Budget presentation

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  • Compares tax rates for someone earning £200,000
  • Liability for those earning £200,000
  • Budget presentation

    1. 1. The Budget March 2011
    2. 2. Andrew Hague Partner
    3. 3. Julie White Senior Tax Manager Mike Donnan Partner
    4. 4. Income Tax Reliefs Income Tax Reliefs ** Personal allowance reduced by £1 for every £2 of income over £100,000. ( reduce age allowance by £1 for every £2 of excess income over £24,000) 22,900 24,000 * Age allowance income limit 6,965 7,295 - 75 and over Married couple’s allowance (relief at 10%) 9,640 10,090 - 75 and over* 9,490 9,940 - 65 – 74* 6,475 7,475** - Under 65 Personal allowance 2010/11 £ 2011/12 £
    5. 5. Income Tax Rates 50 # Over 150,000 50 # Over 150,000 * Only applicable to dividends and savings income  Except dividends (32.5%) # Except dividends (42.5%) Other income taxed first, then savings income and finally dividends 40  37,401-150,000 40  35,001-150,000 20 0 – 37,400 20 0 – 35,000 10* 0-2,440 10* 0-2,560 % £ % £ Rate Band Rate Band 2010/11 2011/12
    6. 6. National Insurance UEL 2011/12 - £817 pw (2010/11 - £844pw) 1% 2% Above UEL 8% 9% Up to UEL Self Employed 12.8% 13.8% Employers 1% 2% Above UEL 11% 12% Employees Up to UEL 2010/11 2011/12
    7. 7. Tax Rates for individual earning £200,000 £’s
    8. 8. Impact on gross income £200,000 £’s
    9. 9. 2012 /13 <ul><li>Personal allowance up to £8,105 </li></ul><ul><li>Basic rate band reduced to £34,370 </li></ul><ul><li>Higher rate threshold remains unchanged </li></ul>
    10. 10. <ul><li>Main rate of Corporation Tax (Financial Year from 1 April) </li></ul><ul><ul><li>FY 2010 28% </li></ul></ul><ul><ul><li>FY 2011 26% </li></ul></ul><ul><ul><li>FY 2012 25% </li></ul></ul><ul><ul><li>FY 2013 24% </li></ul></ul><ul><ul><li>FY 2014 23% </li></ul></ul><ul><li>Small Companies rate </li></ul><ul><li>FY 2010 21% </li></ul><ul><ul><li>FY 2011 20% </li></ul></ul>Corporation Tax Rates
    11. 11. <ul><li>Why cut corporation tax with a £150 billion budget deficit hole to fill? </li></ul><ul><li>“ A little of something is better than nothing at all” </li></ul>
    12. 13. Bonus v dividend decision <ul><li>Corporation Tax rate falling </li></ul><ul><li>National Insurance rising </li></ul><ul><li>Revisit calculations each year </li></ul>
    13. 14. Potential future changes <ul><li>Merger of Tax and National Insurance </li></ul><ul><li>IR35 </li></ul><ul><li>Limited lifespan of 50% additional rate? </li></ul>
    14. 15. <ul><li>A Budget for Enterprise? </li></ul>
    15. 16. Research and Development Tax Credits for SME’s
    16. 17. R&D Tax Credits for SME’s <ul><li>Introduced 2002 </li></ul><ul><li>Promote technological innovation </li></ul><ul><li>Subsidise cost of R&D through tax credits </li></ul>
    17. 18. Key Conditions <ul><li>Global advance in science and technology </li></ul><ul><li>R&D expenditure to contribute to that advance </li></ul><ul><li>Technological uncertainty </li></ul><ul><li>Minimum expenditure of £10k </li></ul><ul><li>No longer need to own IP </li></ul>
    18. 19. Eligible Expenditure <ul><li>Staff costs </li></ul><ul><li>Consumable materials </li></ul><ul><li>Energy </li></ul><ul><li>Subcontracted R&D </li></ul><ul><li>Not fixed assets </li></ul>
    19. 20. Current relief <ul><li>Uplift tax deduction by 75% </li></ul><ul><li>Reduce CT and increase loss </li></ul><ul><li>Repayable credit at 14% up to PAYE/NI paid </li></ul>
