Wettone Matthews

Budget 2008 report

twettone@wmcca.co.uk (Tim Wettone) — Thu, 13 Mar 2008 13:03:00 -0700

This Report, which was written immediately after the Chancellor of the Exchequer delivered his Budget Speech, is intended to provide an overview of the announcements most likely to affect you or your business.

Throughout this guide we have included tips and ideas for effective tax and financial planning, but it is important to remember that this planning should be an ongoing, year-round process, not something that is left until the last minute.

We can help you to reassess your plans regularly, and adapt them as your personal and business circumstances change. With our help, you can plan for a rewarding and financially secure future.

Please note: while most taxation changes take effect from the start of the financial year, or tax year, some may not take effect until 2009, or later. Where relevant, details of these changes have been included in this Report. Throughout the Report, 'HMRC' refers to HM Revenue & Customs.

Budget Highlights
Business Tax and Investment Incentives
Capital Taxes
Duties
Value Added Tax
Tax and Travel
National Insurance Contributions (NICs)
Other Measures Announced
2008/09 Tax Calendar

Darling emphasises environment in maiden Budget

Billed as a 'responsible' and 'green' Budget, the environment found its way to the top of the agenda in Chancellor Alistair Darling's debut Budget speech.

Darling used his first Budget statement to introduce a series of measures aimed at reducing the UK's carbon emissions, including a new zero rate of car tax to be levied in the first year for new, low polluting vehicles — a measure that was part of a wider reform of vehicle excise duty.

Despite attempts to prove his 'green' credentials, the Chancellor declared that a 2p increase on fuel duty will be postponed from April to October this year to help the country through the current 'credit crunch'. The Chancellor told MPs that the credit crunch posed a 'major risk to the world's economy'. As a consequence, Darling has revised the economic growth predictions that were made in his Pre-Budget Report last October.

Growth forecasts have been cut for 2008 to 1.75%-2.25%, a substantial reduction on the original 2.5%-3%. Darling has also advised that public borrowing will increase to £43 billion next year, rather than fall to the £36 billion he had anticipated.

Darling's brief reign as Chancellor has already been dogged by controversy. He confirmed the much-criticised changes to capital gains tax and the taxation of non-domiciliaries. CBI Director-General Richard Lambert, said: 'The Government has much to do if it is to win back its enterprise credentials, but the measures announced today are a credible first step on the road.'

Budget Highlights

Green light on non-doms
Entrepreneurs' Relief confirmed
Big increases in tax on alcohol
Increase in fuel duty deferred
Income shifting legislation delayed

Economic forecasts for 2008

Inflation 2.5%
Growth 1.75 to 2.25%
Government Spending £566 billion
Net Borrowing £43 billion
Government Receipts £575 billion
Public Sector Year End Net Debt £581 billion

Business Tax and Investment Incentives

Corporation Tax

Financial Year to	31 March 2009	31 March 2008
Taxable profits
First £300,000	21%	20%
Next £1,200,000	29.75%	32.5%
Over £1,500,000	28%	30%

The small companies' rate of corporation tax will increase from 21% to 22% in 2009/10.

Capital Allowances

Previous proposals, amended after due consultation, were confirmed for 2008/09 as follows:

Annual Investment Allowance (AIA)

Tax relief on the first £50,000 of investment in plant and machinery, except for cars, will be at 100%. This will apply to any size of business, but there will be provisions to prevent multiple claiming. Businesses will be able to allocate their AIA in any way they wish; so it will be quite acceptable for them to allocate their allowance against expenditure otherwise qualifying for a low rate of allowance.

Writing Down Allowance (WDA)

Any additional expenditure over the AIA level will enter either the 10% pool or the 20% pool, attracting WDA at the appropriate rate. The 10% pool will contain longlife assets, thermal insulation added to existing commercial buildings, and 'integral features' of buildings (including replacement expenditure). The 20% pool will apply to most other plant and equipment, including cars costing £12,000 or less. Cars costing more than £12,000 will continue to qualify for a 25% WDA subject to a maximum of £3,000.

A WDA of up to £1,000 can be claimed where the unrelieved expenditure in either the 10% or 20% pool is £1,000 or less.

Enhanced Capital Allowances (ECA)

In addition to AIA, 100% first year allowances are available on energy saving or environmentally beneficial equipment. Where companies (only) have unrelieved losses attributable to ECAs, they may choose to surrender such losses for a cash payment. The company will receive a tax credit of 19%, subject to a maximum of the greater of £250,000 or the company's PAYE and NI liabilities for the period for which the loss is surrendered. This credit will be clawed back where the asset is sold within four years after the end of the period for which the credit was paid. Electric and low CO2 emission (up to 110 g/km) cars and natural gas/ hydrogen/ biogas refuelling equipment also qualify for 100% first year allowances, but will not qualify for the payable tax credit.

Buildings

WDAs on industrial and agricultural buildings are gradually being phased out, with final withdrawal by the end of 2010/11. The WDAs (on building cost) for 2008/09 are reduced from 4% to 3% (subject to transitional arrangements). A maximum 100% initial allowance is available for the conversion of parts of business premises into flats. There are also 100% business premises renovation allowances and Enterprise Zone allowances (EZA). EZAs are to be withdrawn from the end of 2010/11.

Research and development (R&D) tax credits

The enhanced deduction available to small and medium enterprises (SMEs) in respect of qualifying R&D expenditure is to increase from 150% to 175%. For large companies the enhanced deduction is to increase from 125% to 130%. These changes will take effect from a date to be appointed once EC state aid approval has been received. As from the same date, the SME tax relief will no longer be available to those companies whose most recent accounts were not produced on a going concern basis. In addition, the SME relief is to be capped at €7.5 million per R&D project.

Associated companies

The tax bands are reduced where a company has one or more associated companies. As from 1 April 2008, a company will no longer be associated with companies controlled by the business partners of the person controlling that company. The exception to this is where at any time the shareholder or director of the company and the business partner have made arrangements to secure a tax advantage for the company.

Enterprise Investment Scheme (EIS)

From 6 April 2008, subject to EC state aid approval, the limit on which an investor can claim EIS income tax relief will be increased from £400,000 to £500,000.

Enterprise Management Incentives (EMI)

Currently, employees cannot hold qualifying EMI options (taking into account Company Share Option Plan options also granted to them) with a total market value at the date of grant of more than £100,000. For EMI options granted on or after 6 April 2008, this limit will be increased to £120,000. Options granted after the date of Royal Assent will not be qualifying EMI options if the company has 250 or more employees and/or it is involved in shipbuilding or coal and steel production.

Anti-avoidance

A number of measures will be introduced to tackle anti-avoidance. These will affect:

Individuals carrying on a trade in a non-active capacity and sideways loss relief
Plant or machinery lease schemes
'Disguised interest' schemes
Controlled foreign companies
The transfer of intangible assets between related parties where one party is subject to insolvency proceedings
Capital allowance buying and acceleration.

Capital Taxes

Capital gains tax (CGT)

The Chancellor confirmed the new standard rate of 18%, coupled with the withdrawal of indexation allowance and taper relief for individuals and trustees with effect from 6 April 2008. Other reliefs, such as those relating to principal private residences, losses brought forward, Enterprise Investment Scheme and Venture Capital Trusts, and business asset rollover relief, will continue to be available. Assets acquired before 31 March 1982 will be deemed to have had a cost equivalent to their market value at that date.

In certain circumstances the CGT base cost of an asset is tied to its value ascertained for inheritance tax (IHT) purposes. A correction made necessary by the IHT changes noted below means this rule will not apply where the value does not have to be ascertained for IHT purposes on the death of an individual.

The Annual Exempt Amount (AEA) will be increased for 2008/09 to £9,600 for individuals and £4,800 for some trustees.

