This month we have dedicated our newsletter to the
tax changes outlined by Chancellor Gordon Brown in yesterday's
Pre-Budget Report.
Please note this is just a quick snap-shot of some
of the forthcoming changes. No doubt we will be elaborating
in the months to come as the proposals become enacted.
Pre-Budget Report - 5 December 2005
Income Tax Allowances - 2006-2007
All allowances that are inflation proofed have been raised
by 2.7%, (Based on the increase in the Retail Price Index
to September 2005).
Personal Allowance will be increased to £5,035 (£4,895 2005-2006)
Personal Allowance (age 65-74) will be increased to £7,280
(£7,090 2005-2006)
Personal Allowance (age 75 and over) will be increased to
£7,420 (£7,220 2005-2006)
National Insurance
There are similar increases in the lower, upper and other
exemptions for national insurance purposes.
The standard main rates of employees and employers contributions
are unchanged.
The flat rate of Class 2 contribution remains unchanged at
£2.10 per week.
Fuel Duty
The Chancellor announced a continuation of the freeze in
main fuel duty rates and the rates for road fuel gases.
VAT
The VAT Annual Accounting Scheme turnover threshold will
be doubled to £1,350,000, and the Government has written to
the European Commission for permission to increase the Cash
Accounting Scheme turnover threshold to the same level.
Child and Working Tax Credit rates and Child Benefit
- 2006-2007.
Child benefit is raised in line with inflation, the lone
parent element remains frozen. The disabled and severely disabled
child elements rise with inflation.
Interestingly the Government is raising the disregard in
Tax Credits for increases in income from one tax year and
the next - from the present £2,500 to £25,000. This should
ensure that almost all families with increasing incomes will
not have their tax credit entitlement reduced in the first
year of a salary or income increase.
The Revenue & Customs will also put automatic limits
on the amounts which can be recovered if there has been an
overpayment.
These changes should provide a greater degree of certainty
for claimants particularly for families with a rise in income.
However new responsibilities are being placed on claimants.
From November 2006, claimants will have to report more changes
of circumstances. They will be:
-
ceasing to work at least 16 or 30 hours per week
-
ceasing to be responsible for a child or young person.
-
a child or young person ceasing to qualify for support.
From April 2007 claiments will have just one month to report
a change that reduces their tax credit entitlement, not three
months as at present.
Tax Avoidance!
If you have devised your own in-house direct tax avoidance
scheme, the Government are introducing a provision that will
require you to notify the Revenue within 30 days of implementation!
This will be effective from 6 April 2006.
New Property Trust
The Government is to bring forward legislation to introduce
UK Real Estate Investment Trusts in the Finance Bill 2006.
The new status will be open to public companies listed on
a Recognised Stock Exchange. Companies or groups that qualify
will not pay corporation tax on qualifying property rental
income or qualifying capital gains. There will be a requirement
to distribute at least 95% of net taxable profits on rental
income to investors, who will then pay tax at their marginal
rate.
The Government will announce a conversion charge applying
to companies joining the scheme.
More on Property.
To deal with the problems experienced by first time buyers
getting a toe-hold on the property ladder, the Government
is to expand shared equity schemes, where lenders and the
government take a stake in the homes of first-time buyers.
This will be combined with a reform of the planning system
aimed at speeding up the building of new homes.
Planning Gain Supplement
The Government is to consult on the introduction of a Planning
Gain Supplement (PGS) which would give the government a slice
of any rise in the value of the land which has been granted
planning permission. The imposition of a PGS is unlikely to
be popular with house builders, or individuals owning land!
The aim is to use the money raised to improve the infrastructure
in areas where new building is taking place.
Small Company Tax Rates - simplified!
In 2002 the Government introduced a zero per cent rate of
corporation tax - it applied to companies with profits up
to £10,000.
This opened up the possibility of earning up to £10,000 profit
as a limited company and then distributing the profit as dividends
to shareholders. For basic rate band shareholders this allowed
them to earn and receive the £10,000 profit completely tax
free.
Somewhat concerned by this apparent misuse of the zero rate
band the Government introduced legislation called the "non-corporate
distribution rate" in 2004 that effectively taxed all the
company's profit at 19% if, the profits earned up to £10,000
were distributed to shareholders. In other words the first
£10,000 zero rate band only applied if you retained the profit
in the company.
After discussing this "over complicated" area of corporate
tax with interested parties, both the zero rate band and the
non-corporate distribution rate are to be abolished. There
will now be a single small companies' rate of 19%.
Pensions - tax simplification 6 April 2006.
Residential Property and other assets.
From the 6 April 2006 the new pension rules will be amended
to remove the tax advantages for investing in residential
property, fine wines, classic cars and art and antiques, where
the benefits are "self-directed".
This is aimed at preventing tax payers benefiting from tax
relief, in relation to contributions made to pension funds,
for the purpose of funding the purchase of assets for their
or their families own use.
The change will remove any tax advantages of holding residential
property directly, or other exotic assets within a SIPP. (Self
Invested Personal Pension)
Recycling of tax-free lump sums.
Presently it is possible for pension scheme members to withdraw
a tax free lump sum which is then reinvested back into a registered
pension scheme - this automatically generates the possibility
of more tax relief on the amount reinvested.
This scheme will be blocked by inserting an anti-avoidance
rule into the new pensions legislation to take effect from
the 6 April 2006.
Finally - two allowances for pensioners.
Winter Fuel Payments.
This year the Chancellor has increased the payments to pensioners
to assist with winter fuel costs:
This increased amount will apply for the rest of this parliament.
Free central Heating!
Pensioners on Pensions Credit will be able to install central
heating free of charge.
Other pensioners, not receiving Pensions Credit, can apply
for a £300 discount if they did not previously have central
heating in their homes.
Tax Diary December 2005/January 2006
1 December 2005 - Due date for corporation
tax for the year ending 28 February 2005.
19 December 2005 - PAYE and NIC deductions
due for month ending 5 December 2005. (If you pay your tax
electronically the due date is 22 December 2005)
1 January 2006 - Due date for corporation
tax for the year ending 31 March 2005.
19 January 2005 - PAYE and NIC deductions
due for month ending 5 January 2006. (If you pay your tax
electronically the due date is 22 January 2006)
31 January 2006 - Last day to file your
tax return for 2005, and to pay any balance of Self Assessment
tax for that year, to 5 April 2005. You may also need to make
a payment on account for the tax year ending 5 April 2006.
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DISCLAIMER - PLEASE NOTE: The ideas shared with you in this
email are intended to inform rather than advise. Taxpayers'
circumstances do vary and if you feel that tax strategies
we have outlined may be beneficial it is important that you
contact us before implementation. If you do or do not take
action as a result of reading this newsletter, before receiving
our written endorsement, we will accept no responsibility
for any financial loss incurred
