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BUSINESS TAX SUMMARY
- AIA and Entrepreneurs Relief limits doubled
- CT rates pegged
- No VAT increase!
- 100% capital allowance for zero-emission goods vehicles
- Clampdown on close company loans - CT deductions will be denied for equivalent amount
CORPORATION TAX
Despite rumours of perhaps a cut in the main rate of Corporation Tax, the Chancellor has fixed it at 28% for the year to 31 March 2011, and also for the following year - he's either putting down a marker that no change is planned for the foreseeable future, or setting up an opportunity to announce some good news for larger companies in his next Budget!
The small profits rate up to £300,000 remains at 21% for the year from 1 April 2010 but is due to rise to 22% from 1 April 2011 if the 2009 Pre-Budget Report proposal is carried through. Of course there is another PBR and probably two more Budgets before this increase takes effect, so the future CT rate remains fairly uncertain for small companies even if no material change is expected.
CAPITAL ALLOWANCES
A surprise announcement was the doubling of the Annual Investment Allowance (AIA) to £100,000 from 1 April 2010 (for companies, from 6 April 2010 for unincorporated businesses).
Companies and businesses with an accounting period spanning the changeover date will be able to claim proportionately at the two rates - for example, the AIA for a 31 December 2010 accounting year works out at £87,500, although only £50,000 can be applied to expenditure before 1/6 April 2010.
Unlike the existing First Year Allowance extension which ends this year, this increase in AIA has no expiry date (at the moment!).
There are no other changes to AIA rules, so as before cars don't qualify and neither do partnerships which include a limited company as a partner. In a separate announcement (BN42), zero-emmission goods vehicles will now attract a 100% first year capital allowance.
The temporary 40% First year Allowance on plant and machinery ends on 31 March/5 April 2010, so anyone investing more than £250,000 in plant and machinery needs to move quickly to secure the higher rate of capital allowances currently available.
ASSOCIATED CLOSE COMPANIES
From today, close companies will no longer be able to claim a tax deduction when a loan to a participator (or their associate) is released or written off.
Previously, the Corporation Tax rules governing corporate debt (the “loan relationships” rules) had allowed close companies (subject to anti-avoidance rules) to deduct such loan write-offs against their CT liability. In practice such loans had to satisfy the “unallowable purpose” test, and it is understood that HMRC have been taking an increasingly aggressive stance against tax relief on such loans.
There is no change to the income tax treatment of the person to whom the released or written off loan was made. It continues to be treated as a distribution.
SUMMARY
So, what was in it for you? Those who wait for tax giveaways from the Budget are generally doomed to disappointment, so no holding back on NIC increases starting in 2011 of 1% across the board - but it was never very likely. This was never going to be a tax cutting budget.
Overall, there was no harm done to small business, and some improvements - but we know that we will have to wait for somebody’s Finance Act No.2 for this year, and with the election out of the way they may not have to be nice to us.
The overriding message for SMEs seems to be "steady as she goes": nothing here to rock the boat - although I think we all foresee some stormy waters ahead, especially if we get a change of Government in May. In the meantime the increase in the AIA limit means that fairly modest capital expenditure will obtain full tax relief for the time being, a measure which in itself will be an economic and morale boost to SMEs who are starting to come out of the recession.
PERSONAL TAX SUMMARY
- Entrepreneurs' relief doubled but no changes to CGT
- Personal allowances to remain at existing amounts
- IHT nil rate band remains frozen for the next four years at £325,000
- £130,000 threshold on pensions anti forestalling measures confirmed
- Anti avoidance measures: Three new disclosure treaties
CAPITAL GAINS TAX - ENTREPRENEUR'S RELIEF
HMRC confirmed an increase in the lifetime limit on entrepreneur's relief from £1m to £2m with effect from 6 April 2010. Where individuals or trustees make qualifying gains above the previous £1m limit before 6 April 2010, no additional relief will be allowed for the excess above the old limit. But if they make further qualifying gains after 5 April 2010, they will be able to claim relief on up to a further £1 million of those additional gains, giving relief on accumulated qualifying gains up to the new limit of £2 million. The other rules for entrepreneurs’ relief are unchanged. Gains qualifying for the relief will continue to be reduced by the fraction 4/9, leaving the effective rate of capital gains tax on these gains at 10%.
PERSONAL ALLOWANCE
The chancellor confirmed the basic rate of income tax will be 20%, the higher rate will be 40% and the additional rate will be 50%. Personal allowances will remain at their existing amounts.
INHERITANCE TAX
While the IHT nil rate band remains frozen for the next four years at £325,000.
PENSIONS
The chancellor confirmed the £130,000 threshold on pensions anti forestalling measures announced in the Pre-budget Report. As announced in December's Pre-Budget report, tax relief on pension contributions will be restricted to the basic rate for those with income of over £180,000; those in the band £150,000 to £180,000 will see their tax relief reduced proportionately until they reach the £180,000 limit. Workers earning salaries of between £40,000-80,000 who receive a promotion, relocation expenses or a redundancy payment they could be caught under the proposed regime and earning around £130,000 could be affected if employers’ pension contributions push them over the proposed £150,000 limit.
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