CGT: Entrepreneurs' Relief

Following strong opposition from the business community to the proposed CGT changes, the Chancellor has introduced an Entrepreneurs' Relief which gives an effective 10% rate for the first £1million of lifetime capital gains on the disposal of trading businesses and on certain disposals of shares in trading companies. The relief actually works by reducing the gain by 4/9, leaving the residual 5/9 gain to be taxed at 18% (5/9 x 18% = 10%). The effective rate will be reduced by the application of the AEA.

The £1million may be made up of any number of disposals after 5 April 2008 and, unlike the former retirement relief (on which the rules are based), there is no minimum age qualification. There is, however, a one year qualifying period and other conditions to be met. Trustees will also be able to claim, jointly with a 'qualifying beneficiary'.

Capital gains made by companies are dealt with separately under the corporation tax regime, and these arrangements have not changed.

Inheritance tax (IHT)

As previously announced, the IHT standard threshold has been set at £312,000 for 2008/09. This defines the upper limit of what is commonly known as the IHT nil-rate band.

In the October Pre-Budget Report, the Chancellor announced a new concession for married couples and civil partners. With effect from second deaths on or after 9 October 2007 the unused percentage of the nil-rate band from the first death estate can be carried forward and added to the nil-rate band available to the second. The combined threshold for couples is therefore set at a maximum of £624,000 for 2008/09.

This new arrangement applies no matter how long ago the first death occurred. For example:

On the first death none of the original nil-rate band was used because the entire estate was left to a surviving spouse. Then if the nil-rate band when the surviving spouse dies is £350,000 that would be increased by 100% to £700,000.

If on the first death the chargeable estate was £107,500 when the nil-rate band was £215,000 (1997/98), then 50% of the original nil-rate band would be unused. If the nil-rate band when the surviving spouse dies is £350,000, then that would be increased by 50% to £525,000.

Pension savings

The Finance Bill 2008 will propose legislation to ensure that tax-relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities are subject to unauthorised payment tax charges and, where appropriate, IHT. In addition, IHT protection to savings in overseas pension schemes will be restored.

Duties

Reduction of stamp duty administrative burden

Legislation will be introduced in Finance Bill 2008 to provide that instruments transferring stocks and shares that were previously chargeable with £5 stamp duty (generally where the consideration is £1,000 or less) will in future be exempt and will not need to be presented to HMRC for stamping. The measure will have effect for instruments executed on or after 13 March 2008.

Stamp duty land tax anti avoidance measures will be introduced affecting transactions by groups of companies on or after 13 March 2008.

Alcohol and tobacco products duty

Legislation will be introduced in Finance Bill 2008 to provide for the annual setting of duty rates for alcohol. Duty rates will increase by 6% in real terms for all alcoholic drinks. The impact of the changes on retail prices for typical alcoholic drinks and tobacco products is equivalent to:

55 pence on a 70cl bottle of spirits @ 37.5% abv
4 pence on a pint of beer
3 pence on a litre of still cider
14 pence on a 75cl bottle of sparkling cider
14 pence on a 75cl bottle of wine or made-wine
18 pence on a 75cl bottle of sparkling wine
cigarettes: 11p on a packet of 20
cigars: 4p on a packet of 5
hand-rolling tobacco: 11p on 25g
other smoking tobacco and chewing tobacco: 6p on 25g of pipe tobacco.

HMRC review of penalties for incorrect returns and failure to notify a taxable activity

For return periods ending on or after 1 April 2009, where the filing date is after 1 April 2010, the new penalty regime for incorrect returns introduced in 2007 for income tax, CGT, VAT, PAYE and NICs will be extended across all other taxes and duties. From 1 April 2009, the penalty regime for failure to notify HMRC of a new charge will be aligned across all taxes and duties.

The new provisions for incorrect returns will provide for penalties in line with Schedule 24 to FA 2007, which are based on the amount of tax understated, the nature of the behaviour and the extent of disclosure by the taxpayer. There will be no penalty where a taxpayer makes a mistake but there will be a penalty of up to:

30% for failure to take reasonable care
70% for a deliberate understatement
100% for a deliberate understatement with concealment.

Each penalty will be substantially reduced where the taxpayer makes a disclosure (takes active steps to put right the problem), more so if this is unprompted.

Value Added Tax

From		1 April 2008	1 April 2007
Standard rate		17.5%	17.5%
VAT fraction		7/47	7/47
		Turnover	Turnover
Registration	last 12 months or next 30 days over	£67,000	£64,000
Deregistration	next 12 months under	£65,000	£62,000
Cash accounting scheme	up to	£1,350,000	£1,350,000
Annual accounting scheme	up to	£1,350,000	£1,350,000
Optional flat-rate scheme	up to	£150,000	£150,000

Option to tax land and buildings

Legislation will be introduced for simplification of the option to tax land and/or buildings. It will also introduce minor changes to enable taxpayers to revoke an option to tax after 20 years and make a number of associated changes to improve practical administration of the option to tax.

The rewritten legislation will have effect on and after 1 June 2008. The earliest date an option to tax will be revocable will be 1 August 2009.

Indirect tax returns: correction of errors

Businesses registered for VAT, insurance premium tax (IPT), air passenger duty (APD), landfill tax (LFT), climate change levy (CCL) and aggregates levy (AGL) will have increases to the limit below which errors on previous returns may be corrected on the return for the period in which the errors are discovered. This measure will have effect for accounting periods commencing on or after 1 July 2008.

This measure increases the de minimis £2,000 limit to the greater of £10,000 or 1% of turnover, subject to an upper limit of £50,000 for VAT, IPT, LFT, CCL and AGL. For VAT, LFT, CCL and AGL errors above £10,000, the limit for correcting errors on the next return will be calculated by reference to net VAT turnover (Box 6 on VAT return) for the return period.

For IPT, this limit will be calculated by reference to the net IPT turnover (Box 10 on IPT return). APD procedures will be amended to increase the de minimis limit to the greater of £10,000 or 1% of duty due, before adjustments for errors from previous periods, subject to an upper limit of £50,000. For LFT, CCL and AGL taxpayers who are not required to be registered for VAT a single limit of £10,000 will have effect.

Tax and Travel

Car and fuel benefits

The taxable petrol and diesel car benefit is based on the car's CO₂ emissions. It is calculated using the car's UK list price and applying the 'appropriate percentage' as shown in the table below. The first line of figures in the table relate to the new category of qualifying low emissions cars (QUALECs).

The car fuel benefit is calculated by applying the same percentages to the fuel multiplier, which for 2008/9 is increased from £14,400 to £16,900.

The percentages are reduced for cars (except QUALECs) that can be driven on alternative fuels by:

2% for cars manufactured to be capable of being run on E85 fuel
2% for bi-fuel cars or those which run on LPG only
3% for hybrid electric and petrol cars
6% for electric only cars (in practice the taxable benefit will be 9% of the price).

VAT on fuel for private use in cars

Where businesses wish to reclaim the input VAT on fuel which has some degree of private use, they must account for output VAT on a scale charge. The table below shows the VAT chargeable for quarters commencing on or after 1 May 2008.

CO₂ emissions	Appropriate percentage		Quarterly VAT
(g/km)	Petrol %	Diesel %	Fuel scale charge £	VAT on charge £
120 and below	10	13	138	20.55
121 to 139	15	18	207	30.83
140 to 144	16	19	221	32.91
145 to 149	17	20	234	34.85
150 to 154	18	21	248	36.94
155 to 159	19	22	262	39.02
160 to 164	20	23	276	41.11
165 to 169	21	24	290	43.19
170 - 174	22	25	303	45.13
175 - 179	23	26	317	47.21
180 - 184	24	27	331	49.30
185 - 189	25	28	345	51.38
190 - 194	26	29	359	53.47
195 - 199	27	30	373	55.55
200 - 204	28	31	386	57.49
205 - 209	29	32	400	59.57
210 - 214	30	33	414	61.66
215 - 219	31	34	428	63.74
220 - 224	32	35	442	65.83
225 - 229	33	35	455	67.77
230 - 234	34	35	469	69.85
235 and above	35	35	483	71.94

Mileage rates

Changes to the HMRC business mileage rates are announced from time to time. The current rates are as follows:

Vehicle	First 10,000 miles	Thereafter
Car / Van	40p	25p
Motorcycle	24p	24p
Bicycle	20p	20p

Car - fuel only advisory rates
Engine Capacity	Petrol	Diesel	Gas
Up to 1400cc	11p	11p	7p
1401 - 2000cc	13p	11p	8p
Over 2000cc	19p	14p	11p

The fuel only advisory rates can be applied as a tax-free maximum rate for employees claiming for petrol used on business journeys and for employees reimbursing their employers with the cost of petrol used for private journeys.

