UK: Budget 2011

Last Updated: 30 March 2011
Article by Ronnie Brown

NEW TAX CHANGES ANNOUNCED FOR FINANCE BILL 2011

INCOME TAX, NICs and CAPITAL GAINS TAX

  • EIS and VCTs

    Legislation is to be introduced in Finance Bill 2011 to increase the rate of income tax relief given under the Enterprise Investment Scheme ("EIS") from 20% to 30% with effect from 6 April 2011, subject to State aid approval.
  • Entrepreneurs' Relief

    Legislation will be introduced in finance Bill 2011 to double the lifetime limit on gains qualifying for entrepreneurs' relief from £5 million to £10 million with effect from 6 April 2011.

CORPORATE TAXES

  • Corporation Tax

    Legislation will be introduced in Finance Bill 2011 to reduce:
    • the main rate of corporation tax by 2% to 26% for the Financial Year commencing 1 April 2011;
    • the main rate of corporation tax to 25% for the Financial Year commencing 1 April 2012; and
    • the small profits rate of corporation tax to 20% from the Financial Year commencing 1 April 2011.
  • Capital Allowances – Short Life Assets

    Legislation will be introduced in Finance Bill 2011 to enable businesses incurring expenditure on an item of plant or machinery from April 2011 onwards to make a short life asset election in respect of that item if they expect to sell it or scrap it within an eight year cut-off period. This is an extension from the current four year period.
  • Research and development Tax Credits for SMEs

    Subject to State aid approval, legislation will be introduced in Finance Bill 2011 to increase the rate of the additional deduction for qualifying R & D expenditure given to SMEs in computing business profits or losses for corporation tax purpose from 75% to 100%, giving a total deduction of 200%. The increase will have effect for expenditure incurred on or after 1 April 2011. The rate of vaccine research relief for SMEs will be reduced to 20% from the same date.

BUSINESS RATES

  • Business rate discounts in Enterprise Zones

    The Government has announced the creation of 21 new Enterprise Zones in England. The Government will offer up to 100% business rate discount for five years for businesses located in Enterprise Zones.

    In Scotland, planning policies and business rates are set by the Scottish Government The UK Government has said it will work with the devolved administration in this regard. Further details will be provided as and when they become available.
  • Small Business Rate Relief Holiday

    The SBRR holiday will be extended by one year from 1 October 2011.

CHARITIES AND CHARITABLE GIVING

  • Gift Aid Donor Benefits

    Legislation will be introduced in Finance Bill 2011 to increase, from £500 to £2,500, the maximum value of the benefits that individuals and companies may receive as a result of making a donation to a charity of more than £10,000 under Gift Aid. The new limit will be subject to the existing rule that the benefit must not exceed 5% of the gift.

TRANSPORT TAXES

  • Fuel Duty

    Legislation will be introduced in Finance Bill 2011 to amend fuel duty rates as follows:
    • the main fuel duty rate will be reduced by 1p per litre from 6pm on 23 March 2011;
    • the 1 April 2011 increase will be deferred and implemented on 1 January 2012, when the main fuel duty rate will increase by 3.02p per litre;
    • the 2012-12 increase in fuel duty will be implemented on 1 August 2012.
  • Vehicle Excise Duty

    From 1 April 2011, VED rates will increase by indexation only apart from VED rates for heavy goods vehicles which will be frozen in 2011-12. In addition, discount rates for Euro Vl reduced pollution certificates ("RPCs") will remain the same as for previous Euro standards. RPCs will be available for Euro Vl standard vehicles form 1 January 2012 until 31 December 2016, applying to vehicles purchased before the standard becomes mandatory. The RPC will be backdated for Euro Vl vehicles purchased before 1 January 2012. All Euro Vl vehicles will return to standard VED rates when their tax disc naturally expires from 31 December 2016.

STAMP DUTY LAND TAX

  • Reform of rules for bulk purchases

    Legislation will be introduced in Finance Bill 2011 to provide a relief for purchasers of residential property who acquire interests in more than one dwelling. Where the relief is claimed, the rate of SDLT is determined not by the aggregate consideration but instead is determined by the mean consideration, subject to a minimum rate of 1%.
  • Anti-avoidance

    Legislation will be introduced in Finance Bill 2011 to counter avoidance through the use of alternative finance reliefs and avoidance that engineers a reduction of the market value of properties in an exchange transaction.

VAT

  • Registration Thresholds

    The following changes will be made to the VAT registration and deregistration thresholds:
    • the taxable turnover threshold which determines whether a person must be registered for VAT, will be increased from £70,000 to £73,000;
    • the taxable turnover threshold, which determines whether a person may apply for deregistration will be increased form £68,000 to £71,000; and
    • the registration and deregistration thresholds for relevant acquisitions from other EU Member States will also be increased from £70,000 to £73,000.

      All changes to have effect from 1 April 2011.

NEW TAX CHANGES PLANNED FOR 2012 AND BEYOND

INCOME TAX , NICs and CAPITAL GAINS TAX

  • Income Tax Personal Allowances for 2012-13

    Legislation will be introduced in Finance Bill 2012 to set the personal allowance for those aged under 65 at £8,105 and the basic rate limit at £34,370.
  • Income Tax and NIC reform

    The Government has announced that it will consult on the potential integration of the operation of income tax and National Insurance Contributions. This is intended to be a simplification measure, and not a tax raising measure. The Government has said that the intention is not to extend NIC to individuals above State Pension Age or to other forms of income such as pensions, savings and dividends. A consultation document will be published later this year. The Chancellor has indicated that the consultation process is likely to take a number of years.

EIS and VCTS

Subject to State aid approval, legislation to be included in the Finance Bill 2012 will increase:

  • the employee limit to fewer than 250 employees (currently, 50);
  • the size limit to gross assets of no more than £15million before investment (currently £7million);
  • the maximum annual amount that can be invested in an individual company to £10 million (currently £2million); and
  • the annual amount that an individual can invest under the EIS to £1million (currently £500,000).

These changes will, if approved, apply to shares in investee companies issued on or after 6 April 2012.

  • Review of non-domicile taxation

    The Government will introduce the following reforms:
    • remove the tax charge when non-domiciles remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses;
    • increase the existing £30,000 remittance basis charge to £50,000 for non-domiciles who have been UK resident for 12 or more years and who wish to retain access to the remittance basis. The £30,000 charge will be retained for those who have been resident for at least 7 of the past 9 years and fewer than 12 years.

A consultation document will be released in June. The Government intends to implement the reforms from April 2012.

INHERITANCE TAX

  • Inheritance Tax Allowance

    The IHT nil rate band is frozen until April 2015.
  • Inheritance Tax – Reduced Rate

    The Government has announced that a reduced rate of inheritance tax will apply where 10% or more of a deceased's net estate is left to charity. In those cases, the current 40% rate will be reduced to 36%. The new rate will apply where death occurs on or after 6 April 2012.

    A consultation document is to be issued before the Summer.

CORPORATE TAXES

  • Research and development Tax Credits for SMEs

    Subject to State aid approval, legislation will be introduced in Finance Bill 2012 to (a) increase the rate of the additional deduction for qualifying R & D expenditure given to SMEs in computing business profits or losses for corporation tax purpose by a further 25%, giving a total deduction of 225% from 1 April 2012, and (b) simplify the rules of R & D tax relief for SMEs.

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.

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