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Budget 2010
By Glenn Collins
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The aim of Budget 2010 - Securing the Recovery is to build a strong economy and a fair society. This obviously cannot be achieved in one Budget, especially one so close to the election. Apart from the political table-tennis on disclosure and the increase in the lifetime limit on entrepreneurs' relief to £2m, this year's Budget was short on new announcements.
Many of the more significant alterations had been announced in the pre-Budget report, the 2009 Budget or earlier. However, the Budget was an entertaining prelude to the election campaign. But as with all Budgets, further analysis of the Finance Bill, published on 1 April and rushed through Parliament, is needed to ensure the rhetoric is backed up by detailed rules and implementation strategies.
Points of interest from this year's Budget and earlier ones include:
- The extension of the stamp duty holiday for first-time buyers until 25 March 2012, applicable to homes under £250,000, is a welcome move to boost the housing market. However, a permanent abolition of this onerous tax would have shown real commitment to the future well-being of the housing market.
- On the personal finance side, changes had been already announced recognising that savers and pensioners have suffered during this recession, with low interest rates whittling away financial nest-eggs. Tax-free ISAs, with an annual £7,200 limit, has been increased to £10,200. The new announcement linking ISA limits to indexation from 2011-12 provides some, if only minor, help to savers and pensioners.
- Business also received a boost with the news that HMRC's Business Payment Support Service will exist for the next parliamentary term. This is one of the government's business support success stories and is good news for business. It clearly recognises that the demand for working capital by the UK's businesses will increase as we come out of the recession. Unsurprisingly, those businesses that need significant support over £1m will be required to produce an independent business review.
- Small business rate relief in England has been temporarily increased for one year from 1 October 2010. This offers eligible small businesses that occupy premises with a rateable value of up to £6,000 full relief from rates. Small businesses occupying premises with rateable values of up to £12,000 will benefit from a tapered relief system.
- The lifetime limit on entrepreneurs' business disposals has been increased to £2m. This is a good and sensible change for business owners, making the UK a better place for doing business. The new lifetime limit on entrepreneurs' relief applies to disposals after 6 April 2010. It is available to an individual or trustee of certain life settlements who makes a disposal of a business asset.
Capital gains tax workings can be found at www.accaglobal.com/documents/ comparison.xls
- We thought we already knew that furnished holiday lettings (FHL) provisions were being repealed from 6 April 2010. A change that would have seen them taxed the same as other property businesses. But to fast-track the negotiations from Finance Bill to Finance Act the government had to scrap its plans to remove tax breaks for the owners of holiday homes. Taxpayers are now in uncertainty because, if elected, Labour say the measures removed would be re-introduced in the next Finance Bill.
- Disappointingly, the inheritance tax nil-rate band was frozen for four years at its current £325,000 limit.
- VAT registration and de-registration limits apply from 1 April 2010 and are £70,000 and £68,000 respectively. Any new business registrations will need to be made online with the return and VAT payment being made electronically. Existing VAT-registered businesses with a turnover below £100,000 can still opt out of filing and paying electronically. All other businesses will need to comply with the requirement for VAT periods starting on or after 1 April 2010.
- Taxation of company cars changed from 6 April, and for the next five years, with new and zero-emission vehicles exempt from company car tax. A cut of 5% from the appropriate percentage applies to cars producing emissions below 75g per km.
- One hundred per cent first-year capital allowances can be claimed for new and unused zero-emission vehicles when expenditure is incurred on or after 1 April for entities subject to corporation tax, or from 6 April for qualifying business subject to income tax.
Some of the pre-announced changes are best explained using examples:
Annual investment allowance
Businesses with money to invest, they will benefit from allowances including the annual investment allowance (AIA). This has been doubled from £50,000 to £100,000 for expenditure incurred on plant and machinery. AIA is available to individuals carrying on a qualifying activity, any partnership consisting of individuals and any company. It applies for purchases from 1 April for businesses with a charge to corporation tax and from 6 April 2010 for businesses with a charge to income tax.
Where the period straddles 1 April, a quick check on expenditure and a short calculation will be required.
- For the period before 1 April only a maximum of £50,000 of expenditure would be covered.
- For a chargeable period that ends after 1 April the allowance for the year will be apportioned.
Example - the year ending on the 30 June 2010
The AIA for the period would be 9/12 £50,000 + 3/12 £100,000 = £62,500. For the nine months before 1 April expenditure could not exceed £50,000.
Balances over these limits continue to qualify for the 10% or 20% rates.
Income tax: Personal allowance /pension relief/marginal rate
The income tax changes for higher earners result in high marginal tax rates and the chancellor did not announce any concessions for higher earners. As previously announced:
- New higher rate of tax of 50% applies to income over £150,000 (42.5% for dividend income).
- Personal allowance abatement - for every £2 of income over £100,000 the personal allowance is reduced by £1.
- Restrictions on pensions tax relief apply from 6 April 2011 and the anti-forestalling rules announced in the previous budget apply for individuals with an income of more than £130,000.
Other announcements - like the new statutory small business credit adjudicator and improved lending for small business - need to prove their value. We will be critically reviewing these services on a regular basis.
Tax protection was mentioned in the Budget speech and HMRC's powers and penalties were further enhanced. These measures need to be balanced and taxpayers need to be educated to ensure the innocent do not suffer.
To sum up, this was a Budget with a few pieces of good news for entrepreneurs and savers; but the hard decisions have been postponed. We now have to look forward to the general election and maybe another Budget. What we do know is that the government needs to raise cash and provide a secure financial platform - this is an economic imperative.
You can see the ACCA Budget Newsletter and other material for members to take and use on the ACCA UK website http://uk.accaglobal.com/ uk/members/technical/
Further income tax comparison examples can be found at http://uk.accaglobal.com/uk/members/technical/budget10/
Glenn Collins is ACCA UK's head of advisory services