Emergency Budget 2010: Summary

Emergency Budget 2010: Summary

Published:

Author: Niall Murphy

The Chancellor delivered the 2010 Emergency Budget on 22 June. Here are the main tax points of interest

Business taxes

Corporation Tax - from 1 April 2011, the main rate will be reduced to 27%. The Chancellor has committed to reducing corporation tax by 1% per year thereafter until the rate reaches 24%.

Small companies' rate - from 1 April 2011, the small companies' rate of corporation tax will be reduced to 20%.

Corporation tax reform - a more detailed programme for the reform of the corporate tax system will be set out in the autumn, including looking at moving to a more territorial basis for the taxation of profits of foreign branches. The Government has also confirmed that it intends to reform the controlled foreign company regime with interim changes being introduced in 2011, with wider reform in 2012.

Employer's national insurance - for 1 year from 22 June 2010, any new businesses set up in certain areas (broadly excluding London, the South East and East Anglia) will not have to pay the first £5,000 of employer's NI due for each of the first 10 employees. In addition, the point at which employers have to start paying national insurance will be increased by an extra £21 p.w. above indexation.

Annual Investment Allowance (AIA) - from April 2012, the AIA will be reduced from £100,000 per annum to £25,000 pa.

Capital allowances - from April 2012, the rate of writing down allowances will be reduced from 20% to 18% for plant and machinery, and from 10% to 8% for long life assets.

Zero-emission goods vehicles - as announced by the previous government, from April 2010 for a period of five years, a 100% first-year allowance for business expenditure on new zero-emission goods vehicles will be introduced by a Finance Bill as soon as possible after the summer recess.

Research and development (R&D) - the condition that any intellectual property deriving from the R&D to which the expenditure is attributable must be owned by the company making the claim in order for R&D tax relief to be obtained will be removed. In addition, the Government will consult later this year in order to review the taxation of IP and the support that R&D tax credits provide.

Insurance Premium Tax - from 4 January 2011, the standard rate of IPT will increase from 5% to 6%, and the higher rate from 17.5% to 20%.

Bank Levy - from 1 January 2011, a levy (0.04% in 2011; 0.07% thereafter) based on the total liabilities of banks excluding, amongst other things, Tier 1 capital and insured retail deposits will be introduced. The levy is intended to encourage banks to move to less risky funding profiles. Further details will be published later in the year, after consultation.

Video games industry tax relief - a tax relief announced by the previous government for the video games industry will not now be introduced.

Employee incentive arrangements

Employee reward arrangements - the consultation announced by the previous government on the use of growth shares, JSOPs and similar arrangements will go ahead. The Government is still considering its options to tackle the use of employee benefit trusts and similar vehicles including employer-financed retirement benefits schemes, with legislation to be introduced to take effect from 6 April 2011.

Enterprise Management Incentives - as announced by the previous government, the EMI regime will be extended to apply to companies with a UK permanent establishment in order to comply with EU State Aid rules. This will be implemented in a Finance Bill after the summer recess.

Venture Capital and Enterprise Investment Schemes - the changes announced by the previous Government will be legislated for in a Finance Bill after the summer recess.

Personal taxes

Capital Gains Tax - from 23 June 2010, a new rate of CGT at 28% will be introduced for those individuals whose total taxable gains and income exceed the upper limit of the basic rate income tax band (currently £37,400). For trustees and personal representatives, the rate is also increased to 28%. The annual allowance remains unchanged (currently £10,100 pa).

Entrepreneurs' Relief - from 23 June 2010, the lifetime limit of gains which can benefit from ER and are therefore taxed at 10% is increased from £2m to £5m.

Income Tax - from 6 April 2011, the personal allowance will be increased by £1,000 to £7,475. The basic rate limit will be reduced by £1,000 so that higher rate taxpayers do not benefit from this increased allowance. The basic rate limit will be frozen in 2013-14.

National Insurance - to keep income tax and National Insurance limits aligned, the upper earnings limit will be reduced.

Pensions annual allowance - the Government has announced that, from 6 April 2011, it is considering restricting pensions tax relief by reducing the annual allowance to somewhere in the region of £30,000 to £45,000. This would replace the high income excess relief charge due to come into force on that date.

Non-domiciled individuals - in line with a statement in the Government's Coalition Agreement, the taxation of non-domiciled individuals is to be reviewed.

Furnished holiday lettings - the FHL rules will not now be withdrawn from April 2010. The Government will consult over the summer about plans to change the regime from April 2011.

ISAs - as announced by the previous government, from 6 April 2011, the ISA limits will be indexed in line with the RPI.

Landline Duty - the duty of 50p-per-month announced by the previous government on all land-lines will be abolished.

Council Tax - council tax will be frozen in 2011-12.

Property

SDLT - the Government will review the SDLT relief for first time buyers looking at its affordability and value for money. In addition, the Government will examine whether changes are needed to the SDLT rules on high value property transactions to prevent tax avoidance.

UK REITs - UK REITs will now be allowed to issue stock dividends in lieu of cash dividends in order to meet the requirement that 90% of their profits from their property rental business are distributed. Again this will be legislated for in a Finance Bill after the summer recess.

Small business rate relief - as announced by the previous government, for 1 year from October 2010 the level of small business rate relief will be increased.

VAT

Standard rate - the standard rate of VAT will increase from 17.5% to 20% from 4 January 2011. Anti-forestalling legislation will be introduced to prevent artificial arrangements which seek to take advantage of the change in the standard rate.

Flat rate scheme - as a consequence of the change in the standard rate of VAT, the percentages used in the flat rate scheme will be recalculated. The annual flat rate turnover threshold which, if a business exceeds, means that it has to leave the flat rate scheme (unless as a result of a one-off transaction) will be increased from £225,000 to £230,000.

Lennartz accounting - as announced by the previous government, Lennartz accounting will be abolished from 1 January 2011, although existing Lennartz users will continue to pay VAT due under the Lennartz system.

Charities - currently VAT barriers exist that increase the cost of charities sharing services. The Government has recognised the benefits of charities sharing services so has started discussions to consider options for implementing the EU cost sharing exemption to reduce these barriers.

Tax administration

Managed payment plans - the Government is to defer the implementation of managed payment plans.

Collection of tax - HMRC will use debt collection agencies to collect £140m of additional tax revenue from existing tax debtors.

General anti-avoidance rule - the Government will look at whether there is a case for developing a general anti-avoidance rule.

PAYE - the Government wants to explore how the PAYE system could be improved to reduce costs and make the system easier for employers and HMRC.

Disclosure regime - the Government will consult on bringing inheritance tax on trusts within the Disclosure of Tax Avoidance Schemes regime.