The chancellor delivered his second budget speech on Wednesday 23rd March.
There were some proposals for the future, along with some immediate changes.
We have split our summary into two sections, the first being points we feel will affect our clients and the second section has some news that may be of interest.
News affecting our clients
The main rate of corporation tax will now reduce to 26% in April 2011 and not 27% as previous announced.
As this rate of tax only applies to those with profits over £1.5m, most of our clients will continue to pay corporation tax at the small companies rate and this will reduce to 20% with effect from 1st April 2011.
From 1st April 2012 (for companies) and 6th April 2012 (for individuals and partnerships) the annual investment allowance will be reduced to £25,000 from the current limit of £100,000. This allowance gives 100% tax relief for capital purchases; such as vans, computer equipment etc.
Approved mileage payment rates
The rate for approved mileage payments will increase by 5p per mile to 45p per mile travelled from 6th April 2011. A quite disappointing rise considering the ever increasing price of fuel.
This only applies to the first 10,000 business miles travelled in a tax year, with any remaining miles qualifying for an unchanged rate of 25p.
The budget announcement on IR35 was the news that contractor’s didn’t want to hear!
It was announced that the potential loss of revenue is too large to consider removing the controversial piece of legislation, so it stays for the time being.
However, HMRC has announced the following improvements to the legislation:
§ To provide greater pre-transaction certainty, including a dedicated helpline staffed by specialists
At the time of this post, HMRC have not yet published the guidance referred to above.
At the moment, we are unsure of what these changes will mean in practice but we will, of course, be keeping you up to date of any developments in this area.
Tax Rates & Allowances
We have added the tax rates and allowances for 2011/12 to our website and you can view these by clicking here.
News of interest
Tax and National Insurance merger?
One of the most eye-catching headlines to come out of the budget was the chancellor’s comments regarding the possible merger of income tax and national insurance. At this stage it is unclear whether he is referring to a simple merger of the rules or a more complex merger of the overall taxes. This is one we are sure to hear a lot more about in the future.
Pension annual allowance
The rules regarding tax relief on pensions will change from 6th April and these changes continue to make pension relief a complicated subject.
Although we do not envisage the changes affecting the majority of our clients, those who make annual contributions of more than £50,000 may be affected and we would, therefore, recommend contacting your financial advisor if you have any queries on this subject.
HMRC Time to pay scheme
HMRC has confirmed that the time to pay scheme and business payment support service will remain in place to assist businesses experiencing financial difficulty.
However, it has been made clear that this assistance is not an arrangement to delay payment of tax on an ongoing basis and, therefore, clients revisiting this arrangement may find that HMRC is less willing to help than before.
Dishonest tax agents
HMRC has advised that it will be bringing in legislation to deal with dishonest tax agents and advisors.
Now is the time to ensure your tax agent is honest and trustworthy. Obviously you have nothing to worry about if you are a client of GRANTS!
Please contact us if you have any queries regarding any of the above.
§ To provide greater clarity by publishing guidance on those types of cases HMRC view as outside the scope of IR35
§ To restrict reviews to high risk cases carried out only by specialists
§ To promote more effective engagement with interested parties through an IR35 Forum to monitor HMRC’s new approach