With Chancellor George Osborne being caught between a rock and a hard place as regards the yawning public sector deficit, it was perhaps inevitable, given the Coalition’s belief that enterprise will be the engine of recovery, that his Budget would feature some good news for entrepreneurs. However, with higher than expected inflation and a sluggish recovery, his room for manoeuvre was limited. The result was a Budget which contained some interesting measures hidden in the technical releases. As always, it has left some tax planning opportunities open, so if any of the below have resonance with you, get in touch fast!
Although the Budget speech was silent on many changes affecting business, the three main areas in which anti-avoidance legislation is being introduced were spelled out clearly. These are the sale of lessor companies, Stamp Duty Land Tax (SDLT) and Corporation Tax on chargeable gains in groups of companies. However, the details of the proposals (largely not mentioned in the Chancellor’s speech) do contain some interesting nuggets for businesses.
Before you undertake any tax planning or mitigation exercise, take professional advice.
Summary of Changes Affecting Business Clients
Corporation Tax (CT)
International tax ‘competition’ has led to CT rates in the UK becoming comparatively high by world standards. In order to restore competitiveness, the main rate of CT is being reduced by 2 per cent from 1 April 2011 and will then reduce for the following three years by 1 per cent per year, so that it will be 23 per cent from 1 April 2014. The ‘small profits’ rate of CT is also being reduced to 20 per cent.
The practical effect of this is that the attractiveness of ‘corporate emigration’ is reduced and bringing forward expenditure to earlier tax years will mean greater tax relief
Companies will be able to elect for foreign branches to be exempt from UK taxation rather than claim double tax relief. The detailed proposals are rather complex in order to prevent abuse. This election should not be made without a great deal of thought, however, as it is irrevocable.
Tax Evasion – Disguised Remuneration
Employers, directors, and employees who use third party arrangements, commonly involving trusts and other vehicles, to avoid, reduce, or defer liabilities to Income Tax (IT) on rewards of an employment or to avoid restrictions on pensions tax relief will see their efforts come to naught. If you use any of the types of scheme targeted, now may be a good time to review your arrangements.
Security for PAYE
The power allowing HM Revenue and Customs (HMRC) to make regulations enabling them to require a security from employers for PAYE and National Insurance Contributions (NICs) where there is a serious risk of non-payment had been announced previously, but the Budget technical overview mysteriously announces that the regulations ‘will be amended’. HMRC have fought over unpaid PAYE with many businesses, including the well-reported recent case of Plymouth Argyle FC. Watch this space – particularly if your firm faces solvency issues.
Boosts for Business
There were several specific measures announced with a view to helping businesses in tough times. In particular, the building industry was singled out for support.
Investment and Property Reliefs
21 new Enterprise Zones are being announced. These will benefit from Business Rate Relief (BRR) of up to 100 per cent for up to five years. The current BRR relief for businesses generally is to be continued until October 2011.
Entrepreneur’s relief for people selling their businesses has been doubled to £10 million.
The planning system is to be revamped so that the ‘default’ answer to a planning application will be ‘yes’, and auctions of planning permissions will be implemented where appropriate. On the other side of the coin, SDLT avoidance schemes are to be specifically targeted.
The Aggregates Levy increase planned for 1 April 2011 is not being implemented.
The cost of having a company car is set to rise as the fuel benefit ‘multiplier’ increases by £800 (4.4 per cent). However, the amount which can be repaid to employees using their own cars (tax free) is increased from 40p to 45p per mile for the first 10,000 business miles.
Vehicle Excise Duty (VED) is increased by inflation, except for VED on heavy goods vehicles which is frozen until 2012.
New VAT scale charges on private use of business vehicles also apply from 1 May 2011.
From 1 April 2011, small companies will receive a tax credit for research and development (R&D) expenditure of 200 per cent, increasing to 225 per cent from 2012. Other changes that will make R&D expenditure more attractive for smaller businesses from 2012 are:
- The rule limiting a small company’s payable R&D tax credit to the amount of PAYE and NICs it pays will abolished;
- The £10,000 minimum expenditure condition will be abolished for all companies; and
- Changes will also be made to the rules governing the provision of relief for work done by subcontractors under the large company scheme.
Short Life Asset (SLA) allowance – the period for a claim of SLA allowance is being extended to assets with an expected working life of 8 years or less (currently 4 years or less).
NICs and Tax Integration
NICs and IT are to be combined. A consultation is being put in progress on how best to achieve this. Pensioners are assured that this will not adversely affect them. There are subtly different rules that apply to the application of IT and NICs, so it is no surprise that the process is expected to take a number of years to complete.
The state pension age will rise to 66 in 2020. Future increases in the state pension age will be based on regular reviews of longevity – a worrying thought for the self-employed in particular. This will inevitably mean longer working lives with an increased risk of illness before retirement age. Permanent health and critical illness insurance will undoubtedly become more widely considered.
Tax Online to be Compulsory
Dealing with your tax affairs online will become compulsory some time between August 2012 and August 2013. Dealing with VAT online becomes compulsory for all businesses in April 2012.
Collecting Overseas Tax
A new system for the collection of taxes due in other EU Member States (and UK taxes due for payment by people resident in other Member States) is being introduced in January 2012, which will ‘modernise and expand’ the scope of the current EU Directive on administrative co-operation in the field on taxation.
If any of the items in this bulletin apply to you, please get in touch. The end of the tax year is 5 April for individuals and 31 March for companies.
The information contained in this newsletter is intended for general guidance only. It provides useful information in a concise form and is not a substitute for obtaining professional advice.