The Spring Square Circular is a little earlier in the year than usual. That doesn’t mean that spring has sprung early. It just means that there were a few things in the Budget on 23 March which we want to tell you about. While we like to provide some analysis rather than rushing into print immediately, we don’t want to wait until you’ve forgotten that there ever was a Budget.
In the last Square Circular we mentioned the measures of which we were aware at the time and we’ll try not to repeat ourselves. By way of variety, there are one or two other items which should be of interest.
If you want more details about any of the matters we’ve mentioned in this Issue, or indeed, about any of the matters we haven’t mentioned please call us on 0161 832 4841.
We welcome Katie Ross to our accounts and audit department.
As you may be aware, J Morris & Co and Alexander & Co merged in 2005. As of 1st May 2011 we will be trading under the one name of Alexander & Co. John and his staff are all alive and well and at their desks to help you as usual.
We can’t tell you everything. We won’t even try. Time and space doesn’t allow that. What follows is just a summary of a few select pieces of information. If you want any more information you know to contact us.
BUDGET NEWS – CORPORATION TAX AND BUSINESS TAXES
You know from the last Square Circular that both the main rate and small profits rate of corporation tax will be reduced. The only new change is that the main rate will be reduced each year as planned, only it will go down to 23% rather than 24% as a result of a 2% cut this year rather than just a 1% cut. A question frequently dealt with in past Square Circulars is the merits of dividends versus bonuses as the optimum form of profit extraction. All things being equal it looks like the answer is to take dividends, whatever the size of your company. The only thing is that all things are rarely equal and you should ask us to help you with such a decision.
There will be changes to capital allowances rules over the next year or two. How will this affect you? Just two points. First, the reduction in Annual Investment Allowance from £100,000 to £25,000 in April 2012 would suggest that capital expenditure be advanced where possible rather than deferred. Secondly, the increase in the short life asset period from 4 years to 8 years, this April, will mean that when you buy particularly expensive assets which are not likely to last as long as 8 years you should tell us.
There were quite a few “techie” points about associated companies, corporate gains degrouping, company leaving a group, pre-entry capital losses and more. Let’s leave it at that, shall we?
BUDGET NEWS – PERSONAL TAX
Personal allowances and the basic rate tax limit have changed. You can see that from our Tax Rate Centre on our website home page: www.alexander.co.uk.
It was confirmed that the 50% additional rate tax on income over £150,000 is indeed a “temporary measure”. Isn’t that what Pitt the Younger said about income tax in 1799 when it was first introduced?
Pension changes were mentioned in the last Square Circular. You can see some of the figures again in our Tax Rate Centre. The changes really are “major”. For a start there’s the reduction in the lifetime allowance. Just as important will be the reduction in the annual allowance for tax relief and the complicated rules about making up what you’ve missed in previous Pension Input Periods. There’s no point in trying to tell you in a few lines about pension planning. With Pareto Alexander fully up and running why not contact us for a chat about it?
Income Tax relief on EIS investments increases as from 6 April 2011 from 20% to 30%. There are further “goodies” to do with EIS and VCT investments in the pipeline for 2012. This will make such investments more attractive to business angels and will broaden the range of companies in which investments can be made.
There are changes in the pipeline for 2012 as regards the remittance basis charge for non-domiciled individuals who have been UK resident for 12 years or more. If you think you might be affected, get in touch.
The taxation rules relating to furnished holiday lettings are being changed. As from April 2011 what you can do with losses will be severely curtailed. From April 2012 the conditions for qualifying as a furnished holiday let will be harder to meet.
There will be ISAs for under 18s as from autumn 2011. Big deal, we hear you say. Perhaps not, but possibly yes, if the restrictions on parental funds being the source of these investments, don’t apply.
BUDGET NEWS – EMPLOYMENT TAXES
You can see details of National Insurance Contributions rates, company car and fuel benefits, company van benefits and approved mileage allowance payments in our Tax Rate Centre.
There will also be changes to the Employer Supported Childcare rules from April 2011. The current exemption covers £55 per week of childcare. No change for basic rate taxpayers but for higher rate and additional rate taxpayers the relief will be restricted to £28 and £22 respectively.
BUDGET NEWS – CAPITAL TAXES
The annual CGT exempt amount for individuals increases from £10,000 to £10,600 in line with statutory indexation.
The lifetime limit for Entrepreneurs’ Relief (ER) doubles from £5m to £10m. Making sure that you qualify for ER is important and complicated especially in the case of shares held in a company. It’s worth checking with us from time to time that you are and stay in the frame for ER. It’s a relief worth having.
The Inheritance Tax (IHT) nil rate band is frozen at £325k until April 2015. No surprises there.
