George Osborne presented his second budget on Wednesday outlining the government’s financial plans. Many of the measures that will affect us in the coming tax year were announced in the previous budget. However, the Chancellor has reaffirmed the government’s plan to reform and simplify the tax system, although proposals such as merging the income tax and national insurance systems may take many years to put in place.
A full analysis of the budget measures can be found at HM Revenue & Customs’ website (www.hmrc.gov.uk) but we outline below some of the more relevant information for clients.
Income Tax
The basic personal allowance for 2011/12 will increase from £6,475 to £7,475. For 2012/13 this will increase to £8,105.
From 6th April 2011, the tax-free amount that can be paid to an employee for the business mileage travelled in their car or van will increase from 40p to 45p for the first 10,000 miles. Additional mileage will continue to be at a maximum rate of 25p per mile.
The Chancellor commented that the 50% tax rate was a temporary measure and would be reviewed. Critics may want to point out that Income Tax is a temporary tax that was introduced to fund the Napoleonic wars over 200 years ago!
Corporation Tax
The small companies rate will be reduced for the 2011 financial year from 21% to 20%.
The main rate of Corporation Tax for the 2011 financial year will fall by 2% from 28% to 26% with further 1% reductions over the next 3 years. This means that for the 2014 financial year the main rate will be 23%.
Capital Allowances
The annual investment allowance, which represents the amount that can be spent on qualifying capital expenditure in a year and can be offset fully against taxable profits, will be reduced from £100,000 to £25,000 for expenditure incurred by companies after 1st April 2012 (6th April 2012 for income tax purposes).
If any client is looking at major capital expenditure within the next couple of years it would be beneficial to plan this in a way that utilises this allowance.
For other capital expenditure and unused capital allowances, the normal rate of writing down allowance for the main pool will be reduced from 20% to 18% from April 2012.
The definition of short life assets has changed. For expenditure from April 2011, an asset can be treated as having a short life for up to 8 years rather than the current 4.
VAT
From 1st April 2011 the VAT registration limit will increase from £70,000 to £73,000, with the deregistration threshold increasing to £71,000.
Gift Aid
From April 2013 charities will be able to claim for tax repayments on small donations of up to £10 without being required to make a Gift Aid declaration. Repayment claims of up to £5,000 on such donations will be possible each year.
For a charity to be able to make these claims it will need to have been recognised by HM Revenue & Customs for Gift Aid purposes for a minimum of 3 years and have operated a compliant Gift Aid system during this time.