Welcome to our March 2011 Budget newsletter.
This newsletter aims to summarise the main measures that affect our clients. If you need further assistance just let us know
We are committed to ensuring all our clients don’t pay a penny more in tax than is necessary.
Please contact us for advice in your own specific circumstances.
Table Of Contents
- Savings and Investments
- Capital Taxes
- Business Tax
The personal allowance for 2011/12 will increase by £1,000 to £7,475, but the 40% tax threshold will reduce to £35,000 (see below). This ensures that higher and additional rate taxpayers do not benefit from the increased personal allowance in this year. From 6 April 2012 the personal allowance will be increased again by £630 to £8,105, and in that year the 40% threshold will be reduced further to £34,370.
Personal allowances are withdrawn at certain income thresholds, indicated below, and cannot be claimed by non-domiciled individuals who elect to have their foreign income and gains taxed on the remittance basis for the tax year.
The 2011/12 personal allowances
65-74 – £9,940
75 and over – £10,090
Minimum married couples allowance* – £2,800
Maximum married couples allowance* – £7,295
Blind person’s allowance – £1,980
Income limit for allowances for those aged 65 or more – £24,000
Income limit for allowances for those aged under 65 – £100,000
* given where one partner was born before 6 /4/1935, and only as 10% reduction in tax.
Income Tax Rates
The 2011/12 rates and bands
Basic rate (20%) – 0 to £35,000
Higher rate (40%) – £35,001 to £150,000
Additional rate (50%) – over £150,000
* Only applies if non savings income is below this amount
Non-Domiciled and Non Resident
There is currently no clear measure by which an individual can determine whether they are treated as resident for tax purposes in the UK. The Government intends to introduce a legal test of residence with effect from April 2012.
The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. The reduction in this threshold is likely to adversely affect families with fluctuating incomes, such as the self-employed. In the future, in order to avoid a claw-back of tax credits, the claimant will need to finalise their self-employed profit figures as close to the tax year end as possible.
Savings and Investments
Enterprise Investment Scheme
Rate of income tax relief: 2010/11 – 20%, 2011/12 – 30%, 2012/13 – 30%
Annual maximum investment qualifying for income tax relief: 2010/11 – £500,000, 2011/12 – £500,000, 2012/13 – £1,000,000
These changes will be subject to State aid approval from the EU.
Venture Capital Trusts
The Lifetime Allowance will reduce from £1,800,000 in 2011/12 to £1,500,000 in 2012/13.
Independent Savings Accounts (ISAs)
Overall limit – £10,680
Cash up to – £5,340
Balance in stocks and shares up to – £10,680
For those aged 16 & 17:
Overall limit – £5,340
Cash up to – £5,340
Balance in stocks and shares up to – nil
From April 2012 the ISA savings limits will be increased in line with the consumer Prices Index (CPI) rather than in line with the Retail Prices Index (RPI), as has been the case so far.
Savings for Children
– No tax will be charged on income or gains earned within the ISA.
– Funds placed in the account will be owned by the child and locked in until the child reaches age 18.
– Accounts can be opened from autumn 2011 (exact date to be announced).
– Sharia compliant products will be offered as Junior ISAs.
– The annual savings limits will be announced later, but are likely to be similar to normal ISAs.
Capital Gains Tax Rates and Thresholds
Annual exemption – £10,600
Annual exemption for most trustees – £5,300
Rate for gains in basic rate band – 18%
Rate for gains above basic rate band – 28%
Rate for gains subject to entrepreneurs’ relief – 10%
Lifetime limit for entrepreneurs’ relief – £10,000,000
Each taxpayer has a maximum amount of gains that they can include in a claim for entrepreneurs’ relief, called the lifetime limit. This lifetime limit was initially set at £1 million from 6 April 2008. It was increased to £2 million from 6 April 2010, increased again to £5 million from 23 June 2010. The lifetime limit will be doubled to £10 million for gains made after 5 April 2011.
The rate payable on death for 2011/12 remains at 40% with the rate payable on lifetime gifts to certain trusts remaining at 20%.
From April 2012 those that give at least 10% of their estate on death to charity will pay a reduced rate of IHT of 36%. Gifts made to charities are exempt from IHT.
Main pool writing down allowance: reduced from 20% to 18%
Special rate pool writing down allowance: reduced from 10% to 8%
Annual Investment Allowance (AIA) cap: reduced from £100,000 to £25,000
Short Life Assets
For assets purchased on or after 1 April 2011 (6 April 2011 for unincorporated businesses), the life of the short life asset will be deemed to be 8 years. This will benefit larger businesses that incurred expenditure on assets in excess of their Annual Investment Allowance cap for the year.
Tax Reliefs to Go
– Tax free meals for employees who cycle to work
– Tax free late night taxis for employees
– Additional tax relief for companies that clean up contaminated land or buildings (land remediation relief)
– Relief from CGT for grants for giving up agricultural land
Corporation Tax Rates
The main rate of corporation tax was due to be cut from 28% to 27% from April 2011, but that rate will now be 26%, reducing by 1% per year thereafter until the rate reaches 23%.
Research and Development Tax Credits
The rules that govern what type of expenditure qualifies for this relief will also be revised with effect from 2012 to make it easier for small companies to claim this relief.
This does not mean these two taxes will be merged. The Government has stated that NI will not be applied to savings, dividends or pensions. The likely changes will involve aligning the rules and mechanics of collecting the two taxes. However, don’t expect big changes any time soon!
From 6 April 2011 the rates and thresholds for the main NI contributions were already known with most increasing by 1%. The main figures for 2011/12 are:
Lower Earnings Limit (LEL) for Class 1 NICs – £102/week
Employer’s class 1 above £136/week not contracted out – 13.8%
Employee’s class 1 not contracted out from £139 to £817/week – 12%
Employee’s additional class 1 above £817/week – 2%
Self-employed class 4 from £7,225 to £42,475 per annum – 9%
Self-employed class 4 additional rate above £42,475 per annum – 2%
Self-employed class 2 – £2.50 per week
Voluntary contributions class 3 – £12.60 per week
Approved Mileage Rates
This AMAP rate has been stuck at 40p per mile since about 2002, and at current petrol prices many employees who need to use their car for business cannot afford to do so. The AMAP will increase to 45p per mile from 6 April 2011 for the first 10,000 business miles per year, any additional miles can be reimbursed at 25p per mile. If the employer does not pay the full AMAP rate the employee can claim the additional amount in tax relief from HMRC.
The tax free AMAP can also be paid by charities to volunteers. The self-employed, who have profits below the VAT registration threshold (£73,000 from 1 April 2011), may also use the AMAP rate as a substitute for motor expenses claimed in their accounts.
Where an employee carries a fellow employee as a passenger on a business journey, an additional 5p per mile tax free can be paid. The rate will also now apply to volunteer drivers who take other volunteers on business/ charity related journeys.
From 6 April 2011 the percentages are all increased by 1% for those in the 15% to 35% range but with a 35% maximum kept. The taxable benefit of using a car with CO2 emissions of 121-129g/km is 15% of the list price. This percentage increases by 1% for each additional 5g/km of CO2 emissions to a maximum of 35% for cars with CO2 emissions of 225g/km or more.
Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to a set value, currently £18,000. This value will increase to £18,800 from 6 April 2011. The maximum taxable benefit of receiving fuel for personal use will increase from £6,300 (for 2010/11) to £6580 (for 2011/12).
VAT Rates and Thresholds
Lower rate – 0%
Reduced rate – 5%
Standard rate – 20%
Registration turnover – £73,000 (up from £70,000)
Deregistration turnover – £68,000 (up from £71,000)