HMRC will consider claims for a higher maximum rate, if it can be demonstrated that it is necessary for an employee to use a car with higher than average fuel costs.

Car costs – VED rates

Band	CO₂ emissions g/km	Petrol & Diesel	Alternative Fuel Cars
A	100 and below	£0	£0
B	101 - 120	£35	£15
C	121 - 150	£120	£100
D	151 - 165	£145	£125
E	166 - 185	£170	£150
F*	186 and above	£210	£195
G**	226 and above	£400	£385

* Cars registered before 23 March 2006 ** Cars registered from 23 March 2006

Company vans

The taxable benefit for the unrestricted private use of vans is £3,000. There is a further £500 taxable benefit if the employer provides fuel for private travel.

Van and fuel charge	Van	Fuel	Total
Tax (20% taxpayer)	£600	£100	£700
Tax (40% taxpayer)	£1,200	£200	£1,400
Employer’s class 1A NICs	£384	£64	£448

National Insurance Contributions (NICs)

2008/09 National Insurance Contributions (NICs)
		Employer	Employee
Class 1 - not contracted out
Lower earnings limit			£90
Weekly earnings bands
Up to £105		Nil	Nil
£105.01 – £770		12.8%	11%
Over £770		12.8%	1%
Over state retirement age		12.8%	Nil
Class 1A	On relevant benefits	12.8%	Nil
Class 2	Self employed	£2.30 per week
Class 2	Limit of net earnings for exception	£4,825 p.a.
Class 3	Voluntary	£8.10 per week
Class 4*	Self employed on profits
	£5,435 - £40,040	8%
	Excess over £40,040	1%
*Exemption applies if state retirement age was reached by 6 April 2008

Other measures announced

Dormant accounts - reporting and tax liability

Rule changes will mean that banks and building societies will only have to pay over the 20% 'tax at source' and report the interest to HMRC when the customer reclaims their dormant account balance.

Similarly, the customer will only be liable for any further tax due on the interest on such accounts when they reclaim their balance.

National Disaster

In the event that taxpayers are adversely affected by events designated as national disasters, HMRC will waive interest and surcharges on tax paid late.

Tribunal reform

HMRC inherited two systems of tribunals when the former Inland Revenue and HM Customs & Excise merged.

These are to be simplified under powers to be introduced in the 2008 Finance Act.

Funds of Alternative Investment Funds (FAIFs)

Taxation on certain offshore income gains of FAIFs can, under proposed new rules, be shifted from the fund to the investors. Authorised investment funds will be able to elect for a new tax treatment, making it exempt from tax on offshore income gains, which will in turn be taxable on the investor on the disposal of units in the fund.

Non-domiciles and the remittance basis

As announced last year, new rules for longer-term resident individuals who are not domiciled in the UK (non-doms) will come into force with effect from 6 April 2008.

Key to the new rules is a choice for non-dom adults with overseas income and gains over £2,000 in a tax year. Essentially, they can opt to have income and gains of the year taxed on the remittance basis (ie taxed in the UK only as and when they are remitted) and pay £30,000 or they can be taxed for the year on their worldwide income and gains (plus any income or gains from a 'remittance basis' year remitted in the year). The £30,000 will be a payment in respect of tax on unremitted gains or income, allocable by the taxpayer, and available for credit when said gains or income is remitted (and should also be treated as such for relief under double taxation treaties with other taxing regimes).

Opting for the remittance basis will also mean that entitlement to the year's UK personal allowances and the CGT annual exemption is lost.

Also featuring are new definitions of remittances, catching money or gifts made outside the UK and brought in by a relative and also the import of assets bought outside the UK with untaxed income or gains. There are some exclusions, covering for example personal effects and assets brought temporarily to the UK, but perhaps most importantly the rules will not apply to assets bought out of untaxed foreign income and owned at 11 March 2008. These exclusions are in addition to the exclusion for works of art brought to the UK for public display, already announced.

These changes will also apply to anyone who has been able to opt for the remittance basis because, though UK resident, they are not ordinarily resident.

New rules will apply from 6 April 2008 to give non-doms, including those opting to be taxed on the remittance basis, access to relief for capital losses when they are liable for tax on capital gains on the arising basis.

Employees who are resident but not ordinarily resident in the UK and receive shares or options as part of their remuneration will be liable for UK income tax on such employment-related securities (ERS). ERS gains derived from non-UK employment duties will be subject to income tax on the remittance basis. This will also apply to non-doms where the ERS income relates to a foreign employment, the duties of which are performed wholly outside the UK.

The rules bringing into UK tax the gains of offshore trusts have also been strengthened, with the effect that resident non-dom settlors will be taxed on gains on UK assets as they arise, while they and resident non-dom beneficiaries will be taxed on other gains as they are brought to the UK.

Trustees will be able to elect to rebase the CGT base cost of all assets to the 6 April 2008 value.

It is no longer possible to close a source and remit the income in the following tax year (closed source rule).

The rate on income tax chargeable on foreign dividend income remitted by individuals claiming the remittance basis will be corrected to 40% from 6 April 2008.

Day counting

It had been announced that in counting the number of days present in the UK for the residence tests it would be necessary from 6 April 2008 to include the days of arrival and departure. The Chancellor announced that the rule will be to count midnights spent in the UK as a day of presence in the UK, except where the midnight falls at a time when one is present in the UK in transit between two places outside the UK — 'days' spent in transit will not be counted unless the individual engages in activities that are to a substantial effect unrelated to their passage (for example, attending a business meeting).

National Minimum Wage to rise in October

The National Minimum Wage rates will increase in October 2008.

The main rate for adult workers will rise from £5.52 an hour to £5.73 an hour.

The development rate for 18-21 year olds will rise by 17p, from £4.60 to £4.77.

The rate for 16-17 year olds will rise by 13p, from £3.40 to £3.53.