    20. 21. Examples <ul><li>SME spends £100k on qualifying staff costs and consumables in R&D activity in year. Company can deduct £175k in calculating profits/losses for year. </li></ul>
    21. 22. Proposed Changes <ul><li>From 1 April 2011 </li></ul><ul><li>Additional deduction 75% - 100% </li></ul><ul><li>From 1 April 2012 </li></ul><ul><li>Additional deduction 100 – 125% </li></ul><ul><li>Restriction on repayable credit to PAYE/NIC abolished </li></ul><ul><li>Minimum expenditure condition abolished </li></ul><ul><li>NB all subject to state aid approval </li></ul>
    22. 23. Enterprise Investment Scheme
    23. 24. <ul><li>“ Britain is open for business, say top investors </li></ul><ul><li>Entrepreneurs back Osborne’s Budget” </li></ul>
    24. 25. Letter in the telegraph 28/3/11 <ul><li>“ we applaud steps taken in budget” </li></ul><ul><li>“ massive boost for start ups” </li></ul><ul><li>“ shot in arm for enterprise” </li></ul>
    25. 26. EIS Overview <ul><li>Encourage individuals to invest in small trading companies </li></ul><ul><li>Help riskier companies compete for finance </li></ul><ul><li>Particularly helpful for start-ups/young businesses </li></ul>
    26. 27. Tax Reliefs <ul><li>Income tax relief at EIS Rate </li></ul><ul><li>CGT exemption after 3 years </li></ul><ul><li>Separate CGT deferral/reinvestment relief </li></ul>
    27. 28. Key Conditions <ul><li>Qualifying individuals (not connected) invest cash in a qualifying company which carries on a qualifying trade </li></ul>
    28. 29. Proposed Changes <ul><li>2011/12 - EIS </li></ul><ul><ul><li>Income tax relief increased to 30% </li></ul></ul><ul><li>2012/13 </li></ul><ul><ul><li>Annual investment up to £1m for individual </li></ul></ul><ul><ul><li>Annual investment up to £10m for company </li></ul></ul><ul><ul><li>Increase in size of company that qualifies </li></ul></ul>
    29. 30. Entrepreneurs’ Relief
    30. 31. CGT – Putting it in context <ul><li>1965 – 1988 – 30% </li></ul><ul><li>1988 – 1998 up to - 40% </li></ul><ul><li>1998 – Taper relief introduced </li></ul><ul><li>2004 – 10% rate for business assets </li></ul><ul><li>2008 – 18% </li></ul><ul><ul><li> – Entrepreneurs’ relief on £1m of gains (10%) </li></ul></ul><ul><li>2010 – Entrepreneurs’ relief on £2m of gains (10%) </li></ul><ul><li>2010 – Entrepreneurs’ relief on £5m of gains (10%) </li></ul>CGT – Putting it in context
    31. 32. Entrepreneurs’ Relief <ul><li>Lifetime limit after 6 April 2011 </li></ul><ul><ul><li>Up to £10m </li></ul></ul><ul><li>Applies for </li></ul><ul><ul><li>Disposal of whole or part of a business </li></ul></ul><ul><ul><li>Disposal of assets after business ceased </li></ul></ul><ul><ul><li>Disposal of shares in a trading company </li></ul></ul><ul><ul><ul><li>5%+ voting rights </li></ul></ul></ul><ul><ul><ul><li>Officer or employee </li></ul></ul></ul><ul><ul><li>Associated disposal </li></ul></ul>
    32. 33. Entrepreneurs’ relief - saving <ul><li>2008/09 to 2009/10 </li></ul><ul><li>£1,000,000 at 8% saving £80,000 </li></ul><ul><li>2010/11 to 22 nd June 2010 </li></ul><ul><li>£2,000,000 at 8% saving £160,000 </li></ul><ul><li>From 23 rd June 2010 </li></ul><ul><li>£5,000,000 at 18% saving £900,000 </li></ul><ul><li>From 6 April 2011 </li></ul><ul><li>£10,000,000 at 18% saving £1.8m </li></ul><ul><li>A husband and wife partnership or company could achieve savings of up to £3.6m in tax </li></ul>
