March 2011

Budget

Faced with poor growth forecasts, high inflation, high fuel prices, conflicting economic data and the largest budget deficit in our history, it was hardly surprising that the Chancellor set out a fiscally neutral budget.

Enterprise & Entrepreneurs

The Chancellor decided to reintroduce the idea of Enterprise Zones although there is now a slightly different approach to that taken in the 1980s in order to prevent the exploitation of the relief that was previously witnesses. The details of the new scheme are not yet known but it will focus on reliefs for business rates and enhanced capital allowances.

The Chancellor also focused on enhanced relief for business angels. Those investing money under the Enterprise Investment Scheme (EIS) rules will receive higher tax reductions and increase the amount that can be invested in such schemes.

In addition to this, it was announced that there would be a further increase in the lifetime allowance for Entrepreneurs Relief which now stands at £10million.

Research and Development

The Chancellor announced an increase in the Research and Development tax credits available to companies who carry out qualifying R&D. This will rise to 200% in 2011/12 and to 225% in 2012/13 for small companies.

Corporation Tax

The Chancellor confirmed that corporation tax rates for both small and large companies will be reduced from 1 April 2011. The rate for small companies will reduce to 20% as per previous announcements, however, the Chancellor announced that the rate for large companies would fall to 26% which is 1% more than previously announced. This rate will continue to fall by 1% per year to be 23% from 1 April 2014.

Personal Tax

The Chancellor reiterated the government’s long term plan to simplify the UK tax system. He stated that the government would be consulting on the potential combination of National Insurance with Income Tax although it looks as though a merger is not on the immediate agenda.

It was announced that the personal allowance would increase further from 6 April 2012 to £8,105 (£7,475 from 6 April 2011). This is another large step towards the Liberal Democrats plan to raise this to £10,000.

The sting in the tail here comes from a reduction in the higher rate band. This is so that higher rate tax payers do not benefit from the increase. This will fall from £35,000 to £34,370 from 6 April 2012.

The Chancellor did reiterate that the 50% tax band was only a temporary measure and that he would ask HM Revenue & Customs how much tax it is actually generating.

The Capital Gains exemption will rise to £10,600 from 6 April 2012 (previously £10,100) and the rates remain at 18% and 28% (10% if Entrepreneur’s Relief applies).

The approved mileage rate has been reviewed for the first time in a while. The approved rate from 6 April 2011 will now be 45p per mile (previously 40p) for the first 10,000 miles and will remain at 25p thereafter.

iXbrl

If you are not already aware, from April 2011, all company tax returns and corporation tax computation must be submitted to HMRC in iXBRL format. iXBRL is a reporting language which ‘tags’ figures in your accounts so that these can be read by a computer.

Many accountancy firms and tax bodies have called for a delay in HMRC’s plans for compulsory iXBRL filing, these appeals have been rejected by HMRC but they have stated that they are willing to be lenient with companies who have made a reasonable attempt to file iXBRL complaint accounts.

We at Cutter & Co are ready for processing accounts and tax computations in iXBRL format and are confident we will not need HMRC’s leniency.

If you are concerned about these changes and would like further information on iXBRL or the services we offer then please contact us.

Live PAYE Coding Notices and BACs

HMRC were planning to implement a live PAYE system in 2012, however this has now been delayed until 2013. HMRC plan to receive all payroll information, along with company car changes etc. on a real time basis throughout the year.

No decision has currently been made about how this system will be implemented but many people believe that the BACS system will be used to deliver this information to HMRC. This is because it is believed the current government gateway system could not handle this volume of data on a weekly basis.

Cutter & Co is one of only 600 approved BACS bureaux within the country. We have had this accreditation for over 15 years and are experienced in using BACS.

Through us our clients are able to make use of the system to pay employees direct and make supplier payments. If this service is of interest to you or your company then please contact us.

More Pension Changes

Having simplified pensions rules in 2006, the government are now introducing more changes which add to the complexity of the system.

Significant changes are due to take place which affect both the tax relief on pension contributions and the options post-retirement.

From 6 April 2011, the current annual allowance will be reduced from £255,000 to just £50,000 although higher rate tax relief will remain. Any unused annual allowance can be carried forward for 3 years, something many people see as a move back towards a more complex system.

From 6 April 2012 the current lifetime allowance of £1,800,000 will be reduced to £1,500,000 with provisions for individuals who have already exceed the lower threshold.

There are further complexities for higher earning individuals and we urge anyone who thinks they may be affected by these to contact us and we will help you.

New penalty changes for late tax returns

Subject to consultation, from 6 April 2011 there will be new late filing and payment penalties for personal, partnership and trust tax returns.

The existing penalties for a late filed return are the lower of £100 and the balance of tax due.
The proposed penalties are:

For Late Filing

£100 immediately on the day after the due date
Further daily penalties of £10 if the return is not filed with 3 months of the due date (running for a maximum of 90 days)
When a return is 6 months late and 12 months late, a further penalty of 5% of the tax due or £300 if greater
If a return is over 12 months late and the individual has deliberately withheld information from HMRC a higher penalty of 70% of the tax due may be levied (100% if deliberate with concealment)

For Late Payment

5% surcharge of the amount unpaid, generally 1 month after the payment due date.

Further 5% penalties if the payment is not made within 6 months and 12 months