2008/09 Tax Calendar

April 2008
5	Last day of 2007/08 tax year. Deadline for 2007/08 ISAs. Last day to make disposals using the 2007/08 CGT exemption and the 'old' CGT rules. Last date for contracting back into the State Second Pension for 2007/08.
14	Due date for income tax for the CT61 period to 31 March 2008.
19/22	Quarter 4 2007/08 PAYE remittance due.
20	Interest will begin to accrue on unpaid PAYE/NI for 2007/08.
30	Normal annual adjustment for VAT partial exemption calculations (monthly returns).
May 2008
3	Last day for notifying car changes in quarter to 5 April - P46 (Car).
19	Last day for filing forms P14, P35, P38, and P38A - 2007/08 PAYE returns - without incurring penalties.
31	Last day to issue 2007/08 P60s to employees
June 2008
30	End of CT61 quarterly period. Last day for UK businesses to reclaim EC VAT chargeable in 2007. Annual adjustment for VAT partial exemption calculations (March VAT year end).
July 2008
6	Deadline for submission of Form 42 (transactions in shares and securities). File Taxed Award Scheme Returns, file P11Ds, P11D(b)s and P9Ds. Issue copies of P11Ds or P9Ds to employees. Deadline for submission of EMI140 (EMI Annual Return)
14	Due date for income tax for the CT61 period to 30 June 2008.
19/22	Quarter 1 2008/09 PAYE remittance due. Final date for payment of 2007/08 Class 1A NICs.
31	Second self assessment payment on account for 2007/08. Annual adjustment for VAT partial exemption calculations (April VAT year end). Liability to 2nd £100 penalty arises for 2007 Tax Return still not filed. 5% surcharge on any tax unpaid for 2006/07.
August 2008
2	Last day for notifying car changes in quarter to 5 July - P46 (Car).
31	Annual adjustment for VAT partial exemption calculations (May VAT year end). Deadline for tax credit Annual Declaration (if estimated, final figures required by 31 January 2009).
September 2008
30	End of CT61 quarterly period.
October 2008
1	Due date for payment of Corporation Tax for period ended 31 December 2007.
5	Individuals/trustees must notify HMRC of new sources of income/chargeability in 2007/08 if a Tax Return has not been received.
14	Due date for income tax for the CT61 quarter to 30 September 2008.
19/22	Quarter 2 2008/09 PAYE remittance due
November 2008
1	Please ensure you are retaining your documents for the 2009 Tax Return.
2	Last day for notifying car changes in quarter to 5 October — P46 (Car).
December 2008
30	Last day to file your 2008 Tax Return electronically if you wish to have a 2007/08 balancing payment of less than £2,000 collected through your 2009/10 PAYE code.
31	Last day for non-EC traders to reclaim recoverable UK VAT suffered in the year to 30 June 2008. End of relevant year for taxable distance supplies to UK for VAT registration purposes. End of relevant year for cross-border acquisitions of taxable goods in the UK for VAT registration purposes. End of CT61 quarterly period. Filing date for Corporation Tax Return Form CT600 for period ended 31 December 2007.
January 2009
1	Due date for payment of Corporation Tax for period ended 31 March 2008.
14	Due date for income tax for the CT61 quarter to 31 December 2008.
19/22	Quarter 3 2008/09 PAYE remittance due.
31	First self assessment payment on account for 2008/09. Capital gains tax payment for 2007/08. Balancing payment - 2007/08 income tax/class 4 NICs. Last day to renew 2008/09 tax credits. Deadline for amending 2006/07 Tax Return. Last day to file the 2008 Tax Return online.
February 2009
1	£100 penalty if 2008 Tax Return not yet filed. Additional penalties may apply for further delay. Interest starts to accrue on 2007/08 tax not yet paid.
2	Last day for notifying car changes in quarter to 5 January - P46 (Car)
14	Last date (for practical purposes) to request NIC deferment for 2008/09.
28	Last day to pay any balance of 2007/08 tax and Class 4 NIC to avoid an automatic 5% surcharge
March 2009
31	End of Corporation Tax financial year. End of CT61 quarterly period. Filing date for Corporation Tax Return Form CT600 for period ended 31 March 2008.

Capital Gains Tax climbdown announced

twettone@wmcca.co.uk (Tim Wettone) — Thu, 24 Jan 2008 04:04:00 -0800

In the face of massive criticism from business organisations, the government has today announced an amendment to its capital gains tax proposals that were to become effective from 6 April 2008. This has been done in the form of a new Entrepreneurs' relief.

This will be targeted on the owners of small businesses, and will apply when they sell their business. The relief will also be available to all employees and company directors who hold at least a 5% stake in a qualifying company. It will take effect from 6 April 2008 alongside the rest of the capital gains tax reform package.

The relief will deliver a 10 per cent tax rate for up to the first £1 million of lifetime capital gains. Individuals will be able to claim relief for gains made on multiple occasions up to a cumulative total of £1 million. Gains in excess of the £1 million lifetime limit will attract the standard 18 per cent rate of tax.

This is a welcome change to the original plans, but will still mean an increase in capital gains tax payable for smaller businesses. By way of example, someone selling a business for £100,000 will pay an extra £2,760 from next year. However, they would still be better off by over £7,000 than with the original proposals.

At least those who were having to contemplate selling their businesses before 6 April 2008, in order to secure the tax levels under the current regime, will not now have to make hurried decisions.

Capital Gains Tax reforms - how will they affect you?

twettone@wmcca.co.uk (Tim Wettone) — Mon, 15 Oct 2007 08:10:00 -0700

The Government announced in the 2007 Pre Budget Report that it intends to abolish some tax reliefs and replace them with a flat rate of 18% for gains exceeding the annual allowance. The proposals will be sent out for consultation by HM Revenue and Customs, but as they currently exist they could influence your plans to sell before or after April 2008.

Although these proposals may impact on you if you are selling property, shares or other assets, you will also need to consider them if you are intending to hold onto your property, shares in your company or other assets. There may also be action you could take before April 2008 to make use of the current relief available.

We advise you to contact us to discuss these matters in more detail but, for your information, we have highlighted a few common examples below. Examples two to seven show how changes in circumstance would result in different decisions based on the tax consequences.

Example 1: 40% tax payer selling a business asset

A sole director/shareholder set up the company in August 1982. The shares were issued at a cost of 20,000. The shares will be sold in April 2008 for 250,000. Indexation is 20,940 (cost multiplied by 1.047). Taper relief 156,795. You are a 40% tax payer and make no other disposals.

If it is sold before April 2008, the gain will be (250,000 less indexation 20,940 less taper relief 156,795 less cost 20,000 less annual exemption 9,200 =) 43,065 chargeable at 40% = 17,226.

If sold after then, the gain will be (250,000 less cost 20,000 less annual exemption 9,200 =) 220,800 chargeable at 18% = 39,744.

A delay in sale would result in a higher tax charge of 22,518.

Example 2: 40% tax payer selling a non-business asset (1982 market value)

A property was bought in 1978 for 34,000. Its market value in 1982 was 25,000. Indexation is 35,598 (higher of 34,000 and 25,000 multiplied by 1.047). Taper relief 112,160. Sale proceeds will be 350,000. You are a 40% tax payer and make no other disposals. The option to use cost of an asset owned before March 1982 has been abolished from 6 April 2008.

If it is sold before April 2008, the gain will be (350,000 less indexation 35,598 less taper relief 112,160 less cost 34,000 less annual exemption 9,200 =) 159,042, chargeable at 40% = 63,617.

If sold after then, the gain will be (350,000 less market value March 1982 25,000 less annual exemption 9,200 =) 315,800 chargeable at 18% = 56,844.

A delay in sale would result in a lower tax charge of 6,773.

Example 3: 40% tax payer selling a non-business asset (1982 market value)

A property was bought in 1978 for 34,000. Its market value in 1982 was 70,000. Indexation is 73,290.(Higher of 34,000 and 70,000 multiplied by 1.047). Taper relief 82,684. Sale proceeds will be 350,000. You are a 40% tax payer and make no other disposals. The option to use cost of an asset owned before March 1982 has been abolished from 6 April 2008.

If it is sold before April 2008, the gain will be (350,000 less indexation 73,290 less taper relief 82,684 less market value 70,000 less annual exemption 9,200 =) 114,826, chargeable at 40% = 45,930.

If sold after then, the gain will be (350,000 less market value March 1982 70,000 less annual exemption 9,200=) 270,800 chargeable at 18% = 48,744.

A delay in sale would result in a higher tax charge of 2,814.

Example 4: 40% tax payer selling a non-business asset

A holiday home used solely by the owner and his family was bought in June 1996 for 80,000 to be sold in April 2008 for 265,000. Indexation is 5,040 (cost multiplied by 0.063). Taper relief 71,984. You are a 40% tax payer and make no other disposals.

If it is sold before April 2008, the gain will be (265,000 less indexation 5,040 less taper relief 71,984 less cost 80,000 less annual exemption 9,200=) 98,776 chargeable at 40% = 39,510.

If sold after then, the gain will be (265,000 less cost 80,000 less annual exemption 9,200=) 175,800 chargeable at 18% = 31,644.

A delay in sale would result in a lower tax charge of 7,866.

Example 5: 40% tax payer selling a non-business asset

A property was bought in November 1985 for 140,000 to be sold in April 2008 for 400,000. Indexation is 97,300. (Cost 140,000 multiplied by 0.695). Taper relief 65,080. You are a 40% tax payer and make no other disposals.

If it is sold before April 2008, the gain will be (400,000 less indexation 97,300 less taper relief 65,080 less cost 140,000 less annual exemption 9,200 =) 88,420, chargeable at 40% = 35,368.

