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In a highly politicised Budget, small businesses seemed to fair reasonably well, with an increase in the Annual Investment Allowance (AIA), the continuation of the Business Payment Support Service (BPSS) and the increase in the Entrepreneurs Relief threshold all providing reasons to be cheerful.
However, with the huge deficit in the public finances to tackle, The Chancellor announced significant tax hikes that will affect many people reading this article. And it doesn’t take a genius to work out that this is just the start of a sustained period of higher taxation across the board, as UK PLC attempts to balance its books.
For business owners, this can only be bad news and unless we take action now to mitigate our tax liabilities, we will end up paying significantly more tax than we need to over the coming years. If you would like to find out about Wow’s Tax Planning Strategies to help you reduce your tax bill both now and in the future, please get in touch.
A summary of today’s Budget and how it will affect you is below.
• The small profits rate of corporation tax (for those firms with profits of less than £300k) remains at 21% and the main rate of corporation tax remains unchanged at 28%.
• The temporary extension of trading loss carry back from one to three years for losses up to £50,000 continues for company losses arising in accounting periods ending between 24/11/08 and 23/11/10. If you would like to find out how this affects your business (and the tax rebate that you might be entitled to) please get in touch .
• The Annual Investment Allowance (AIA), which allows businesses to reduce their taxable profits by the full amount of their annual capital expenditure on most plant and machinery (apart from cars), has been increased to a maximum of £100,000 from 1 April 2010 (for corporation tax) or 6 April 2010 (for income tax). Capital expenditure above this threshold will continue to be eligible for standard capital allowances against taxable profits.
• A £2.5 billion package for small businesses has been pledged to boost skills & innovation
•RBS & Lloyds have pledged to commit £94 billion in small business loans
•The threshold for Entrepreneurs Relief, applicable on the sale of small businesses, has been raised from £1m to £2m. This means a potential tax saving of up to £80,000 for certain entrepreneurs who sell their businesses.
• Despite some speculation, the rate of VAT has remained unchanged.
• There is no change to the Business Payment Support Service (BPSS), which allows qualifying businesses to spread their tax payments with HMRC. The service is available for all HMRC taxes, including VAT, Corporation Tax, Income Tax and NICs and PAYE and Wow has helped a number of clients take advantage of this opportunity already – it is great that it is continuing (for now, anyway). The flipside of this will be tougher enforcement across the board from The Revenue, with many people predicting a significant rise in investigations. With this in mind, now is a good time to be insuring yourself against the potential significant additional accountancy fees associated with these investigations. For more details on Wow’s insurance offering, please get in touch.
• Those individuals with incomes over £100,000 will have their personal allowance reduced by £1 for every £2 of income above £100,000. This means that those people with incomes over £112,950 will have no personal allowance.
• All rates of income tax have remained as previously announced. This means thresholds remain at 2009/10 levels and an additional rate of income tax at 50% on income over £150,000 has been introduced from 6 April 2010.
• These two measures mean effective remuneration & income tax planning is vital for many company directors & entrepreneurs. Please get in touch if you are keen to look at ways to mitigate the impact of the increased income tax burden on higher earners.
• Capital Gains Tax remains unchanged at 18%
• The current Inheritance Tax nil-rate band of £325,000 will be frozen for the next 5 years, until at least 2014/15 tax year inclusive.
• This is likely to mean that more and more people become liable to Inheritance Tax. If you are concerned about this and would like to discuss an appropriate IHT mitigation strategy (of which there are many), please get in touch
In an attempt to kick-start the property market, a two-year holiday on stamp duty for First Time Buyers has been introduced for properties up to £250,000 in value. This applies to residential property only and expires on 25 March 2012.
For properties purchased in excess of £1m, a new stamp duty rate of 5% will apply for residential properties that complete after 6 April 2011. The previous rate for properties in excess of £1m was 4%, so it represents a rise of 25%.
If you are thinking of purchasing a property valued in excess of £500,000, either currently or in the future, please do get in touch as we have Stamp Duty Land Tax strategies which can significantly reduce the tax payable on purchases over this price.
At Budget 2009, the Chancellor announced that the furnished holiday lettings (FHL) rules would be withdrawn from 6 April 2010. This will mean the tax treatment of furnished holiday lettings will be the same as for other property rental businesses.
• The UK economy contracted by 6% during the recession and growth in 2010 is predicted to be 1% - 1.25%.
• The limits on ISAs will rise in line with inflation in future years to try and encourage saving.
• Fuel duty to rise by 1p this April, as opposed to the planned 3p increase. There will be a further rise of 1p in October 2010 and then again in January 2011.
• The chancellor re-stated his intention to reduce higher rate tax relief on pensions for higher earners from 2011.
• The taxable turnover threshold, which determines whether a person must be registered for VAT, will increase from £68,000 to £70,000, from 1 April 2010. The taxable turnover threshold which determines whether a person may apply for deregistration will be increased from £66,000 to £68,000.
• A clampdown on tax avoidance is anticipated to raise £500m. We anticipate that this means a significant increase in tax inspections for individuals and businesses. Please get in touch and speak to us about our Fee Protection Insurance which can help cover you in the event of any kind of personal or business tax investigation.