This may well be Chancellor Alistair Darling’s last Budget, no matter what the outcome of the election in May. It certainly was a political Budget, with the most highly paid facing significant increases in tax and in National Insurance Contributions (NICs) from 2011, but some unexpected good news for smaller businesses, including changes intended to make access to borrowing easier, the extension of the ‘time to pay scheme’ and some reductions in business rates.
This bulletin looks at the most important changes announced by the Chancellor which will affect businesses. Many changes were announced in the Chancellor’s Pre-Budget statement last autumn. Here we are concentrating on what is new and particularly on those changes which may affect clients adversely if action is not taken promptly.
Corporation Tax
Carry Back of Losses
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.
Denial of Tax Relief on Loans to Participators
No Corporation Tax relief will be given to a company where there is a loan from the company to a ‘participator’ (i.e. shareholder or director) in the company and the loan is written off. The removal of the requirement to repay the loan to the company will still be a ‘distribution’ for tax purposes for the participator.
Capital Allowances
R&D Expenditure
Businesses are reminded that expenditure which can be identified as Research and Development (R&D) expenditure may qualify for a 175 per cent tax allowance. Where a patent is created, consider how you treat the related expense – do you want to write off development costs now or capitalise them and take advantage of the R&D treatment?
Increase in Annual Investment Allowance (AIA)
The 100 per centAIA is being increased to £100,000 – if you have a capital investment pending which is above that figure, consider postponing it (but mind the VAT implications). In addition, there are improved tax allowances for some forms of ‘green’ expenditure.
General
Excise Powers
HM Revenue and Customs (HMRC) are increasing their powers to demand documents on visits. This is a minor change, but of more concern is the increase in the standard time limit – from three to four years – for making claims and assessments where underpayments are suspected.
Security for Payment of Taxes
Employers who have a history of serious non-compliance in terms of paying late or not paying their pay as you earn (PAYE) income tax may face a requirement to give a personal security (the amount will be set by HMRC). In practice, this means that if HMRC consider you are a persistently late payer, they may seek a personal guarantee for PAYE.
Anti-Avoidance – DOTAS
In keeping with the tightening up on tax avoidance generally,legislation will be introduced, to come into force in the autumn, to strengthen and improve the Disclosure of Tax Avoidance Schemes (DOTAS) regime. These changes ‘will ensure that HMRC continues to obtain early information about avoidance risks and that there are sufficient sanctions to penalise those who do not comply with the regime’.
Motoring and Travel
The ‘staging’ of the increase in fuel duty was widely predicted. In addition,the benefit in kind rules are being amended to reduce charges for ‘carbon friendly’ vehicles and increase them for those that are not, by reducing the CO2 emissions which define the bottom of each chargeable band by 5 per cent.
Beware Business Class
Air passenger duty (APD) is going up from November as expected. What is less well known is that the APD on a non-economy class seat for a flight of more than 6,000km is rising to a whopping £170.
National Insurance Contributions
NICs are being increased this year as expected, but there are further increases on top of those already announced being introduced in 2011.
Entrepreneurs’ Relief
Entrepreneurs’ relief, touted in some areas as a candidate for abolition,
is being increased to £2 million. This is a move that many small business owners will welcome.
VAT
Payment Date (Effectively) Brought Forward
Though announced by HMRC in February, not in the Budget, as from 1 April VAT will be treated as received on the day the payment is cleared by HMRC’s bank. This means that payments will have to be sent earlier than hitherto in order to avoid them being considered as late.
Lennartz Accounting
Restrictions in the way VAT is accounted for where assets have both business and private use have been published in BN50. If you have assets you use for both business and private use, this will affect you.
If any of the items in this bulletin apply to you, please get in touch.