UK: Entrepreneurial business budget briefing

Last Updated: 23 April 2009
Article by Deloitte Tax Group

Most Read Contributor in UK, August 2017

INTRODUCTION

The Chancellor announced his long awaited budget speech today and whilst it contained many pre-announced measures it was not without a few surprises. The biggest of which is the introduction of a 50% top rate of income tax for top-earners, i.e. those earning in excess of £150,000. This formed part of a theme which included reducing tax relief on pension contributions for the same group and a gradual phasing out of the personal allowance for those earning more than £100,000. There were also measures targeted at helping businesses cope with the demands of the current economic climate including extension of loss relief carryback and deferral of tax payments. In a new twist, the Chancellor introduced a 'name and shame' concept for those deliberately defaulting on tax payments and introduced a new concept of personal tax accountability for senior accounting officers of large companies.

In this special Budget edition of the Entrepreneurial Business Bulletin we will focus on some of the key measures announced that may affect you and your business.

In depth analysis on the topics raised can be found online at our dedicated site www.ukbudget.com

Personal And Employment Taxes

Income Tax Rate Increased

The Chancellor announced a new rate of income tax to be introduced in 2010-11 of 50% for taxable income above £150,000. This further increases the rate differential between income tax and capital gains tax, which is 18% (and 10% where entrepreneur's relief applies).

Meanwhile for those individuals with 'adjusted net income' in excess of £100,000 the personal allowance will be gradually reduced to nil from 2010-11.

Tax Credit On Dividends Received From Certain Foreign Investments

Subject to certain conditions, from 22 April 2009 individuals in receipt of dividends from non UK resident companies where their shareholding is equal to 10% or more will be entitled to the same non payable tax credit of 10% that applies to UK dividends. The notional credit will only be available where the source country is a 'qualifying country'.

Tax Relief For Pension Contributions Restricted

From April 2011 tax relief for pension contributions will be restricted for those earning more than £150,000, tapering to the same 20% relief available to basic rate taxpayers. Individuals approaching retirement age may question whether to make a pension contribution that will only attract relief at 20% and later be taxed at 50%.

Pension contribution relief for companies appears unrestricted. Anti-avoidance measure will also be introduced to ensure enforcement of these limits.

Venture Capital Schemes Improved

For the Enterprise Investment Scheme (EIS), Corporate Venture Scheme (CVS) and Venture Capital Trust (VCT) scheme changes have been made to relax the the time limits for employment of money invested.

For EIS the period for carry back of relief has also been extended and now allows the full amount subscribed to be carried back.

Business Tax

Loss Relief

The temporary amendment to the loss carry back rules that enabled the first £50,000 of trading losses incurred in periods ending between 24 November 2008 and 23 November 2009 to be carried back three years rather than the usual one year has been extended for a further year.

Capital Allowances

A temporary return of first-year allowances (FYA) was announced with a 40 per cent FYA introduced for expenditure on plant and machinery that would normally be allocated to the general plant and machinery pool in the 12 month period beginning on 1 April 2009 for corporation tax and on 6 April 2009 for income tax.

Meanwhile the list of categories of assets potentially qualifying for 100% Enhanced Capital Allowances (ECAs) has been extended to include uninterruptable power supplies, air to water heat pumps and close control air conditioning systems.

Connected Party Debt

Two significant changes to the loan relationships rules have been introduced.

The first relates to the release of connected party trading debts on or after 22 April 2009. Following the changes a credit arising on release of a trading debt with a connected party will be non taxable while the debit remains non deductible.

The second change relates to the rule that currently allows a deduction for interest payable to a connected creditor that is outside the loan relationship rules on a paid basis rather than the normal accruals basis and applies to accounting periods commencing on or after 1 April 2009. Following the change a deduction will be available on an accruals basis where the connected creditor is a connected company or a company that is a close company participator in a debtor company, provided the creditor company is not resident in a 'non-qualifying territory' (broadly tax havens).

Taxation Of Foreign Profits – Dividend Exemption Extended To All

As well as announcing the timing of the new foreign profits rules, 1 July for dividends and for accounting periods commencing on or after 1 January 2010 for the debt cap, a welcome change was also announced in respect of the dividend exemption which will now apply to all companies and not just medium and large companies.

Personal Tax Accountability Of Senior Accounting Officers Of Large Companies

In future the senior accounting officer's of large companies as defined by the Companies' Act will be required to certify annually that their accounting system is adequate for the purposes of tax reporting or specify the nature of any inadequacies and confirm that the inadequacies have been notified to the company's auditors.

Tax Rates Unchanged

The main corporation tax rates for FY 2010 will remain at 28% for large companies and 21% for small companies.

All Taxes

Business Payment Support Scheme

The Government has announced today that the Business Payment Support Scheme, aimed at assisting companies struggling to meet their tax bills will be extended to take into account circumstances where companies which are expecting a loss in the current period have paid tax on prior year profits. To date over 110,000 taxpayers in financial difficulties have deferred £1.8 bn across all the taxes.

Names Of 'Deliberate Tax Defaulters' To Be Published

Legislation will be introduced to enable HMRC to publish the names and details of individuals and companies who are penalised for deliberately defaulting leading to a loss of tax in excess of £25,000. Names will not be published of those who make a full unprompted disclosure within the required time.

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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