If you leave 10% of your net estate to charity the IHT rate on your estate drops from 40% to 36%. There is a ‘catch’. Don’t die until after 6 April 2012 because that’s the proposed starting date for this idea.
Generally speaking, there is plenty of planning you can do to mitigate the impact of both CGT and IHT. It is always worth getting in touch to check on how we can help you.
BUDGET NEWS – CHARITIES
The maximum value of benefits a person making a Gift Aid donation can receive is to be increased.
From April 2013, charities will be able to claim gift aid on small gifts of £10 or less without gift aid declarations. Just picture the scene in two years time. You’re accosted by a ‘charity mugger’ as you visit us in St Ann’s Square on a Monday, Wednesday or Friday (these are the only days the Council lets them collect in the Square). As you drop a fiver into the bucket just think of the tax relief.
BUDGET NEWS – ANTI-AVOIDANCE
Changes have been made to put a stop to certain SDLT avoidance schemes. Heigh-ho, there are others.
One of the most complicated bits of the Budget is the ‘disguised remuneration’ provisions designed to stop Employee Benefit Trusts and similar structures being used as a tax efficient form of profit extraction from a company. How effective will it be? Is it the death knell for such structures? We can’t begin to address that issue within the confines of a Square Circular. If you have any profit extraction issues you need to contact us.
TWENTY YEARS ON
Many will recall this song from their youth.
“Twenty years on when afar and asunder
Options to tax piling up the in-tray
When you look back and forgetfully wonder
How the option can be revoked as of today.”
In Issue 27 of the Square Circular in autumn 2009 we reminded you that VAT options to tax property could be revoked after 20 years. We gave you one or two scenarios in which, having once made the option, you might later want to revoke it. It was particularly relevant in autumn 2009 because the option to tax rules were introduced in August 1989.
Actually, that’s not quite right. It was first relevant in autumn 2009 but is particularly relevant 20 years after making an option whenever that may be. If it’s around the 20th anniversary of buying a property and making the option, give the matter some thought.
And it it’s less than 20 years, don’t worry. We will remind you about it from time to time.
ANOTHER TAX AMNESTY
We’ve got used to tax amnesties. That’s when HMRC say that if you come clean and own up to a bit of tax evasion (yes, evasion, not avoidance) they won’t quite throw the book at you. They’ll limit the number of years they want to investigate and will limit the penalty they’ll charge for your bad behaviour to a modest say 10% or 20% rather than making it a lot worse.
The first ones were the ODF, the NDO and the LDF. We won’t bore you with what the letters stand for; it’s more fun guessing. The last one, about a year ago, was the THP, Tax Health Plan, aimed at medical professionals. At the time we wondered what was next in the pipeline, given that the Treasury has to find some way to stop the leakage of tax.
Leakage and pipelines call for the PTSP, yes the Plumbers Tax Safe Plan. HMRC are targeting anyone who works (or has worked) in the plumbing, heating or gas installation trades in order to stop the constant drip, drip of lost tax. However, plumbers may need to call out their accountants as an emergency because they only have until 31 May to register for the amnesty.
If over the next few weeks your plumber comes round to mend your faulty wash basin/WC/pipes/drains just remind him that you know some terrific accountants, called Alexander & Co if he wants to avail himself of the PTSP. And we don’t charge extra for emergency call outs.
Finally, the HMRC introduction to PTSP says that you don’t necessarily need to be a plumber to avail yourself of the scheme. If you want to confess tax irregularities without being a plumber you can still do so. Now there’s an invitation!
IT’S A PENALTY!
Have you heard about the new late filing and late payment penalties for individuals, trusts and partnerships? Late payment penalties will be pretty similar to the old system of surcharges so the main change will be to the filing penalties.
If you’re a laid back kind of person who likes filing your tax return in mid-February rather than before 31 January, the penalty will still be £100. However you won’t be able to get it reduced to nil by having paid all the tax that’s due by 31 January.
Not too bad, so far? Well, if you’re more than 3 months late (yes, there are people like that!) you’ll get a daily penalty of £10. But, don’t worry; that only runs for a maximum of 90 days. Let’s correct that; do worry. If you’re later than 6 months (hard to believe, but there are people like that!) you’ll get a 5% tax related penalty and then another 5% when you’re 12 months late and still haven’t bothered.
And then the waters get a little muddy. There’ll be a much higher tax related penalty (70%) if you’re more than 12 months late and have deliberately withheld information for HMRC to assess the tax due.
The message? Make sure your tax affairs are up to date and stay up to date.
At the end of March, watching the French market trying to set up stalls in St Ann’s Square in a blustery wind we were reminded of the following gem from Ogden Nash.
“Indoors or out, no one relaxes
In March, that month of wind and taxes
The wind will presently disappear
The taxes last us all the year.”