If sold after then, the gain will be (400,000 less cost 140,000 less annual exemption 9,200 =) 250,800 chargeable at 18% = 45,144.

A delay in sale would result in a higher tax charge of 9,776.

Example 6: 22% tax payer selling a non-business asset

A property was bought in September 2004 for 55,000 to be sold in April 2008 for 80,000. No indexation. Taper relief 1,250. You are a 22% tax payer and make no other disposals.

If it is sold before April 2008, the gain will be (80,000 less indexation nil less taper relief 1,250 less cost 55,000 less annual exemption 9,200) = 14,550, chargeable at 22% = 3,201.

If sold after then, the gain will be (80,000 less cost 55,000 less annual exemption 9,200) = 15,800 chargeable at 18% =) 2,844.

A delay in sale would result in a lower tax charge of 357.

Example 7: 22% tax payer selling a non-business asset

A property was bought in March 1982 for 15,000 to be sold in April 2008 for 80,000. Indexation is 15,705. Taper relief 19,718. You are a 22% tax payer and make no other disposals.

If it is sold before April 2008, the gain will be (80,000 less indexation 15,705 less taper relief 19,718 less cost 15,000 less annual exemption 9,200 =) 20,377, chargeable at 22% = 4,483.

If sold after then, the gain will be (80,000 less cost 15,000 less annual exemption 9,200 =) 55,800 chargeable at 18% = 10,044.

A delay in sale would result in a higher tax charge of 5,561.

Broadly, if the proposals are implemented as they currently stand, it will mean that, after 6 April 2008, individuals who sell non-business assets will be subject to less tax, while those selling business assets are likely to be liable for significantly higher Capital Gains Tax bills. There are, however, exceptions to this generalisation due mainly to the abolition of indexation allowance and taper relief for assets sold after 5 April 2008.

The regime for charging companies corporation tax on their chargeable gains has not been changed so they will still be entitled to indexation allowance but not taper relief.

The following information may be appropriate for some individuals:

Those running a trading company who are currently questioning if they should continue trading as a limited company and who are entitled to business asset taper relief on the sale of the company may consider dis-incorporation to take advantage of indexation up to March 1998 and taper relief (75% if asset owned for two years) then continuing to run the business as a sole trader or partnership.
Individuals who have held assets like properties for some time and who are considering if they should trade through a company in the future may wish to consider accelerating that decision.
For individuals considering selling an asset which is subject to capital gains tax in the near future, the capital gains tax should be calculated under both the old and new systems so that the individual can decide whether to sell before or after 5 April 2008.
AIM (alternative investment market) shares qualify for 75% business asset taper relief if held for at least 2 years. Shareholders may wish to review these holdings before 6 April 2008 to take advantage of the current relief.

Please note in each of the examples the following assumptions have been made:

the annual exemption is not yet known and will be announced in the 2008 Budget, so for illustration the 2007/08 figure has been used it has been assumed that there are no other gains in 2007/08 or 2008/09 for the purposes of illustration, tax rates and allowances have not been altered prior to April 2008, gains are treated as a top layer of income, but this will no longer be the case from 6 April 2008.

Reliefs not affected principal private residence relief business asset rollover Enterprise Investment Scheme and Venture Capital Trusts business asset gift hold over relief losses brought forward

Pre-Budget Report 2007

twettone@wmcca.co.uk (Tim Wettone) — Wed, 10 Oct 2007 03:10:00 -0700

Following a politically turbulent week, Chancellor Alistair Darling has presented his first Pre-Budget Report to the House of Commons.

While acknowledging recent uncertainty in the global markets, Mr Darling emphasised that the UK economy remained strong, and that the Government had met all of its fiscal rules. Notwithstanding this, the Chancellor revised economic growth forecasts for 2008 downwards, from 3% to 2-2.5%.

Key measures of interest to business owners included a series of reviews of the business taxation regime, aimed at simplifying the tax system for businesses and the self-employed, and proposals to allow local authorities in England to set a business rate supplement. The Chancellor also confirmed that the main rate of corporation tax will fall by 2%, to 28%, from next year.

The capital gains tax system will also be subject to reforms, with the introduction of a single rate of 18%, with the stated aim of ensuring that private equity bosses pay a 'fair share'; while a number of 'loopholes' for non-domiciled taxpayers will also be examined.

The Chancellor made a much-anticipated announcement on inheritance tax, revealing that the potential threshold for married couples, civil partners, widows and widowers, will increase to £600,000, rising to £700,000 by 2010.

Other significant announcements include the introduction of a new aviation tax in 2009, which will tax individual flights rather than passengers, and increased investment in health and education, transport, and science and technology.

Do please contact us for specific advice about how these announcements might affect you or your business.

Business matters

Business tax simplification

The Chancellor announced a number of measures aimed at tax simplification, including:

Beginning this year, doubling the three line account threshold to £30,000 and introducing shorter self-employment pages for businesses with turnovers below the VAT registration threshold
For those self assessment payments on account due in January 2010 and July 2010 (ie for 2009/10), the threshold below which taxpayers do not need to make payments on account will be doubled from £500 to £1,000
Consulting this Autumn on how best to collect tax on benefits in kind and expenses through the payroll, removing the need for a separate end of year process for many employers
Consulting on removing the £8,500 a year threshold at which most benefits in kind become taxable, making it simpler for employers when reporting benefits
Consulting on how to improve the present separate systems for collecting Class 2 and Class 4 national insurance contributions (NICs)
Repealing 'outdated' legislation relating to expenditure on fire safety equipment from April 2008, making the tax code easier to understand.

Corporation tax

The Chancellor confirmed that the main rate of corporation tax will be cut by 2% to 28% from next year.

Personal tax

The 2008/09 rates and allowances for income tax, national insurance contributions, the Working and Child Tax Credits and Child Benefit/Guardian's Allowance will be published after the September Retail Prices Index becomes available.

Capital gains tax reform

For the tax year 2008/09 there will be a single rate of capital gains tax (CGT) set at 18%. The rate will apply to individuals, trustees and personal representatives. The 18% rate of CGT does not affect the income tax rates.

A number of changes to simplify the capital gains tax regime will be made, effective for disposals on or after 6 April 2008, including:

The withdrawal of taper relief (even if assets were held before 6 April 2008)
The withdrawal of indexation allowance (this change will only affect assets that were acquired before 6 April 1998)
The abolition of the 'kink test' (this means that all assets held on 31 March 1982 will be deemed to have had a cost equivalent to their market value on that date)
Simplification of the share identification rules. From 6 April 2008 all shares of the same class in the same company will be treated as forming a single asset (a 'share pool'), regardless of when they were originally acquired. However, the same day rules and bed and breakfasting rules remain unchanged, and shares will be identified under those rules before they are identified with shares in the share pool.

The Annual Exempt Amount (AEA) will remain. The current level for 2007/08 is £9,200 for individuals and £4,600 for some trustees. The AEA for 2008/09 will be announced at Budget 2008. Other CGT reliefs, as explained below, continue to have effect.

These measures will have effect for disposals made on or after 6 April 2008 and for held over gains coming into charge on or after 6 April 2008. The current CGT rules continue to apply for disposals made up to 5 April 2008.

Examples

As a result of these changes, individuals disposing of assets on or after 6 April 2008 will work out the tax due as follows (please note that these examples use the 2007/08 AEA for illustrative purposes; the AEA for 2008/09 will be announced at Budget 2008):

In 1995 Andrew purchased a holiday home in Devon for £100,000. He sells it in July 2008 for £250,000. The CGT due is calculated by deducting the purchase cost of £100,000 from the sale proceeds of £250,000 to give a gain of £150,000. Assuming he has no other capital gains in the tax year 2008/09 he can deduct from this the full AEA of £9,200 giving a chargeable gain of £140,800. That gain is taxed at 18% giving tax payable on 31 January 2010 of £25,344.