    33. 34. Capital Allowances <ul><li>Reduction in AIA from April 2012 </li></ul><ul><li>Reduction in writing down allowance rates to 18% and 8% from April 2012. </li></ul><ul><li>Short life asset election extended from 4 to 8 years from April 2011. </li></ul><ul><li>List of energy saving technologies to be updated in summer 2011. </li></ul>
    34. 35. Capital Allowances – short life assets (SLAs) <ul><li>Keep SLAs out of capital allowance pool </li></ul><ul><li>Get full relief on net cost of asset </li></ul><ul><li>Cut off period currently 4 years </li></ul><ul><ul><li>Asset then goes into pool </li></ul></ul><ul><li>To be increased to 8 years </li></ul>
    35. 36. Employee’s cars <ul><li>£80,000 list price cap removed on expensive car benefit </li></ul><ul><li>10% benefit in kind rate for low emission cars <120g (<100g from April 2012). </li></ul><ul><li>5% rate for ultra- low emission cars! </li></ul>
    36. 37. Mileage payments <ul><li>Rate increased to 45p a mile </li></ul><ul><ul><li>Applies for first 10,000 miles </li></ul></ul><ul><li>Rate for over 10,000 miles unchanged </li></ul><ul><ul><li>25p </li></ul></ul><ul><li>Passenger rate of 5p </li></ul><ul><ul><li>To be extended to volunteers </li></ul></ul>
    37. 38. Pension Reform <ul><li>2006 - Impact of ‘A’ Day! </li></ul><ul><li>2009 – Announced intention to withdraw higher rate relief for ‘high earners’ from 2011, </li></ul><ul><li>2009 & 2010 – ‘Anti-forestalling legislation’ </li></ul><ul><li>2011 – Reduction in Annual Allowance for all earners </li></ul>
    38. 39. Pensions – Annual Allowance <ul><li>Amount that can be contributed to a personal pension without incurring an annual charge. </li></ul><ul><li>Reduced to £50,000 from 6 April 2011 (previously £255,000). </li></ul><ul><li>Unused Annual Allowance can be carried forward. </li></ul>
    39. 40. Pension Input Period <ul><li>Can be different for each scheme </li></ul><ul><li>Does not have to be a tax year </li></ul><ul><li>Look at PIP ending in tax year </li></ul><ul><li>Can only be one PIP in each tax year </li></ul>
    40. 41. Lifetime allowance <ul><li>Relevant when benefits taken </li></ul><ul><li>If limit exceeded then tax charge on pension fund </li></ul><ul><li>Currently £1.8m </li></ul><ul><li>To be reduced to £1.5m from 6 April 2012 </li></ul>
    41. 42. Current options at age 75 <ul><li>Take annuity or Alternatively secured pension (ASP) </li></ul><ul><li>Lump sum death benefits tax free if pension not taken </li></ul>
    42. 43. Proposals <ul><li>ASP is being scrapped </li></ul><ul><li>Remove requirement to take pension at 75 </li></ul><ul><li>Drawdown pension (within limits) </li></ul><ul><ul><li>Capped drawdown </li></ul></ul><ul><ul><li>No minimum </li></ul></ul>
    43. 44. Proposals <ul><li>Maximum removed where lifetime pension income at least £20,000 pa </li></ul><ul><li>Lump sum benefit restrictions removed </li></ul><ul><li>55% charge on lump sum death benefits </li></ul><ul><li>Removal of IHT charge </li></ul>
    44. 45. Residence and domicile <ul><li>Increase proposal in flat rate charge on long term ‘non-doms’ </li></ul><ul><li>Exemption for amounts remitted to be used for ‘commercial investment in UK businesses’ </li></ul><ul><li>Proposed statutory residency test </li></ul>
    45. 46. Charitable Giving <ul><li>Tainted donations to charity. </li></ul><ul><li>Gift Aid donor benefit limit. </li></ul><ul><li>Gift Aid on smaller donations </li></ul><ul><li>Reduction in IHT rate when >10% of net estate left to charity </li></ul>
    46. 47. Tax Avoidance - where are we now?
