Although the content of the Chancellor's speech seemed
fairly nondescript this year, as always the devil is in the
detail!
We have summarised a number of the more topical taxation
issues to be included in the Finance Bill 2006 and start with
a quick rundown of the changes, or absence of changes, to
the main taxes. All references are to the tax year 2006-2007
unless noted otherwise.
Budget Update 22 March 2006
Income Tax
The single personal allowance has increased £140 to £5035
- equivalent allowances for the elderly are:
Age 65 - 74 increase of £190 to £7280
Age 75 and over increase of £200 to £7420
Income tax rates are unchanged.
Income tax bands have increased marginally. You will now
pay higher rate tax if your taxable income exceeds £33,300,
previously £32,400.
Corporation Tax
The changes to the starting rate announced in the 2005 Pre-Budget
Report have been confirmed. The 0% starting rate on the first
£10,000 of profits is abolished. From the 1 April 2006 the
small companies rate of 19% will apply to all profits up to
£300,000.
The main rate of 30% is unchanged.
National Insurance
There are various small increases to the earnings limits
below and above which national insurance is charged. No deductions
will be made if your weekly wages are below £84, previously
£82.
The class 1, 2 and 4 contribution rates are unchanged
Capital Gains Tax
The annual tax free exemption has been increased by £300
to £8,800.
Inheritance Tax
The inheritance tax threshold has been increased by £10,000,
estates up to £285,000 are now exempt. This exemption will
be increased annually until 2009-2010 when the exempt estate
level will be £325,000.
VAT
Businesses must register for VAT if their annual taxable
turnover exceeds £61,000, previously £60,000. Deregistration
limit has been increased to £59,000, previously £58,000. Changes
come into effect from 1 April 2006.
Working and Child Tax Credits
There are a number of increases to both the Working and Child
Tax Credits. There are no major changes.
The basic element of the Working Tax Credit has increased
by £45 to £1,665. There are similar increases in the other
elements.
The childcare part of the Working Tax Credit remains at £175
a week for one child, £300 for two or more children. However
80% of relevant costs are now to be taken into account, last
year was 70%.
Child Tax Credit, the child element has been increased by
£75 to £1,765. Again there are similar increases in the other
elements.
The major change is the increase in the income disregard
which is now £25,000, previously £2,500.
Stamp Duty
Sales of residential property, outside development areas,
are now exempt from stamp duty up to £125,000, previously
£120,000. All other rates remain the same.
Tobacco Duty
9p increase on a packet of 20 cigarettes, 3p increase on
a packet of 5 cigars, 8p increase on a 25g pack of hand rolling
tobacco.
Alcohol Duty
1p increase on a pint of beer, 4p increase on a 75cl bottle
of wine.
No increase on sparkling wines, cider and spirits!
Motorists - Changes in Vehicle Excise Duty
The Chancellor has further increased the incentives to drive
C02 friendly cars by penalising the owners of "gas-guzzlers".
Vehicle excise duty for private vehicles registered from
1 March 2001 is to be a graduated charge depending on the
C02 rating of the vehicle. The new rates are set out below.(Including
the new rates for vehicles registered before March 2001)
Registered before March 2001.
1549cc and below new rate of £110
above 1549cc £175, an increase of £5
Registered after 1 March 2001.
CO2 Rating:Petrol Cars:Diesel Cars
100 and below: zero charge
101 to 120: £40: £50
121 to 150: £100: £110
151 to 165: £125: £135
166 to 185: £150: £160
186 to 225: £190: £195
226 and above: £210: £215
50% of vehicles should see their VED frozen or reduced.
Capital Allowances - Increases in first year allowances
For one year from the 1 April 2006 for companies subject
to corporation tax, and from the 6 April 2006 for businesses
paying income tax, it is confirmed that the first-year capital
allowance is to be increased to 50% (previously 40%).
The change applies to small businesses only.
Changes to the Venture Capital Schemes
Changes to Enterprise Investment Schemes:
New Rules for the taxation of Leased Plant and Equipment.
Current rules:
-
Lessors of plant and machinery can claim capital allowances
based on the cost of the assets leased, and are taxed
on the total rentals received.
-
Lessees are not entitled to capital allowances and can
claim a deduction from their profits for rentals paid.
New rules (where lease contract is finalised on or
after 1 April 2006).
-
Lessors will no longer be able to claim capital allowances
and will only pay tax on the financing charges included
in the rentals.
-
Lessees will be able to claim capital allowance, and
will claim tax relief for the proportion of their lease
rentals on which capital allowances are not available.
The enabling legislation is likely to be complex. Note the
new rules should not apply to leases of less
than 5 years, (or of between 5 and 7 years in certain circumstances).
Pension Allowances.
The new pension regulations apply from the 6 April 2006.
Just to refresh your memory, the lifetime allowance is to
start at £1.5m, and the annual allowance will start at £215,000
rising to £255,000 by 2010.
The anti-avoidance rules published in December 2005 are also
confirmed:
-
self-directed schemes will obtain no tax advantage from
investing in residential property, fine wine, classic
cars, art and antiques,
-
individuals will be prevented from artificially boosting
their funds by recycling tax-free lump sums.
Benefit in Kind changes
From the 6 April 2006 the tax consequences of providing certain
"perks" are changing!
Mobile Phones
At present there are no limits on the number of phones provided
to an employee, including additional phones for his or her
immediate family.
From the 6 April 2006 only one phone, per employee will be
allowed tax free.
If vouchers are provided to fund the loan of a phone to an
employee this will no longer cause a tax problem. Also if
the employee agrees to a salary sacrifice to cover the cost
of the phone, no tax charge will apply.
Computers
The present tax exemption for the loan of a computer to an
employee will cease as from the 6 April 2006.
Eye Tests - VDU users
There will be no tax charge after the 6 April however the
eye test is funded:
-
if employee pays for the eye test personally and is reimbursed
-
if employer pays directly, or
-
if employer provides vouchers to cover the cost.
In the past paying by means of vouchers has created tax problems
for the employee.
Landlords - claim for draught proofing and insulating
hot water systems
The Landlord's Energy Saving Allowance will be extended to
include the above. The annual allowance is a deduction from
rents up to a maximum £1,500 per building for landlords who
pay income tax.
Expenditure includes:
-
loft insulation
-
cavity wall insulation
-
solid wall insulation, and now
-
draught proofing, and insulation of hot water systems.
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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
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our written endorsement, we will accept no responsibility
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