In 1960 Sam purchased some shares costing £500. In March 1982 they were worth £450. In August 2008 she sells the shares for £25,000. To calculate her CGT liability Sam will need to deduct from the disposal proceeds of £25,000 the March 1982 valuation of £450, giving £24,550. (She cannot deduct the cost of the shares of £500 as abolition of the kink test means she has to use the March 1982 valuation.) Assuming she has the full AEA for 2008/09 available she then deducts the £9,200 giving a chargeable gain of £15,350. That gain is taxed at 18% giving tax payable of £2,763.

Other CGT reliefs will continue to be available. For example:

Private Residence Relief will continue to be available for principal private residences
Business asset roll-over relief continues to be available. Roll-over relief enables the CGT payable on the gain on a chargeable asset to be deferred until a point in the future. Taper relief is not given on the rolled-over gain under the current rules
The Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) attract a number of CGT reliefs. These include: CGT exemption where income tax relief has been claimed; loss relief on unquoted shares; deferral relief; and extended taper relief (all subject to certain conditions). For disposals on or after 6 April 2008 there will be no taper relief available. All other CGT EIS and VCT reliefs continue to apply
Business asset gift hold-over relief also continues to apply. This relief allows CGT on business assets that are given away to be held over until the assets are disposed of by the donee
Unused allowable losses from past years will continue to be allowed to be brought forward in order to reduce any gains.

Note: companies that are liable to corporation tax in respect of their chargeable gains are not affected by any of these changes.

Inheritance tax (IHT)

The IHT nil-rate band - effectively the 'exemption' - on the death of one spouse or civil partner was specific to that individual death estate and could not be carried forward. In many cases, this resulted in a large IHT liability on the death of the surviving spouse or civil partner.

With effect from second deaths on or after 9 October 2007 the unused percentage of the nil-rate band from the first death estate can be carried forward and added to the nil-rate band available to the second.

For example:

On the first death none of the original nil-rate band was used because the entire estate was left to a surviving spouse. Then if the nil-rate band when the surviving spouse dies is £350,000 that would be increased by 100% to £700,000
If on the first death the chargeable estate is £150,000 and the nil-rate band is £300,000, then 50% of the original nil-rate band would be unused. If the nil-rate band when the surviving spouse dies is £350,000, then that would be increased by 50% to £525,000.

A similar provision will apply to alternatively secured pensions (ASPs). This will make the same proportion of the original owner's nil-rate band that was not used by their death estate available against the ASP charge on the cessation of the relevant dependant's pension benefits.

Inheriting pensions

Rules which will take effect from surrenders made after 9 October 2007 and deaths after 5 April 2008 will introduce taxing provisions affecting:

Surrender of rights to payments under a lifetime or dependant's annuity
A connected person becoming entitled to an increase in their scheme pension rights following, and in consequence of, the death of a member
A scheme member whose scheme rights are increased by virtue of the death of another scheme member at age 75 or more, or who becomes entitled to an unauthorised lump sum in consequence of that death.

Full details will be included in Finance Bill 2008.

Green taxes and the environment

Car Fuel Benefit

Since its introduction in 2003, the 'fuel benefit multiplier' has remained at £14,400. The multiplier is the amount by which the car's emissions based benefit rate is multiplied to arrive at the amount liable to tax and (employer) national insurance contributions.

From 6 April 2008 the multiplier will be increased to £16,900, taking the maximum income tax payable when an employer pays for the fuel an employee or director uses for private travel, from £168 to just over £197 per month.

Air Passenger Duty

Two intended measures have been announced which affect Air Passenger Duty (APD):

From 1 November 2008 duty will be payable at the standard rate on all 'business class only' flights (thus rising from £40 to £80 for non-EEA flights)
From 1 November 2009 duty will be payable per flight, not per passenger, under a new aviation tax.

APD rates will remain frozen at their current rates for 2008/09. For EEA flights these are £20 (standard) and £10 (reduced). For non-EEA flights these are £80 (standard) and £40 (reduced).

Other green measures

Other environmental measures announced included:

Confirmation of a rise in line with inflation for the climate change levy from April 2008, with agreements extended to 2017
Exemption for investment in microgeneration from reassessment between rates valuations
A draft Order on the measures to support biofuels from April 2008 has been laid in Parliament.

The Government also hopes to be able to include policy recommendations based on the King Review of low-carbon cars in Budget 2008.

Benefits

The amount of child maintenance a family can receive without an impact on their family benefits will rise from £10 to £20 per week in 2008, and to £40 per week in 2010.

In Budget 2007 an increase in child tax credit of £150 a year in addition to the indexation increase was announced, effective April 2008. The Chancellor announced that the increase in 2008 will in fact be £175 a year over indexation, with a further increase in 2010.

The pension credit will be increased by £5 per week from April 2008, for single pensioners, and by £7.65 per week for couples.

Compliance and anti-avoidance

Changes to the remittance basis

Individuals not domiciled or not ordinarily resident in the UK are currently taxed on overseas income and capital gains only at the time of remittance to the UK.

From April 2008:

After being resident in the UK for seven years, individuals will have the choice of paying tax on their worldwide income and gains or an annual £30,000 of tax over and above that payable on the remittance basis
Days of arrival in and departure from the UK will be included as days 'in' the UK in establishing whether or not an individual is resident in the UK for tax purposes
Unless unremitted foreign income is less than £1,000 a year, those claiming the remittance basis will lose their entitlement to UK personal income tax allowances.

Further technical measures will reduce opportunities for those taxable on the remittance basis to, for example, alienate income or gains, or convert income and gains into non-taxable funds.

Remittance basis for income from Irish investments and employers

Historically the income arising to UK resident non-domiciliaries from investment in the Republic and from employers resident there has been taxable as it arises.

From 6 April 2008 the general remittance basis (as outlined above) will apply to such income.

Spreading of tax relief for pension contributions

Legislation will be introduced in the Finance Bill 2008 to ensure that the rules that spread tax relief for large employer pension contributions relative to their contribution in the previous year cannot be circumvented by routing them through a new company. The measure will have effect for payments made on or after 10 October 2007 under binding obligations entered into on or after 9 October 2007.

Income shifting

Following the widely publicised decision in the Arctic Systems husband-and-wife business tax case, the Government has confirmed that it believes it is unfair for one person to arrange their affairs so that their income is diverted to a second person, subject to a lower tax rate, to obtain a tax advantage (income shifting). The vast majority of individuals cannot shift their income and income shifting is considered to run counter to the principle of independent taxation.

The Government will be consulting, shortly after the Pre-Budget Report, on draft legislation to take effect from 2008/09 to address income shifting. The legislation will work alongside the existing rules on businesses deductions and settlements, and will seek to remove the tax advantage obtained from income shifting. It would only apply when the income is in the form of distributions from a company (dividends) or partnership profits. Income from employment, interest on savings and any other source will not be affected.

HM Revenue and Customs will draw on the wide range of commercial experience available across the advisory community in framing practical guidance that minimises burdens, and makes it as easy as possible for individuals to understand their position. Relevant factors to consider when establishing whether or not income shifting has taken place could include the work done by the individuals in the business, the investments made and the risks to which they are subject through the business.

National insurance contributions exemption for holiday pay

The exemption from national insurance contributions (NICs) of holiday pay paid via a third party is to be removed for all sectors outside the construction industry. The exemption was aimed at addressing problems of high mobility and turnover of the labour force in the construction industry, but working time regulations now ensure holiday entitlement is preserved in all sectors and therefore an ongoing exemption for construction is no longer appropriate. However, given the longstanding nature and wide range of benefits typically provided by schemes, the exemption will be maintained for the construction industry for five years to give it sufficient time to adjust.

Employers outside this sector are increasingly using the exemption solely to reduce their and their employees' NICs liability, and therefore secondary legislation now laid before Parliament will remove the exemption for these employers from 30 October 2007.

Other anti-avoidance measures

Disclosure Regime

Budget 2004 introduced a disclosure regime that has enabled the Government to respond to tax avoidance more swiftly and in a more targeted fashion. In order to better identify and tackle those who make use of marketed avoidance schemes, the Government will consult on options to improve the operation of Scheme Reference Numbers.

