changes to the 'hallmarks' which govern when a scheme has to be disclosed to HMRC are to be implemented in 2011/12. These include schemes that seek to avoid income tax and/or national insurance on employment income, schemes that incorporate offshore transactions to avoid corporation tax and artificial loss schemes.
Tax avoidance: the Government will be reviewing a number of areas to look at strengthening legislation that has been subject to avoidance. The first two areas will be income tax losses and unauthorised unit trusts with a view to legislation being implemented in Finance Bill 2013.
Listed tax avoidance schemes: certain known avoidance schemes will be listed in regulations and have statutory consequences attached to their use. Legislation will be included in Finance Bill 2012.
Tax-treaties anti-avoidance: Finance Bill 2012 will contain an anti-avoidance measure which would ensure that relief or exemption from UK tax is not available under a double taxation treaty where certain arrangements have been made in relation to the claim to avoid UK tax.
Online filing for corporation tax returns: from 1 April 2011 corporation tax returns must be made electronically. This includes the submission of statutory accounts in an electronic format know as iXBRL.