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Emergency Budget 2010 and other matters 22 June 2010 Mr Osborne presented his Emergency Budget today, it was the first budget from the new coalition government, and there were a number of significant changes to the way in which the figures were reported. In May 2010, the new government formed The Office for Budget Responsibility to make an independent assessment of the public finances and the state of the economy in advance of the budget. Mr Osborne presented his budget within the framework of these forecasts and said that a tough, but fair, budget was needed. He said that early determined action was required to put right the disastrous situation that had been inherited from the old government. He added that the objective was lower spending not higher taxation. He spoke for just under an hour and announced a wide range of changes that would be implemented at various stages over the life of the current parliament. Many of the changes had been anticipated, but there were still some surprises (both good and bad). All the published Budget Notes, Press Releases and other supplementary documents are available from HM Revenue & Customs’ website at www.hmrc.gov.uk/budget2010/index.htm and following the links on the left hand side. As usual, I will comment on the more relevant points in the Budget a little later but before that, I take the opportunity to deliver some bullet point reminders from previous years’ letters, together with a few new ones. Please take a few minutes to read through them. • Self Assessment Tax Returns and Filing Notices to us please. • Please let us have copies of any Notices of Coding you receive if you have a PAYE tax code, and we also complete your Self Assessment Tax Return. • Please keep/obtain tax vouchers for all interest and dividends received, and also for interest paid gross. Please do this as soon as possible, and chase up any that do not arrive during the normal course of things. In all cases the certificates should be for the Tax Year ended 5 April 2010 (2009/10). • Please keep records of business/private mileage if making a claim for business use of vehicles. • Please keep all business records for a minimum of six years. • If your spouse works within your business, he/she must be treated like any other employee. Any salary paid should be taxed and NIC’d if appropriate, and the net pay must actually be paid and entered in your books. It is not acceptable simply to make a transfer at the end of the year, when we are preparing the accounts. • We do not carry out Tax Credit work (Working Tax Credit for low earners, and/or Child Tax Credit for people with, or caring for, children) but suggest that all clients review their situation at least once a year as there are fixed time frames during which claims must be made. We outlined the Tax Credit system in our budget letter of 14 April 2003, but income limits etc. will have changed since that time. The system and claims procedure is far from simple but we suggest that everyone ‘takes a look’ to see whether they might qualify. For further information and a ‘do I qualify’ application form, please visit http://taxcredits.hmrc.gov.uk/Qualify/WhatAreTaxCredits.aspx or telephone 0845 300 3900 for an application pack. • Most employers are now required to file their year-end Employers Annual Return form P35 online. However, forms P60 (the employee’s copy), P9D and P11D etc. still need to be ordered from the Tax Office Order line. Please ensure that you have all the appropriate year end PAYE return forms well in advance of the filing deadlines. Please read all HM Revenue & Customs (HMRC) correspondence that you receive as, normally, you will not have been sent anything, unless it applies to you. • Please let us have copies of any Self Assessment Tax Calculations or Statements of Account that you receive. • We offer, through two independent financial advisers, a full range of investment, pension and financial services. If you would like a free consultation and appraisal of your current arrangements, then please telephone to arrange an appointment. In particular, we recommend that you review your pension arrangements, and life and accident insurance cover once a year, as well as ensuring that you have an up to date and valid Will in place. • Please remember that we, like all accountants, solicitors, banks and building societies etc., are now required, by law, to comply with the Proceeds of Crime Act and the Money Laundering Regulations. Amongst other things, we are obliged to report any evidence (or suspicion) of criminal activity, to the Serious Organised Crime Agency (SOCA) who pass the information on to HM Revenue & Customs (HMRC) and/or (if appropriate) the Police. The Budget The Budget has been covered extensively on the news, news programmes and in the press. Much of the pre-Budget speculation was correct but some of the figures came as a surprise. Mr Osborne said that there would be no cuts in capital spending but that the government would