Following on from action in 2006/07 on stamp duty land tax avoidance, the Government will consult with interested parties later this year on how to extend the disclosure regime to high value residential property transactions.

The Government will also consult with interested parties later this year on the practicalities of addressing the use of special purpose vehicles to reduce stamp duty land tax liability on high value residential property.

Financial Products - disguised interest

Action is being taken, effective immediately, to counter attempts by some companies to get around the shares as debt rules, which apply to interest income disguised as a capital gain or 'tax nothing'.

Interest relief exploitation

Action is being taken, effective immediately, to tackle avoidance schemes seen as abusing the availability of interest relief through the payment of interest in advance.

Leasing avoidance

Action is being taken, with immediate effect, to prevent two types of arrangement that seek to avoid tax through the leasing of plant and machinery. The measures will counter avoidance involving the sale and finance leaseback of plant or machinery and attempts to exploit long funding leases to create a tax loss where there is little or no commercial loss.

Life Insurance Companies

Legislation will be introduced to prevent life insurance companies from benefiting from tax relief for expenses in respect of reinsured business which have been met by the reinsurer of that business.

This will apply to transactions entered into on or after 9 October 2007 (and from 2008 to amounts spread forward in respect of earlier transactions).

Tackling Vehicle Excise Duty (VED) Evasion

To assist in the fight against VED evasion, the Government has now strengthened VED enforcement powers to include motorists driving unlicensed vehicles and parking in areas where enforcement is not currently permitted.

Therefore in addition to public roads, from 1 September 2008 VED enforcement will also cover vehicles parked in public places that are not intrinsically part of a private dwelling, where a Statutory Off Road Notification has not been made.

Other measures

Fixed-rate mortgages

The Housing Finance Review, launched in July, has already held discussions with a variety of mortgage lenders, investment banks, regulators, consumer groups and academics with a view to 'improving the efficiency' of mortgage finance markets.

A key aim is to make it possible for lenders to offer affordable long-term fixed rate mortgages of ten years or more. One proposal is for the Debt Management Office (DMO) to issue specific derivatives which may help mortgage lenders to hedge longer-term fixed rate mortgages more cost effectively, and in turn pass on the benefit to households.

The Housing Finance Review is due to report at Budget 2008.

Pensions: Technical improvements

Several changes will be made to introduce easements to the pension scheme rules. These relate to the lifetime allowance test, protection of lump sums exceeding 25% of pension rights, taxable property provisions and inheritance tax protection on overseas pension schemes. All the changes will be backdated and take effect on and after 6 April 2006 ('A' Day).

Consultations and proposals

A significant number of consultations and studies of interest to businesses were commissioned to coincide with the Pre-Budget Report.

Supplementary business rates

Alongside the Pre-Budget Report and Comprehensive Spending Review, the Government has published a White Paper relating to business rate supplements. The document announces the introduction of a new power for local authorities in England to raise and retain local supplements on the national business rate, in order to fund projects that will promote economic development.

The proposal, which builds on the review of sub-national economic development and regeneration, is being promoted as a substantial devolution of power to local communities, allowing them to make investment decisions that more closely reflect local economic need.

The announcement follows extensive public debate on reform to business rates in England and the recommendations of the Lyons Inquiry into local government.

The Government's proposed model for business rate supplements involves four levels of protection for business:

Revenue from supplements will only be available for spending on economic development in addition to existing plans. Proposals will be subject to detailed statutory consultation
A national upper limit of 2p in the pound will be set on the level on supplements that can be levied
To protect smaller businesses from disproportionate burdens, properties liable for business rates with a rateable value of £50,000 or less will be exempted from paying supplements
Where the supplement will support more than a third of the total cost of the project there will be a full 'double-lock' vote of businesses affected.

By April 2010, the Government will legislate to enable local authorities to levy the first supplements.

The PDF document is available here: http://www.hm-treasury.gov.uk/media/B/9/pbrcsr07businessrate266.pdf

Modernising tax relief for business expenditure on cars

In the 2006 Budget, the Government launched a consultation on modernising tax relief for business expenditure on cars. This proposed replacing the existing capital allowance rules that apply to cars costing over £12,000, with a range of first-year capital allowances based on CO₂ emissions, with the balance of unrelieved expenditure being taken to a new car pool with lower writing down allowances than the general pool.

An update was published in March 2007 in which views were sought on a refined proposal that utilised two pools, the general plant and machinery pool and a lower rate pool, and introduced a threshold for emissions. The pool to which expenditure would be allocated would depend on whether or not the CO₂ emission levels were above or below the threshold.

The update document also sought views on proposals to reform the lease rental restriction utilising the same emissions threshold and applying a uniform fixed percentage disallowance on relevant payments on cars with emissions above the threshold.

The summary of responses is available here: http://www.hm-treasury.gov.uk/media/5/2/pbrcsr07cars248.pdf

Aligning income tax and national insurance

In the 2006 Budget, the Government announced that it would review the case for aligning income tax and national insurance contributions (NICs), with the aim of reducing administrative burdens on employers and improving outcomes for those on lower incomes. The report published today sets out the conclusions of the review, and includes detailed analysis of the costs and benefits of moving to an annual and cumulative NIC system. It also sets out action that HM Revenue & Customs will take to further reduce administrative burdens.

The PDF document can be accessed here: http://www.hm-treasury.gov.uk/media/B/B/pbrcsr07incometax713.pdf

Moving to a global low carbon economy

One year after the publication of the Stern Review of the economics of climate change, the Government has published a document which draws together the key aspects of its response and its future priorities, both in the context of international negotiations and of the UK's efforts at home and abroad to reduce greenhouse gas emissions.

The PDF document is available here: http://www.hm-treasury.gov.uk/media/A/B/pbrcsr07stern770.pdf

Offshore funds: a discussion paper

The Government has published a discussion paper setting out how it intends to modernise the offshore funds tax regime, and is seeking comments on these proposals. The discussion paper covers changes to the definition of offshore funds for UK tax purposes, a proposed framework for offshore funds, and the tax treatment of UK investors into those funds.

A consultation stage impact assessment is included in the Annex, on which the Government is inviting comments from interest parties, by a deadline of Wednesday 9 January 2008.

The PDF document can be viewed here: http://www.hm-treasury.gov.uk/media/2/E/pbrcsr07offshore402.pdf

New Rules for Directors

twettone@wmcca.co.uk (Tim Wettone) — Mon, 01 Oct 2007 10:10:00 -0700

The Companies Act 2006 (the Act), sections 170-178 set out the legal responsibilities and general duties of company directors, and are known as the Statement of General Duties of Directors. This is based on established common law principles and case law, but also includes important reforms which affect all directors - executive or non-executive - in every company, large or small.

The Statement of General Duties of Directors comes into effect on 1 October 2007, with the exception of the duty to avoid conflicts of interest, which comes into force in October 2008.

The main principles are summarised below:

The general duties mean a director must act in the interests of the company and not in the interests of any other parties - including shareholders.

Understanding this principle should make it easier for you to decide how to act when there may appear to be a number of interested parties with apparently conflicting interests.

The company comes first. This principle applies even for 'one man' companies, which means a sole shareholder/director may not put his/her interests above that of the company.

Duty to act within the company's powers

In addition to the duties and responsibilities imposed on directors by the Act, every company will have its own set of rules known as its 'constitution'.

It is your duty to act in accordance with the company's constitution; that is, directors must observe any restrictions contained therein.

The powers delegated to directors by the shareholders must be used for the benefit of the company.

Duty to promote the success of the company

The term 'success' is not defined in the Act because this may vary from company to company. However, the underlying principle is that every director has a legal duty to try and act in such a way which, in their judgement, is most likely to bring 'success' to the company. For most companies 'success' is likely to mean sustainable profitability.

