UK: UK Budget Briefing - If it Counts, it's Covered

Last Updated: 23 June 2010
Article by Deloitte Tax Group

Most Read Contributor in UK, August 2017

For detailed coverage and comment on the Budget visit Deloitte's dedicated website at www.ukbudget.com .

Introduction

The Chancellor, George Osborne, presented his first Budget statement today, and as expected, significant public sector spending cuts were announced. The main tax changes are an immediate increase in the rate of capital gains tax to 28% and an increase in the standard rate of VAT to 20% from January 2011.

Other measures include a plan to systematically reduce the main corporation tax rates down to 24% by 2014.

1. Business Tax

1.1 Corporation tax rates

The main rate of corporation tax will be reduced from 28% to 27% from 1 April 2011. There will be further 1% reductions in the main corporation tax rate in each of the next three years to bring the rate down to 24% by 1 April 2014.

The small profits rate of corporation tax will be reduced from 21% to 20% from 1 April 2011. The previous Government had planned for the rate to rise to 22%.

VAT increase to 20% will raise around £54 billion in the next five years

The Chancellor also announced that the Government will produce a paper on rebalancing the Northern Ireland economy, and examine potential mechanisms for changing the corporation tax rate in Northern Ireland.

1.2 Capital allowances: reduction in writing down rates

The main rate of writing down allowances for expenditure on plant and machinery is to be reduced from 20% to 18% per annum and from 10% to 8% per annum for expenditure allocated to the special rate pool (e.g. long life assets).

The reduced rates will apply from 1 April 2012 for businesses within the charge to corporation tax and from 6 April 2012 for businesses within the charge to income tax.

The Annual Investment Allowance allows businesses to set the full amount of their annual capital expenditure on most plant and machinery (apart from cars) against their taxable profits, subject to an annual maximum amount. The current maximum amount of £100,000 is to be reduced to a new limit of £25,000 from April 2012. Details of the transitional arrangements are yet to be published.

1.3 Bank levy

In a joint statement, the UK, France and Germany have confirmed their intention to introduce a levy on banks. The UK measure, which will be based on the bank's adjusted balance sheet, will take effect from 1 January 2011. The levy will apply to UK banks and building societies as well as foreign banks operating in the UK and is expected that the levy will raise over £2 billion annually.

1.4 Capital distributions

Draft legislation has been released to address a problem which, in HMRC's view, can arise when a company pays certain dividends to another company. Near the end of 2009 HMRC started to take the view that amounts lawfully paid by companies as dividends, which arose from an earlier reduction of capital, might for corporate shareholders be taxable as a chargeable gain, rather than as an exempt dividend, as had previously been their view. The proposals should ensure that such dividends are not to be taxed as a chargeable gain. They will have full retrospective effect for payments from UK resident companies. For payments from non-UK resident companies, the changes only apply from 1 July 2009.

1.5 Loan relationships anti-avoidance

HMRC have announced extensions to the existing anti-avoidance rules regarding the 'derecognition' of loan relationships or derivative contracts, applicable to debits and credits arising on or after 22 June 2010.

The Government also intends to publish a Technical Note early in July 2010 containing proposals for generic anti-avoidance legislation in respect of schemes involving derecognition, with a view to legislating in Finance Bill 2011.

1.6 R&D tax relief

Later this year, the Government will consult on a long term approach to the taxation of R&D, based on the proposals contained in Sir James Dyson's March 2010 report, 'Ingenious Britain'. The report suggests that R&D tax credits should be refocused on high tech companies, small businesses and new start-ups in order to stimulate a new wave of technology. It was also announced that the proposed tax relief for UK video games will not now go ahead.

1.7 Consortium relief

Companies that are in the same group as a 'link company', which holds an interest in a consortium, may claim relief for a share of any consortium company losses. Under current rules, the link company must be UK-resident. In 2009, the First-tier Tribunal found that the 'link company' requirements constituted a restriction to the EU Freedom of Establishment principle. Legislation is to be introduced, as soon as possible, which will extend the rules to allow EEA companies to be link companies.

Unrelated to this change, an additional test is to be introduced into the consortium relief rules which will limit the maximum losses available based on the proportion of voting rights and the extent of control the member holds in the consortium.

