the Emergency Budget 2010 - highlights
The feared Emergency Budget has proved to be not as unpleasant
as it could have been, at least from a purely tax, as distinct from
a social, perspective. The increase in VAT to 20% was expected and
at least there is a delay until implementation on 4 January 2011
which allows businesses to review their pricing policies with
consumers to factor in the VAT cost. The increase in CGT from 18%
to 28% does apply immediately - but it is not as high as the income
tax rate of 40%, and owners of businesses may fall within the
generous 10% rate on the first £5 million of lifetime gains and the
annual exempt amount (currently £10,100) is retained.
There are, though, still elements of "give with one hand, take
with another". The phased decrease in the corporation tax rate to
24% is designed to encourage investment - particularly foreign
investment - into the UK but the reduction in the rates of capital
allowances will adversely affect multi-nationals.
All in all a "mixed bag". Details are provided below - click on
the links for more information:
corporation tax
The main rate of corporation tax is to be reduced from the
current 28% as follows:
- to 27% from 1 April 2011
- to 26% from 1 April 2012
- to 25% from 1 April 2013, and
- to 24% from 1 April 2014.
The corporation tax rate for smaller companies (profits below
£300,000) will be reduced from 21% to 20% from 1 April 2011.
>>back to top
capital allowances
From April 2012 the main capital allowances rates are to be
reduced from 20% to 18% for plant and machinery expenditure, with
the special rate reduced from 10% to 8%. The annual investment
amount will be reduced from £100,000 to £25,000.
>>back to top
CGT rates and entrepreneur's relief
From midnight tonight, the CGT rates are changing as
follows:
- individuals who are basic rate tax payers will continue to pay
CGT at a rate of 18%
- individuals who are higher rate tax payers will pay CGT at a
rate of 28% (trustees and personal representatives will pay at 28%
regardless of the income rate of the beneficiaries).
An individual will be subject to the 18% rate if their total
taxable income and gains after all deductions are less than the
upper limit of the basic rate income tax band (£37,400 for
2010/11). For any gains above that limit, the rate will be 28%.
Gains which take an individual into the higher rate will be
apportioned and taxed at 18% to the extent that the individual's
total taxable income and gains are less than the basic rate band
with the remainder of the gain being taxed at 28%. Gains made
before midnight tonight will be liable to CGT at the rate of 18%
and will not be included in determining the rate for any future
gains.
The annual exempt amount (£10,100) will remain the same and in
the future will rise at the same rate as inflation.
Entrepreneur's relief will be extended to the first £5 million
of lifetime gains. When introduced entrepreneur's relief applied to
the first £1 million of lifetime gains - this was increased to £2
million in the April Budget. Gains subject to entrepreneur's relief
will remain at 10% regardless of whether the individual is a higher
rate taxpayer or a basic rate taxpayer.
>>back to top
stamp duty land tax (SDLT)
There were no substantial changes relating to SDLT in the
Emergency Budget. However, the Government have announced a
consultation relating to potential avoidance issues in time for the
new higher rate of SDLT of 5% for properties in excess of £1
million from April 2011.
>>back to top
VAT
VAT will increase from 17.5% to 20% on 4 January 2011. We will
be producing a more detailed note on how this will affect billing
in the straddle period shortly.
employment taxation
The Employers' NIC threshold will increase above inflation as
previously announced.
The Government has also announced an exemption of up to £5,000
from Employer's NIC for each of the first 10 people employed by new
businesses located (broadly) outside of London and the rest of the
South East.
>>back to top
pensions - high earners - restriction of higher rate
relief
The Government are re-considering the introduction of the 'high
income excess relief charge' which will apply to pension
contributions and accruals from 1 April 2011 in respect of high
earners. Instead, they are considering reducing the annual
allowance. The suggestion is that the annual allowance may be
reduced to around £30,000 - £45,000, but the high income excess
relief charge and connected draft legislation would be scrapped.
The level of the lifetime allowance would also be considered as
part of this consultation. This would effect any taxpayer whose
pension accrual/contribution exceeded the reduced annual allowance
and not just high earners. It is expected that some protection will
be given for basic rate taxpayers and one-off spikes in
accrual/contributions in certain cases (this may apply to cases
such as contributions made on redundancy).
This will not have any effect on the anti-forestalling regime
currently in place.
>>back to top
finance sector
Bank Levy - this will be introduced from 1 January 2011. It will
apply to:
- the consolidated balance sheet of UK banking groups and
building societies
- the balance sheets of UK banks in non-banking groups, and
- the aggregated subsidiary and branch balance sheets of foreign
banks and banking groups operating in the UK.
Banks will be liable for the levy where their aggregate
liabilities (short and long term liabilities excluding Tier 1
capital, insured retail deposits, repos secured on sovereign debt
and policyholder liabilities of retail insurance businesses within
banking groups) amount to £20 billion or more.
The proposal is that the levy will be set at 0.07%, with a lower
rate of 0.04% until 2011. It is also proposed that there will be a
reduced rate of 0.02% (rising to 0.035%) for longer maturity
wholesale funding.
The levy will not decrease profits for corporation tax
purposes.
>>back to top
general
The Government have launched today several consultations on a
variety of tax-related matters. It is understood that these
consultations will be completed before October 2010.
>>back to top