Duty to exercise independent judgement

This is self-explanatory but the Act will not be breached if you act in accordance with any prior agreement with the company on the exercise of your duties or as laid down by the company's constitution.

Duty of skill, care and diligence

Every director must exercise reasonable care, skill and diligence. The duty extends to everything that directors do. This duty is broken into two parts:

a. as a director you must show the general knowledge and skill which may reasonably be expected of a person carrying out the functions you carry out in relation to the company. Thus, a managing director will be expected to have a knowledge of all areas of the business or to have engaged people who can help them; and

b. as a director you must also act in accordance with any specific general knowledge and skills you actually have. Therefore a director who is a qualified accountant would be expected to show greater general knowledge, skills and interest in relation to financial aspects of the company than another director who was not so qualified.

Duty to avoid conflicts of interest

You must not allow any personal or outside interest to affect your duty to the company. You must, therefore, avoid any situation where you personally have, or may have, a direct or indirect interest which conflicts, or may conflict, with the interests of the company.

This duty even extends to former directors.

However, this duty is not infringed if:

a. the situation cannot reasonably be regarded as likely to give rise to a conflict; or

b. the matter has been authorised by the directors, as appropriate to the type of company (public companies must give the directors specific powers in their articles)

Duty not to accept benefits from third parties

A director of a company you must not accept a benefit from a third party arising for any reason of you being a director; or your doing (or not doing) anything as a director.

Any benefits that cannot reasonably be regarded as likely to give rise to a conflict of interest can be ignored.

This duty also applies equally to former directors.

Duty to declare an interest in a proposed transaction or arrangement

The Act states: "If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company he/she must declare the nature and extent of that interest to the other directors."

The declaration of an interest can be either verbal or written but must comply with the requirements set out in the Act.

Reforms introduced by the Act

The opportunity has also been taken to bring in the following reforms, which will all take effect from October 2008:

a. Minimum age

The minimum age at which someone can be appointed as a director will be 16 years. Any directors below this age on 1 October 2008 will automatically cease to hold office. At the same time, the maximum age of 70 for directors of public bodies will be abolished.

b. Corporate directors

It will only be possible to appoint a corporate director so long as there is at least one other director who is a human being. This is a change since previously it was possible to have a sole corporate director.

c. Registration and publication of directors' residential addresses

It will no longer be necessary to include directors' home addresses on public records. They will be able to use a 'service' address such as the company's registered office. However, it will still be necessary to keep a separate register of directors' residential addresses.

Additional duties

In addition to the duties discussed above, as a director you will continue to have responsibilities and duties for, amongst other things, ensuring that:

a. the company is not wrongfully trading.

b. the company does not pay an illegal dividend.

c. you are not illegally involved with 'phoenix' companies, where the assets of a failed company are moved to another legal entity.

d. you are not acting in breach of disqualification orders.

e. accounts are prepared properly, with proper keeping of books and records.

You need to be aware that there are civil and criminal sanctions and penalties for breaches of your responsibilities and duties as a director.

A leaflet, "The Companies Act 2006 Its Implications For Company Directors", gives fuller guidance on the duties and responsibilities of directors. You can obtain a copy from us.

Victory for Husband and Wife businesses

twettone@wmcca.co.uk (Tim Wettone) — Thu, 26 Jul 2007 06:07:00 -0700

Tens of thousands of married couples in business together breathed a sigh of relief this week when the House of Lords rejected the attempts by HMRC to tax dividends to one partner as if they belonged to the other. HMRC had used an old legal provision, Section 660, to argue that dividends paid to Diana Jones, who co-owned IT consultancy, Arctic Systems Limited, really belonged to her husband, Geoff - a higher rate tax payer.

The landmark case has been closely watched by small businesses and their advisors for six years, as Arctic Systems, supported by several small business organisations, battled their way through the courts. They suffered two defeats on the way, but when the case finally came to the House of Lords, the law Lords agreed unanimously that HMRC did not have a case.

There can now be no attempt by HMRC to impose additional taxes for past years.

However, the government has already announced its intention to bring in new legislation to correct what it perceives to be an unfair advantage for husbands and wives in business together. The ministerial statement, issued on 26 July 2007, reads as follows:

"The Government acknowledges the judgement given by the House of Lords in the Jones v Garnett (Arctic Systems) case.

The Government is committed to maintaining fairness in the tax system. The case has brought to light the need for the Government to ensure that there is greater clarity in the law regarding its position on the tax treatment of "income splitting".

Some individuals use non commercial arrangements (arrangements that they would not reasonably enter into with an arms-length third party) to divert income (which would, in the absence of those arrangements have flowed to them) to others. That minimises their tax liability, and results in an unfair outcome, increasing the tax burden on other tax payers and putting businesses that compete with these individuals at a competitive disadvantage.

It is the Government's view that individuals involved in these arrangements should pay tax on what is, in substance, their own income and that the legislation should clearly provide for this. The Government will therefore bring forward proposals for changes to legislation to ensure this is the case. In the meantime, HMRC will apply the law as elucidated by the House of Lords and will be providing guidance in due course.

The Government would not want commercial arrangements to be caught by any change to legislation. Consultation should help to ensure this".

Would you like to say something to the taxman?

twettone@wmcca.co.uk (Tim Wettone) — Fri, 22 Jun 2007 05:06:00 -0700

One of our staff members, Lynette Flavell, who is responsible for our payroll bureau, has recently joined the Small Employers' Consultation Panel.

This is a committee made up of representatives from H M Revenue & Customs (HMRC) and small businesses and is designed as a forum to discuss and, hopefully, influence the way HMRC deals with taxpayers, employers and agents.

Lynette has already raised a number of problem areas we are finding within PAYE and CIS administration, and she is keen to follow this up with further issues.

If you are experiencing any problems with your dealings with HMRC, then please let us know, via Lynette, so that she can raise them at the next quarterly meeting.

The representatives of HMRC have, so far, been unaware that some of the problems actually existed and they are keen to know about them to resolve them.

Wettone Matthews

Budget 2008 report

Darling emphasises environment in maiden Budget

Budget Highlights

Economic forecasts for 2008

Business Tax and Investment Incentives

Corporation Tax

Capital Allowances

Research and development (R&D) tax credits

Associated companies

Enterprise Investment Scheme (EIS)

Enterprise Management Incentives (EMI)

Anti-avoidance

Capital Taxes

Capital gains tax (CGT)

CGT: Entrepreneurs' Relief

Inheritance tax (IHT)

Pension savings

Duties

Reduction of stamp duty administrative burden

Alcohol and tobacco products duty

HMRC review of penalties for incorrect returns and failure to notify a taxable activity

Value Added Tax

Option to tax land and buildings

Indirect tax returns: correction of errors

Tax and Travel

Car and fuel benefits

VAT on fuel for private use in cars

Mileage rates

Car costs – VED rates

Company vans

National Insurance Contributions (NICs)

Other measures announced

Dormant accounts - reporting and tax liability

National Disaster

Tribunal reform

Funds of Alternative Investment Funds (FAIFs)

Non-domiciles and the remittance basis

Day counting

National Minimum Wage to rise in October

2008/09 Tax Calendar

Capital Gains Tax climbdown announced

Capital Gains Tax reforms - how will they affect you?

Pre-Budget Report 2007

Contents:

Business matters

Business tax simplification

Corporation tax

Personal tax

Capital gains tax reform

Inheritance tax (IHT)

Inheriting pensions

Green taxes and the environment

Car Fuel Benefit

Air Passenger Duty

Other green measures

Benefits

Compliance and anti-avoidance

Changes to the remittance basis

Spreading of tax relief for pension contributions

Income shifting

National insurance contributions exemption for holiday pay

Other anti-avoidance measures

Other measures

Fixed-rate mortgages

Pensions: Technical improvements

Consultations and proposals

Supplementary business rates

Modernising tax relief for business expenditure on cars

Aligning income tax and national insurance

Moving to a global low carbon economy

Offshore funds: a discussion paper

New Rules for Directors

Victory for Husband and Wife businesses

Would you like to say something to the taxman?