Clarke and Son News

Here is a summary of how the recent budget could affect you as an individual or business:

Inheritance Tax (IHT)

• The IHT nil rate band (the amount that can be given away on death without incurring Inheritance Tax - subject to lifetime gifts)  of £325,000 has been frozen for the next four years (i.e. 6 April 2010 - 5 April 2015)
• For chargeable events above the nil rate band IHT is charged at 40% on death, 20% on lifetime transfers

For further information on Inhertance Tax, please contact Nia Wharry.

Stamp Duty Land Tax (SDLT)

• The Threshold for first time buyers is to rise to £250,000 (applies where effective date falls on or after 25 March 2010 and before 25 March 2012).
• Introduction of an additional 5% rate of SDLT for residential properties £1 million plus. This rate does not apply until 5 April 2011.

All other SDLT rates and thresholds remain unchanged. For more information on Stamp Duty for residential properties, contact Jenny Axe.

Income Tax

• Introduction of an additional rate of 50% on income in excess of £150,000
• Gradual removal of personal allowances above £100,000 at the rate of £1 of personal allowance for every £2 of income
• Rates for basic (20%) and higher (40%) are to remain the same

 Capital Gain Tax (CGT)

• The annual exempt amount for tax year 2010-11 has been set at £10,000
• Entrepreneurs’ relief - doubled from £1 million to £2 million - i.e. 10% CGT paid on the sale of a business or shares in a personal company on or after 6 April 2010

If you have any queries on Business Rates or how the budget will affect your business, contact Peter Turner.

Other Taxes

• Fuel duty increase - to be phased at 1p in April, 1p in October and the remainder in January 2011
• National Insurance contributions to rise by 1% in April 2011. However, the threshold for NI payments is to rise so that nobody earning less than £20,000 will face extra charges.
• No change to VAT
• Business rates to be cut from October for one year
• Annual investment allowance for small firms - doubled to £100,000
• Duty on cider is to increase by 10% from 29 March and duty on wine, beer and spirits by 2% from 29 March

Savings - ISAs

• The annual amount individuals can contribute is to rise in line with RPI
• If there is a fall in the RPI then the amount will remain as for the previous tax year

Other Points of Interest:

Families:

• Provision of income tax relief for payments to special guardians/carers looking after children placed under a residence order.  The exemption applies to qualifying carers and qualifying payments made on or after April 2010
• Parents of one and two year old children are to recieve an increase of £4 per week in child tax credits from 2012
• Pensioners’ higher winter fuel payments to remain for another year

If you would like to discuss Parental Responsibility issues, please contact Bhupendra Sankhla.

Employment

• The length of time over 65s have to work in order to qualify for tax credits is to be reduced
• Youth employment guarantee scheme is to be extended to March 2012 (guaranteeing anyone under 24 will get a job or training once they have been unemployed for six months).

For employment issues, please contact Thomas Hunt.

Business Support

• State owned banks are to provide £105 billion of loans
• Time to pay scheme - allowing firms to agree extra timetables for settling tax bills to be extended for whole of next parliament
• New growth capital fund worth £500 million to help fast-growing SMEs

For advice on business matters, please contact Peter Turner.

The Economy & Government Finance:

• Predicton that growth for 2010 would be between 1% and 1.5%
• The prediction for 2011 is a growth rate of between 3% and 3.5%
• Government borrowing will be £167 billion this year, £163 billion in 2011, £131 billion in 2011/2012, £110 billion in 2013/14 and £74 billion in 2014/15

For more information on any of these issues, please contact Clarke & Son on Tel: 01256 320 555.

You will no doubt be well aware of the main provisions of the Chancellor’s pre-budget report. However the following are of particular significance:

• VAT is to return to 17.5% from 15% from 1st January 2010.  The 15% rate can still be used for services provided up to 31st December 2009.  When we are preparing our bills for you we will, where appropriate, provide apportioned accounts.

• The increase in the Stamp duty land tax threshold on residential properties from £125,000 to £175,000 will come to an end on 31st December 2009. The critical date is the completion date of the transaction which is normally (although not always) the date on which the purchase money for the property is paid and the buyer moves in.

Please note this office will close at 5pm on Wednesday 23rd December 2009 and re-opens on Monday 4th January, 2009 at 9am. The last date we would recommend for completion of a property purchase would be Tuesday 22nd December 2009.

For more information on moving home, mortgage and property services, please contact Paul Cowdery on Tel: 01256 320 555.

The proposed set of rules for ‘pre-pack’ administrations (where a company goes into administration with the prospective purchaser already in place and the sale effectively a ‘done deal’) has been given the thumbs-up by insolvency practitioners and came into force on 1st January 2009.

