The Budget 2011 (and other matters)                                            

Mr Osborne presented his second budget on 23 March 2011. He started by saying that the Budget was about reforming the nation’s economy, so that we have enduring growth and jobs in the future. He said that it was not a tax raising budget, but neither could it be a giveaway budget. In under an hour he confirmed many changes that had already been announced, some new changes, and he also sprung a few surprises. Although Ken Clarke appeared to sleep through most of it, we are (fairly) certain that he just had his eyes closed so that he could concentrate on the measures being announced. Nevertheless if you feel it might help with your insomnia then the full Budget Speech can be found at http://www.hm-treasury.gov.uk/2011budget_speech.htm. In addition all the Budget Notes, Press Releases and other supplementary documents are available from HM Revenue & Customs’ website at www.hmrc.gov.uk/budget2011/index.htm and by following the links on the left hand side.

As usual, we will comment on the more relevant points in the Budget a little later but before that, we 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 (or, indeed, if you simply want us to check it).

• 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 ending 5 April 2011 (2010/11).

• 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. For details of benefits and income limits (and examples) please visit http://www.hmrc.gov.uk/TAXCREDITS/payments-entitlement/entitlement/how-worked-out.htm#3

• 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. Many of the Budget proposals had been announced in advance but Mr Osborne still managed to produce a few rabbits out of the box! Most experts predict that the Budget will be fiscally neutral, with the giveaways broadly balancing the takeaways. It is possible therefore that some of the measures may need revising, later in the year, if the economic recovery shows signs of stalling.

The main Budget Proposals can be summarised as follows:-

Income Taxes

The standard personal allowance has been increased by £1,000 (from £6,475 to £7,475) for 2011/12, and by a further £630 (up to £8,105) for 2012/13. As was the case last year, the basic rate band will be reduced so that the full benefit is not received by higher rate tax payers. However the future of the new 50% income tax rate, that was introduced last year, will be reviewed and should not be considered as a permanent measure. A full table of rates and allowances can be found in our Budget Summary.

Capital Gains Tax – Entrepreneurs’ Relief

The Capital Gains Tax lifetime limit has been doubled to £10 million, which no doubt is welcomed by most of us!

Corporation Tax

The Chancellor stated that there will be an additional 1% cut in the main rate of corporation tax from 1 April 2011. It was originally planned that the rate would fall from 28% to 27%, but this extra reduction means that the new rate will be 26%. It is intended that the rate is reduced by a further 1% per annum for each of the next three years, so that by April 2014 the rate will be 23%. As previously announced, the small companies rate is reduced by 1% to 20% from 1 April 2011. The effective marginal rate for profits in the band between £300,000 and £1,500,000 becomes 27.5%. The small companies rate for future years has not yet been set.

Enterprise Zones

The Chancellor announced the creation of 21 new Enterprise Zones. Only time will tell whether this will come as good news, or bad, for such disadvantaged areas as Solihull!

Approved Mileage Allowance

From 6 April 2011 the approved rate will increase to 45 pence per mile (from 40 pence) for the first 10,000 business miles travelled. The rate for mileage above 10,000 miles will remain at 25 pence.

Inheritance Tax

There are no changes in the main rates or allowances but Mr Osborne announced a new relief where a person leaves 10% of their estate to a recognised charity in their will. The rate of IHT on what is left will be reduced from 40% to 36%. In the example of a £1m estate (with a single nil rate band) a bequest of £100,000, would result in the charity receiving £100,000, but the remaining beneficiaries only being £37,000 worse off.

Capital Allowances

Important changes to the capital allowances system were announced in previous budgets, and are to come into effect from April 2012. In addition, Mr Osborne announced that with effect from April 2011, the beneficial rules relating to short life assets would be extended to assets with an expected life of 8 years (from 4 years). This means that assets with an expected life of up to 8 years can be put in a separate pool and receive balancing allowances when the asset is disposed of (rather than remaining in the general pool, and receiving annual allowances until such time as the business ceases, or the pool value reduces to £1,000). In normal circumstances this will only benefit a business that spends in excess of the Annual Investment Allowance, on qualifying capital equipment.

Capital Gains Tax

There were no changes to the main rates, but the annual exempt amount is increased to £10,600 for disposals made after 6 April 2011.

VAT

There were no changes to the main rates, but the registration threshold increases from £70,000 to £73,000 on 1 April 2011. The deregistration threshold increases from £68,000 to £71,000 on the same date.

Fuel Duty

Mr Osborne announced a reduction of 1 pence/litre in fuel duty from 6:00pm on Budget day, and the scrapping of the previously proposed increase of 5 pence/litre that was due to be introduced in April 2011.

Other Measures

Mr Osborne announced some more good news for charities by allowing an extension of the Gift Aid Scheme to cover donations from street collections.

The small business rate relief holiday, which was due to end later this year, has been extended for a further year to 30 September 2012.

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.
Also, new for next year (31 January 2012 filings), the penalty for the late filing of a SA Tax Return will continue to be £100.00 but, unlike now, it will not be restricted to the amount of tax due (if less than £100.00).
Consequently, no matter how much tax is due, if the Return is late, a penalty will be charged. A further penalty will also be charged if the Return is 3 months late.

If you have any queries concerning anything in this letter then please let us know.

This letter was produced shortly after the Budget Speech, so please contact us before making any decisions based on information outlined above.