    47. 48. Defining Terms <ul><li>Tax Planning </li></ul>
    48. 49. Defining Terms <ul><li>Tax Planning </li></ul><ul><li>Tax evasion </li></ul>
    49. 50. Defining Terms <ul><li>Tax Planning </li></ul><ul><li>Tax avoidance </li></ul><ul><li>Tax evasion </li></ul>
    50. 51. Tax Avoidance <ul><li>“not in itself illegal, but it involves using the tax law to get an advantage that Parliament never intended. It frequently involves contrived artificial transactions that serve little or no purpose other than to reduce tax liability”. </li></ul>
    51. 52. Disguised remuneration Trading Company EBT Loan Funds
    52. 53. Anti Avoidance Legislation <ul><li>June 2010 Budget </li></ul><ul><li>9 December draft schedule for consultation </li></ul><ul><li>FB 2011 amended legislation </li></ul>
    53. 54. Now part 7A ITEPA <ul><li>From 6 April 2011 </li></ul><ul><ul><li>Sums earmarked for employees by trusts/others </li></ul></ul><ul><ul><li>Loans provided by trusts/others </li></ul></ul><ul><ul><li>Assets provided by trusts/others </li></ul></ul><ul><li>Subject to PAYE/NI </li></ul><ul><li>Forestalling from 6 December 2010 unless repaid by 6 April 2012 </li></ul>
    54. 55. Tackling Tax Avoidance <ul><li>New strategic approach by government </li></ul><ul><li>Considering GAAR </li></ul><ul><li>Review risk areas eg income tax losses </li></ul><ul><li>Reducing cash flow benefits </li></ul><ul><li>Protocol on unscheduled changes </li></ul>
    55. 56. Tax Avoidance <ul><li>The beginning of THE END??? </li></ul>
    56. 57. Ailsa Cowdell VAT Manager
    57. 59. VAT <ul><li>Threshold increases by £3,000 to £73,000 from 1 April 2011 </li></ul><ul><li>Annual deregistration limit from 1 April 2011 is £71,000 </li></ul><ul><li>Fuel scale charges will change from 1 May 2011. </li></ul>
    58. 60. Overseas Issues <ul><li>Low value consignment relief </li></ul><ul><li>Limit reduced from £18 to £15 </li></ul><ul><li>Changes apply from 1 November 2011 </li></ul>
    59. 61. Charities <ul><li>Grant payments </li></ul><ul><li>Building Projects </li></ul><ul><li>Academy Schools VAT Registration </li></ul>
    60. 62. VAT Visits <ul><li>What triggers a visit? </li></ul><ul><li>Cash traders </li></ul><ul><li>Partially exempt businesses </li></ul><ul><li>- Construction industry </li></ul><ul><li>- International supplies </li></ul>
    61. 63. What can you do? <ul><li>Pre-visit preparations </li></ul><ul><li>End of visit </li></ul>
    62. 64. Summary <ul><li>Corporation tax </li></ul><ul><li>NIC Increase </li></ul><ul><li>Bonus v Dividend to revisit </li></ul><ul><li>R&D Tax Credits </li></ul><ul><li>Tax Planning </li></ul>
    63. 65. Questions?
    64. 66. Follow us on: www.howardworth.co.uk

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