The main advantage of a pre-pack is that the company in difficulty can continue to trade without interruption. It is argued that this allows the best price to be realised for the company. It is also argued that it allows the administrator to avoid many expenses that would normally be incurred during the period in which a buyer is sought, thereby reducing the risk to other creditors of receiving a smaller dividend. In addition, pre-packs are claimed to reduce the likelihood that the business will be put into liquidation. 

However, pre-packs have a number of opponents, including HM Revenue and Customs (HMRC), which often face a shortfall in VAT, Corporation Tax and/or PAYE when a company enters administration. HMRC have opposed a number of pre-packs in court, with varying success. A more recent alleged tactic involves the denial of VAT Registration Numbers to companies engaged in setting up a pre-pack. The rule book will go some way to ensuring that pre-packs are dealt with in a consistent and ethical way. 

If your business is in financial difficulty, contact Peter Turner  on Tel: 01256 320 555

Both employers and employees could be forced to pay tax on personal e-mails or using the Internet for non-business-related purposes at work under chancellor Gordon Brown’s revised Budget proposals.

Under the proposals any PC owned by a company, which is used for significant non-business purposes, will be liable for an annual charge of £210.

Having access to the Internet and e-mail facilities at work is deemed as a benefit in kind, and as such the costs would fall upon both employees and employers alike with increased income tax levied against employees whilst additional National Insurance contributions would fall upon employers.

“Clear guidance is needed so that employers and employees know exactly whether or not they have a tax liability,” said Anne Redston, chairman of personnel taxes at the Chartered Institute of Taxation.

General
The theme is again one of most changes being only what is necessary to keep pace with inflation, with an emphasis on fighting tax avoidance and the introduction of a number of measures aimed at reducing various pernicious VAT frauds, typically involving mobile phones and computer chips. The proposal to create ‘summer schools for entrepreneurs’ is a novelty.

VAT
The registration threshold for VAT is increased from £60,000 to £61,000 and the deregistration limit is increased from £58,000 to £59,000 from 1 April 2006.  There are a number of changes introduced to help HMRC fight ‘missing trader’ VAT fraud. One ‘interesting’ change is that HMRC are to be given the explicit right to enter any premises connected with any supply of goods, including premises used for storing goods for others, and to mark or stamp goods. In addition, HMRC will be permitted to specify additional records that must be kept if they suspect that ‘the additional records might assist in identifying supplies on which VAT might go unpaid’.  One ominous note is that HMRC are to ‘fundamentally re-write’ the option to tax buildings and land for VAT rules, contained in Schedule 10 of the Value Added Tax (VAT) Act 1994, but no details are given as to what those changes will be. Property owners and developers take note!

Corporation Tax Rates
The abolition of the 10 per cent rate of corporation tax on the first £10,000 of profits not paid out in dividends by small companies was announced in the 2005 pre-budget report: this is abolished from 31 March 2006.

Land Development Tax
Strangely, the budget contained nothing on Land Development Tax (also known as Planning Gain Supplement), which was expected to be introduced to tax windfall gains arising on land and properties as a result of planning permission being granted. Whether this suggests a change of heart on the part of Mr Brown is anyone’s guess.  Watch this space!

Capital Allowances
Small businesses will welcome the increase in first-year allowances for the purchase of new equipment from 40 per cent to 50 per cent. Research and development allowances are also being increased for some companies.

Mobile Phones Blow
The exemption from a benefit in kind charge on mobile phones and computers that are supplied to employees or family members of employees and which can be used for private purposes has always been anomalous and it has now been abolished insofar as it applies to computers. A limit of one per employee has also been placed on the number of mobile phones which can be provided without a benefit in kind charge being payable.

Landlords – Energy Saving Allowance
The tax relief available for landlords to insulate their tenanted properties is being further enhanced from 6 April 2006 to include draught proofing and insulation for hot water systems.

Landfill Tax
The standard rate of landfill tax will be increased from £18 per tonne to £21 per tonne. This will probably cause a sharp rise in the cost of skip hire.

Stamp Duty Land Tax (SDLT)
The replacement for the old Stamp Duty, this tax has spawned a plethora of problems since its introduction in 2003. In order to ease these, a number of common transactions will be taken out of the scope of SDLT.
These are:

• a gift of property where the donee or beneficiary agrees, or is required, to pay capital gains tax or inheritance tax arising on the gift;
• the payment of a landlord’s reasonable costs on the grant, variation or permination of a lease; and
• a covenant by an agricultural tenant to assign entitlement to the Single Farm Payment to the landlord on termination of the tenancy.

The threshold for Stamp Duty Land Tax (SDLT) has been frozen at £150,000 for commercial properties and the threshold for the higher rate of duty has been frozen at £250,000.