prioritise how money was spent. Capital receipts would be improved by continuing to sell off surplus government owned assets such as the Tote and parts of Royal Mail. Public sector employees would be asked to accept a two year pay freeze, except for the lowest paid earning less than £21,000 p.a. It is possible that there are many private sector workers and business owners who would see £21,000 as a pay improvement, but still! Income Taxes There were no changes to the main rates of income tax. The previous Chancellor had already announced a higher rate of income tax of 50% for high earners from 2010/11 (the current tax year). The corresponding dividend rate will go up from the current 32.5% to 42.5%. These top rates will apply to people with net taxable incomes of over £150,000 a year. There are also restrictions on pension contribution relief (from 6 April 2011), and the tax free personal allowance tapers away for people with net taxable income over £100,000. However, for those aged under 65 the personal allowance will be increased by £1,000 for 2011/12 (from £6,475 to £7,475). This measure is planned to take almost 900,000 people out of tax altogether. As it is aimed at lower earners only, the basic rate band will be reduced to ensure that higher rate payers do not benefit. Welfare Payments Mr Osborne said that the largest individual government ‘bill’ was the Welfare Bill, and that the continual increase in spending was unsustainable. It was therefore proposed to reduce tax credits for higher earners, and reduce the maximum payments for housing benefit. Apparently there are families being paid a staggering £104,000 p.a. in housing benefit, which presumably everyone (apart from those families, I suppose) will agree cannot be right. Corporation Tax The Chancellor stated that there is to be a reform of corporation tax over a five year period to promote UK competitiveness. The main rate of corporation tax which generally applies to companies with profits over £1.5m will reduce from 28% to 27% from 1 April 2011. There will be further graduated reduction of 1% p.a. so that the main rate will be 24% by 1 April 2014. The previous government’s proposal to increase the small companies’ rate from 21% to 22% will be scrapped, and the small companies’ rate will be reduced to 20%, from 1 April 2011. This new structure will produce a marginal rate of 28.75% for companies earning profits in the £300,000 to £1.5m band. Capital Allowances The previous government had made numerous changes to the capital allowances system in an attempt to stimulate investment in capital equipment. Mr Osborne said that there would be two keys areas of change from 1 April 2012, firstly a reduction in the annual rates of writing down allowance, the main rate down from 20% to 18%, and the special pool rate down from 10% to 8%. Secondly, the annual investment allowance (which the previous government had only recently doubled to £100,000) will be reduced to £25,000 from 1 April 2012. The reasoning being that the majority of small businesses will not spend more than £25,000 on capital equipment in any one year. Capital Gains Tax Mr Osborne announced changes to the capital gains tax regime. As predicted by many, the rate of CGT was increased, but only from 18% to 28% and then only for taxpayers with taxable income and gains totalling over £37,400 (the basic rate tax band upper limit). Any gains below that limit would continue to be taxed at 18%. The new rates would apply to all gains made on or after 23 June 2010. Despite rumours that the annual exemption might change for 2010/11, it remains at the previously set level of £10,100. VAT Mr Osborne announced an increase in the standard rate of VAT from 17.5% to 20% from 4 January 2011. An increase in the rate of VAT was widely forecast, but by making the operative date the first working day of the new year, it is hoped that many operational problems will be avoided. Certainly, most retail outlets should enjoy a final Christmas and New Year boost to sales. Other Measures Mr Osborne announced some welcome news for pensioners. From April 2011, state pension benefits will be increased each year by at least 2.5%. Pensions will rise by a minimum of 2.5%, or in line with earnings or prices, whichever is the higher. Finally Some Timely Reminders Please remember that fines and penalties are now imposed on the late payment of PAYE and National Insurance. If there is any possibility that payment might be delayed it is important that HMRC is contacted before the due payment date, so that an arrangement can be made. Only for employers, please remember that forms P11D and P11Db must be filed with HMRC by 6 July 2010, at the latest. Again, there are fines and penalties for late or incorrect returns. If you have any queries on anything in this letter then please let us know. These notes were produced shortly after the Budget Speech, so please contact us before making any decisions based on information outlined above. |
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