1.8 Corporate capital gains simplification

Following the consultation earlier this year on changes to capital gains taxation for companies on depreciatory transactions, pre-entry losses and degrouping charges, draft legislation will be published later this year to be included in Finance Act 2011. It is not known what the extent of the reforms are to be.

1.9 Controlled Foreign Companies (CFC) and foreign branch reform

The expected date for the full reform of the CFC rules has been deferred to 2012. However, it is intended that interim improvements will be made in 2011 'to make the current rules easier to operate and where possible increase competitiveness'.

There will be a move towards a more territorial basis for taxing foreign branches of UK companies which we would expect to involve a system of exemption for certain branch profits. There will be consultation this summer on options for retaining foreign branch loss relief as part of any new regime. Legislation is expected in 2011.

1.10 Tackling tax avoidance

The Government announced its intention to consult on several anti-avoidance measures. This includes arrangements using trusts and other vehicles to reward employees as announced in March 2010. Legislation will take effect from April 2011. It will also review whether the introduction of a general anti-avoidance rule (GAAR) would be appropriate.

2. Personal and Employment Taxes

2.1 Capital Gains Tax (CGT): rates and Entrepreneurs' relief

A new rate of CGT of 28% (currently 18%) is introduced from 23 June 2010. This higher rate will apply to individuals with total taxable income and gains above the upper limit of the basic rate income tax band (£37,400 for 2010/11), trustees and personal representatives of deceased persons. Otherwise, for individuals, the rate of CGT will remain at 18%. The rate change will apply to all gains arising on or after 23 June 2010.

The Annual Exempt Amount will remain unchanged at £10,100 for 2010/11.

The rate of CGT on gains qualifying for entrepreneurs' relief remains unchanged at 10% but the lifetime limit on gains will increase from £2 million to £5 million.

2.2 Regional employer NIC holiday for new businesses

The Chancellor announced a regional employer NIC holiday for new businesses. New businesses setting up in certain regions (most notably excluding London, the South East and East Anglia) during a three year qualifying period will not have to pay the first £5,000 of employer's Class 1 NICs due in the first 12 months of employment for each of the first ten employees hired in the first year of business.

The exact criteria for qualifying for the scheme will be published shortly.

The NIC holiday will start as soon as is practicable, probably from 6 September 2010, but with some relief for those businesses setting up between 22 June 2010 and commencement.

3. Indirect Tax

3.1 VAT rate to rise to 20% with effect from 4 January 2011

As had been widely expected, the Chancellor announced an increase in the standard rate of VAT to 20%. The change will take effect on 4 January 2011 and there will be anti-forestalling provisions. The reduced (5%) rate remains unchanged. The Chancellor confirmed that there is to be no change to the VAT base, so goods and services that currently qualify for zero-rating and exemption will remain zero-rated or exempt.

3.2 Adjustments to the VAT 'payments on account' scheme

In order to maintain the overall effect of the scheme, the 'payments on account' scheme, under which larger businesses (currently those paying £2 million or more in VAT a year) is to be amended 'to maintain the status quo of the scheme'. This suggests that the threshold for entry to the scheme will be changed to reflect the higher VAT rate.

3.3 Insurance premium tax (IPT) increases from 4 January 2011

The higher rate of IPT, which is charged on certain insurance contracts relating to electrical appliances, motor vehicles and travel, will be increased to 20%, in line with the increased VAT rate, with effect from 4 January 2011. The standard rate of IPT (currently 5%), will also increase on 4 January, to 6%. The IPT law contains provisions that will largely prevent the current rates from applying to policies coming into force after 4 January 2011.

3.4 Landline duty – the tax that never was!

The Chancellor announced that the 50p per month landline duty, which was to be imposed on all fixed telephone lines to finance high speed broadband access, is to be abolished – before it came into force!

3.5 Stamp Duty Land Tax (SDLT)

The Government announced that it will examine whether further changes to the SDLT rules on 'high value' property transactions are needed to prevent avoidance.

As announced in the March 2010 Budget, the rules for correcting mistakes in SDLT returns to claim a repayment of tax are to be amended. The proposed changes will align the rules with the income tax, CGT and corporation tax legislation contained in the Finance Act 2009.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.