020 8876 1097 office@blythetax.com

Budget Comment April 2011

Tax Simplification…

… has been with us for over a decade now and, you guessed it, things get more complicated every year!

This time round George Osborne announced that 43 tax reliefs are to be abolished – blimey head for shelter. Actually there’s no need to worry, these are reliefs that virtually no-one has heard of let alone makes use of. It’s just a loft clearing exercise.

George continues Gordon’s habit of signalling future changes to try and justify today’s spending. Year after year of over ambitious growth forecasts matched by unfunded spending have given rise to the worst borrowing figures in memory. And don’t be fooled by ‘deficit reduction’. This is Government’s attempt just to reduce the amount by which we overspend each year. We still overspend and the indebtedness gets worse.

Enough doom and gloom – it’s a nice blue sky out there today.

Looking at some of the main changes coming in for 2011/12
  • The Personal Allowance (the amount we can earn tax free) is up £1,000 to £7,475
  • But the point at which the 40% rate starts is reduced by £1,400 to £42,475
  • Employees National Insurance is up 1% (from 11% to 12%)
  • Self employed National Insurance is up 1% (from 8% to 9%)
  • The National Insurance rate above the Upper Earnings Limit is up 1% (from 1% to 2%)
  • Employers National Insurance is up 1% (from 12.8% to 13.8%)
  • Tax free mileage allowance is up 5p (from 40p to 45p)
  • Main Corporation Tax rate is down 2% (from 28% to 26%)
  • Lower Corporation Tax rate is down 1% (from 21% to 20%)
  • Enterprise Investment Scheme (EIS) Income Tax relief is up 10% (from 20% to 30%) it now matches the Income Tax relief available on Venture Capital Trusts (VCTs)
  • Capital Gains Tax – Entrepreneurs Relief lifetime limit is up from £5m to £10m
  • Research & Development credits up from 175% to 200%
  • The £100 fine for late submission of a Tax Return stays but IT IS PAYABLE IN ALL CASES REGARDLESS OF THE TAX POSITION
  • Tax Return and late payment penalties in general are far more ruthless – simple answer to this: DON’T BE LATE
Looking at some of the main changes coming in for 2011/12
  • The Personal Allowance (the amount we can earn tax free) is up £630 to £8,105
  • Non-domicile flat rate charge for the Remittance Basis to apply is up from £30,000 to £50,000
  • The Annual Investment Allowance (for businesses) is down from £100,000 to £25,000
  • The rate of Inheritance Tax is reduced from 40% to 36% where 10% of an estate is left to charity
and beyond
  • From 6 April 2013, charities will be able to claim Gift Aid on cash collections

These are just headlines, please note the full chart of Rates and Allowances below and remember – there is always more to it than meets the eye so please contact us before taking or refraining from action.

As if to demonstrate this, look at the tax otherwise known as National Insurance – it’s clearly HMRC bonanza time with the massive increases noted above, but did you know that there is a Lower Earnings Limit, an Upper Earnings Limit, an Upper Accrual Point, a Primary Threshold, a Secondary Threshold, Class 1, Class 1a, Class 2, Class 3, Class 4 (with upper and lower profits limits), Deferment, Exemptions, Contract-out rates and Married Women’s adjustments! Consultation on merging National Insurance and Income Tax? Nice for the management consultants but, George, dream on!

Finally there are serious changes to pensions that are far too complex to consider here. The basics stay the same but, if you want to make significant contributions or do anything radical, contact us and we will either advise or (quite likely) pass you on to a pension specialist.

Rates and Allowances for 2011 and 2012

Rates and allowances for income tax, corporation tax, capital gains tax, inheritance tax and the pension schemes earnings cap are set out below.

 
2010-11
(£)
2011-12
(£)
Increase
(£)
Income tax allowances      
Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people 75 and over
6,475
9,490
9,640
7,475
9,940
10,090
1,000
450
450
Income limit for under 65 personal allowance
 
Income limit for age-related allowances
100,000

22,900
100,000

24,000

0

1,100

Married couple’s allowance for people born before 6 April 1935
Minimum amount of married couple’s allowance

Blind person's allowance


6,965

2,670

1,890


7,295

2,800

1,980

330

130

90
Capital gains tax annual exempt amount:
Individuals etc
Other trustees

10,100
5,050

10,600
5,300

500
250
Inheritance tax threshold
325,000
325,000
0
Taxable bands 2010-11 (£)
Taxable bands 2011-12 (£)
Starting rate 10%
Starting rate 10%
Basic rate 20%
0 – 37,400
Basic rate 20%
0 – 35,000
Higher rate 40%
37,400 - 150,000
Higher rate 40%
35,000 - 150,000
Additional rate 50%
Over 150,000
Additional rate 50%
Over 150,000
Corporation tax profits 2011 (£)  
Small companies’ rate 20%
0 – 300,000
Marginal relief
300,001 – 1,500,000
Main rate 26%
1,500,001 or more
National Insurance changes from 6 April 2011
 
2010/2011
2011/2012
Class 1 Employees
On first £110 pw Nil £139 pw Nil
Between £110 - £844 pw 11% £139 - £817 pw 12%
Over £844 pw 1% £817 pw 2%
Employee's contracted-out rate 1.6%   1.6%
Married womans
reduced rate
4.85% of £110 to £844 pw, 1% above £844 5.85% of £139 to £817 pw, 2% above £844
Class 1 Employers
On first £110 pw Nil £136 pw Nil
Over £110 pw 12.8% £136 pw 13.8%
Employers' contracted-out rebate, salary related schemes 3.7%   3.7%
Employers' contracted-out rebate, money purchase schemes 1.4%   1.4%
Class 2 Self employed
Flat rate £2.40 pw   £2.50 pw
Small earnings exception £5,075 pa   £5,315 pa
Special Class 2 rate for share fishermen £3.05 pw   £3.15 pw
Special Class 2 rate for volunteer development workers £4.85 pw   £5.10 pw
Class 3 Voluntary
 Flat rate £12.05 pw £12.60 pw
 Class 4 Self employed
On profits between £5,715 - £43,875 pa 8% £7,225 - £42,475 pa 9%
  above £43,875 1% above £42,475 2%
Stamp Taxes

Transfers of property (consideration paid)

Rate
All land in the UK
Land in disadvantaged areas
  Residential Non-residential Residential Non-residential
Zero £0 - £125,000 £0 - £150,000 £0 - £150,000 All
1% Over £125,000 – £250,000 Over £150,000 – £250,000 Over £150,000 – £250,000  N/A
3% Over £250,000 – £500,000 Over £250,000 – £500,000 Over £250,000 – £500,000  N/A
4% Over £500,000 Over £500,000 Over £500,000  N/A
New leases (lease duty)

Duty on the premium is the same as for transfers of land (except that special rules apply for non-residential land and property premium where rent exceeds £1,000 annually. The rules no longer apply to residential property from 12 March 2008). Duty on the rent is charged on any part of the net present value (NPV) which exceeds the threshold.

Rate
Net Present Value of Rent Rate
  Residential Non-residential
 
Slice of NPV
Zero £0 - £125,000 £0 - £150,000
1% Over £125,000 Over £150,000

The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% for 2011-12.