News

June and July 2010 RPIs published

The value of the retail prices index (RPI) for June 2010 is 224.1. This represents an increase of 0.5 (0.22 per cent) since May 2010 and an increase of 10.7 (5.01 per cent) since June 2009.

The value of the RPI for July 2010 is 223.6. This represents a decrease of 0.5 (0.22 per cent) since June 2010 and an increase of 10.2 (4.78 per cent) since July 2009.

Budget 22 June 2010

Capital Gains Tax - Rates and Entrepreneurs' Relief

From 23 June 2010 there will be two main rates of capital gains tax (CGT), 18 per cent and 28 per cent, in place of the single rate of 18 per cent for all gains. The rate paid by individuals will depend upon the amount of their total taxable income. Gains qualifying for entrepreneurs' relief will be taxed at a rate of 10 per cent, and the lifetime limit of gains qualifying for entrepreneurs' relief will be raised to £5 million (from the previous figure of £2 million). Gains of trustees or personal representatives of deceased persons will be charged at 28 per cent.

Tax and NIC changes for individuals

Legislation will be introduced to provide for the following income tax and National Insurance Contributions (NICs) changes for the tax year 2011-12:

·     the personal allowance for those aged under 65 will be increased by £1,000 to £7,475;

·     the basic rate limit will be reduced so that higher rate taxpayers do not benefit from the increase in the personal allowance. The exact figure will be confirmed when September’s Retail Prices Index (RPI) is known;

·     the secondary NIC threshold, which is the point at which employers start to pay Class 1 NICs, is to be increased by an extra £21 per week above indexation.

Taken together, these measures reduce the tax liability for those on lower incomes and have no impact on most higher rate taxpayers who are employees or self employed and will also help employers.

Corporation Tax - Rates

·     the main rate of corporation tax will be cut to 27 per cent for the Financial Year commencing 1 April 2011;

·     there will be further cuts in the main rate in future years: 26 per cent in 2012-13, 25 per cent in 2013–14, 24 per cent in 2014-15; and

·     the small profits rate of corporation tax for FY 2011 will be 20 per cent.

Capital Allowances: Plant and Machinery - Rate Changes

The Government has announced that the rates of writing-down allowances for new and unrelieved expenditure on plant and machinery will be reduced:

·     from 20 per cent to 18 per cent per annum for expenditure in the main rate pool; and

·     from 10 per cent to 8 per cent per annum for expenditure in the special rate pool.

Expenditure on long life assets, thermal insulation, integral features and cars with emissions of 160g/km or more (in the case of cars purchased on or after April 2009) is allocated to the special rate pool.

These rate changes will take effect from 1 April 2012 (for corporation tax) or 6 April 2012 (for income tax).

For businesses whose chargeable period spans 1 April (corporation tax) or 6 April (income tax) there will be a hybrid rate for unrelieved expenditure in any pool, including single asset pools. There will be two hybrid rates, one for expenditure previously relieved at 20 per cent and the second for expenditure previously relieved at 10 per cent.

Annual Investment Allowance - Changes to allowance

The annual Investment Allowance allows most businesses, regardless of size, to reduce their taxable profits by the full amount of their annual capital expenditure on most plant or machinery (apart from cars) up to a maximum amount, which is currently £100,000 a year.

The maximum amount of the AIA will be reduced to £25,000 a year with effect from April 2012. Details of the transitional provisions will be published in good time before the reduction takes effect.

Change to the standard rate of VAT

The standard rate of VAT will increase to 20 per cent on 4 January 2011.

Zero rated supplies, such as basic foodstuffs, children’s clothing and books; exempt supplies, such as education and health; and supplies subject to VAT at the reduced 5 per cent rate, such as domestic fuel and power, are not affected by this change.

There are no changes to the Cash Accounting or Annual Accounting Scheme.

Anti-forestalling legislation will be included in the Finance Bill 2010 to prevent the 17.5 per cent rate applying to supplies of goods or services that are provided on or after 4 January 2011, subject to certain conditions.

Regional Employer NICs Holiday for New Businesses

The Government will shortly announce details of a scheme to help new businesses in targeted areas of the UK that need it most. During a three year qualifying period, new businesses which start up in these areas will get a substantial reduction in their employer National Insurance Contributions (NICs).

Within the qualifying period, these employers will not have to pay the first £5,000 of Class 1 employer NICs due in the first twelve months of employment. This will apply for each of the first 10 employees hired in the first year of business and operate in selected countries and regions.

Subject to meeting the necessary legal requirements, the scheme is intended to start no later than September 2010. Any new business set up from 22 June which meets the criteria set out in the forthcoming announcement will benefit from the scheme.

The countries and regions which will benefit will be Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.

Furnished Holiday Lettings

The furnished holiday lettings rules will not be withdrawn from 6 April 2010 (1 April 2010 for companies).

Since 22 April 2009, HM Revenue & Customs has applied the current FHL rules to UK taxpayers with qualifying holiday lettings situated elsewhere in the European Economic Area. Such businesses can currently choose whether to be taxed under the FHL rules or under the normal rules for property businesses. These arrangements will continue to apply for the tax year 2010-11.

The Government will publish a public consultation over the summer about plans to change the tax treatment of furnished holiday lettings from April 2011. The consultation will specifically look at a proposal which would:

·     ensure the FHL rules apply equally to properties in the EEA;

·     increase the number of days that qualifying properties have to be available for, and actually let as, commercial holiday letting; and

·     change the way in which FHL loss relief is given.

Full details about the proposed changes will be published over the summer.

Draft legislation will be published in the autumn, with a view to inclusion within Finance Bill 2011.