Preliminary review of the June 2010 Emergency Budget

• Annual investment allowance ("AIA") which allows most businesses, regardless of size, to reduce their taxable profits by the full amount of their annual capital expenditure on most plant or machinery (but not including cars), up to a maximum amount currently of £100,000 a year, is to be reduced to £25,000 from April 2012; and
• With effect from 1st April 2012 (corporation tax payers) and 6th April 2012 (for income tax payers):
• 20% per annum writing down allowance for main pool plant and machinery is to be reduced to 18%; and
• 10% per annum writing down allowance for plant and machinery in the special rate pool is to be reduced to 8%.
  

• 10% rate for entrepreneurs' relief remains unchanged.
• The lifetime limit on gains qualifying for entrepreneurs' relief will be increased to £5 million (from £2 million) with effect from 23rd June 2010.
• The capital gains tax rate (which applies to the sale of assets to the extent entrepreneurs' relief does not apply):
• Remains unchanged at 18% for basic rate tax payers (i.e. tax payers with taxable income and chargeable gains up to and including £37,400 for 2010-11); and
• From 23rd June 2010 will be increased to 28% for higher rate taxpayers (i.e. tax payers with taxable income and chargeable gains over £37,400 for 2010-11).
• Trustees and personal representatives of deceased persons will be charged at the rate of 28%;
• Though widely anticipated, there are no provisons to reduce the amount of capital gains tax payable on the disposal of assets not qualifying for entrepreneurs' relief according to the length of time those assets have been held; and
• Annual exemption of £10,100 for individuals remains unchanged for 2010-11.
  

Corporation tax

• Main rate of corporation tax for companies with profits over £1,500,000 to be reduced to 27% for 2011-12 with further reductions to:
• 26% in 2012-13;
• 25% in 2013-14; and
• 24% in 2014-15.
• Small company's corporation tax with profits of £300,000 or less to be reduced to 20% from 2011/12;
• The Chancellor announced consultation to take place summer 2010 (draft legislation 2011) on corporation tax reform to move towards a territorial corporate tax system that only taxes profits generated in the UK; and
• The Chancellor also announced the Government's intention to consult on and reform controlled foreign companies regime and the chargeable gains rules for corporate groups with proposed legislation in Finance Bill 2011.
  

Income tax personal allowances

• With effect from 6th April 2011 under 65s personal allowances will be increased by £1,000 to £7,475. As expected, the Chancellor announced the intention to increase personal allowances to £10,000 by the end of the Parliament;
• The basic rate limit will be reduced so that higher rate taxpayers do not benefit from the increase in personal allowances; and
• Higher rate (40% rate) income tax threshold to remain frozen at £37,401 until 2013/14.
  

Inheritance tax

As previously announced in May, the inheritance tax nil rate band will be frozen at £325,000 until 2014/2015. This makes it even more important to consider inheritance tax planning at the earliest opportunity.

National Insurance contributions

• The 1% rises in employer and employee NICs from April 2011 will go ahead as announced by the previous government. Employer NIC threshold to increase by £21 per week (above consumer prices index) from April 2011; and
• New businesses set up outside London, south-east and the east of England will be exempt from employer's NICs for each of the first 10 employees they hire.
  

The Chancellor confirmed that the Government will review the taxation of non-domiciled individuals.

Small business taxation

The government is to seek to replace IR35 with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed or restrict labour flexibility.

Furnished holiday lettings rules will not be withdrawn from 6th April 2010 (1st April 2010 for companies).

The review will consider allowing small businesses to choose to be taxed on a cash flow basis.

Tax Avoidance

• Chancellor announced a consultation during 2010 into the taxation of employee growth share arrangements;
• The Government will consult on bringing Inheritance Tax on trusts within the Disclosure of Tax Avoidance Schemes regime; and
• The Government will also review whether changes to the stamp duty land tax regime on high property transactions are needed to counter avoidance.
  

VAT

With effect from 4th January 2011 the VAT rate will increase from 17.5% to 20%.

Changes have been made to the Flat Rate Scheme rates and threshold to reflect this.
Anti-forestalling legislation will be included in the Finance Bill 2010 to prevent the 17.5% VAT rate applying to supplies of goods or services provided on or after 4th January 2011.

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