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Budget and tax information from Exeter Accountant

The June 2010 Emergency Budget Explained

The budget and tax changes explained by Steve at his Exeter based accountants, showing how it affects you and your business.

An emergency budget is rarely a sign of a booming economy, and the warnings of austerity are a warning that the public spending will have to be decreased dramatically.

However, whether you are worried about your personal taxes or your business, Exeter accountant, we can guide you through the changes and mitigate against any rises.


 

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Below is a quick reference summary of the prime aspects to the Budget. For details of how it the tax changes affect you and your business contact me on 01395 233178

Budget summary

It is all about timing and talking
We have all known it was coming – an emergency Budget.  Against a background of huge debt, the Chancellor had little room to give much good news.  A number of changes were made to personal and business taxation.  It is now a question of timing and talking.  Timing will alter the amount of tax to be paid or when it is to be paid.  Talking is to Stephen and his team to make sure that you plan all your business moves most advantageously.

Below is a quick reference summary of the prime aspects to the Budget.  For details of how it affects you and your business contact me on 01395 233178

Personal Taxation

  • For those under 65 the personal allowance has been increased by £1,000 for the tax year 2011 /12. 
  • For 2010 / 2011 there are changes to the adjusted net income for those with over £100,000.  Reductions will be £1 for every £2 above the limit. 

I suggest that you talk to us about all these changes.
Tax rates

  • The higher rate tax for those with incomes above £150,000 remains at 50% (42.5%) for dividends)
  • The NIC contribution has also been changed to ensure that higher rate taxpayers will pay the same total level of income tax.  The basic limit will reduce to £2500 and the upper limit to £1650.  These changes will come into force in 2011/12.
  • The existing basic rate limit is £37,400, but the exact figure will be announced in the autumn.
  • The higher rate threshold remains frozen until 2013/14.

Trust rate

  • For 2010 / 2011 the discretionary trust rate was increased from 40% to 50% and the trust dividend from 32.5% to 42.5%.

National Insurance contributions

  • Broadly the NIC rates have been frozen at the 2009/10 amounts.
  • There will be changes to NIC thresholds in April 2011. 
  • The NIC Primary threshold will increase and a further 1% will apply for employers, employees and the self employed.  Class 1 (employee) NIC will be 12% and the class 4 rate will be 9%.  The employer rate will increase to 13.8%.
  • The additional rate of Class 1 contributions increases from 1% to 2%
  • The good news is that the Government has increased the level at which employers start to pay NIC has increased by £21 per week above the index from April 2011.
  • A 3year scheme to exempt new business in targeted areas (this region) from up to £5,000 of Class 1 employer NIC for each of the first 10 employees.

Comment –
Again it is all about status and timing.  However directors of limited companies benefit by £476 rising to £600 per month.  Likewise there are benefits in director’s taxation liabilities and personal allowances.

It is time to review your business.  Talk to Stephen and the team and examine the various changes which could improve your cash flow and liabilities.

Tax Credits

  • The Chancellor announced a whole raft of changes.  It would be sensible to talk to Stephen about these changes if you are claiming tax credits.
  • In essence some have been reduced, but from April 2011 the Child Tax Credit will increase by £150 above indexation and in 2012 it will increase by £60.

Child benefit

  • From April 2011 both rates of Child Benefit will be frozen for 3 years.

Higher rate relief for pension contributions from April 2011

  • The previous government announced an intention to remove higher rate relief on pension contributions for those with an income exceeding £130,000.  The complex structure is now being reviewed by the government in consultation with interested parties.    Again it’s a case of talking to Stephen.

Annuities

  • From April 2011 the obligation to purchase an annuity by the age of 75 is being revised to 77 years.  A consultation will be undertaken later.

Business budget facts
Sole traders – time to review your status
Comment -
There have been a number of changes to taxation and allowances.  If you are a sole trader there are advantages in changing your status to a limited company.  As a limited company the tax regime has a number of differences which are beneficial.  You can manage the tax liabilities.  The period in which tax is paid changes. 

“There are so many benefits for sole traders”.  “The time for you to talk to me is now.  Tax payments affect every business and every person.  You need to make sure that you and your business is tax efficient and that means changing your status from sole trader or partnership to a limited company”.  

Timing the change can affect your cash flow – often beneficially.  It is particularly important for start-up businesses.  Undertaking this action will ameliorate the tax liabilities.

Holiday lettings

  • The changes to the system announced by the previous government have been reversed.  The rules therefore continue as they were in 2010/11 with a consultation to be held later.

Corporation tax

  • For companies with profits in excess of £1.5 million the rate has been reduced from 28% to 27%.
  • Further graduated reductions in coming years will reduce the rate to 24% by April 2014
  • The small profits rate (profits up to £300,000) reduces to 20% with effect from April 2011.
  • The marginal rate of tax (£300,000-£1.5million) is expected to be 28.75% from April 2011.
  • The Chancellor announced the reform of Corporation Tax over a 5 year period to promote UK competiveness.

Capital allowances

  • The Annual Investment Allowance will reduce from £100,000 to £25,000 from April 2012.
  • The rate of writing down allowances also changes from 20% to 18% on expenditure allocated to the main pool of equipment.  The special rate pool also reduces from 10% to 8%.
  • The introduction of a new 100% first year allowance fro capital expenditure on new zero emission goods vehicles for expenditure incurred after April 2010.
  • Also the removal of a condition that Intellectual property derived from research and development be owned by a small and medium enterprise has been removed.

Comment -
If you are going to purchase assets the how you buy them is important.  For instance it may be more beneficial to lease the equipment as this may affect the tax and allowances situation beneficially.  It is a changing situation so - bewareThis is the time to talk to Stephen and the team before you embark on the wrong method.

Capital Gains

  • The rate remains at £10,100
  • For those with taxable positions below £37400, the rate remains at 18%.  For those above the threshold the rate increases to 28%.
  • Entrepreneur’s relief remains at 10%.
  • The new rate applies from 23rd June 2010.

Comment –
The changes to CGT mean that planning and timing is important if the taxation position is to be both managed and ameliorated.

The way forward is to talk to Stephen and the team about future plans.

Entrepreneur’s relief

  • The Finance Bill 2010 will increase the amount of gains from £2 million to £5 million.
  • The 10% relief remains
  • There are other changes to the various qualifying gains and if these concern you then please consult Stephen, who will advise the exact position.

Comment –
If you are planning a change which will significantly affect CGT or you are planning a sale or disposal, then timing is critical.  Talking to Stephen and the team essential.  The timing of a sale can make the difference of a year in taxation.  How it is undertaken may affect the taxation, the payment timescale and alleviate some CGT.

The way forward is to talk to Stephen and the team about future plans.

VAT Change

  • This is the most contentious and biggest change in the budget.
  • The rate will increase fro 17.5% to 20% with effect from 4th January 2011.
  • The rate change does not affect zero-rate or the 5% reduced rate.
  • This change will affect cash flows and clients are advised to revise their cash flow now to plan for the changes.
  • The Flat rate scheme will change from 4 January to reflect the overall rate change.

Comment –
This is the major change in the budget and businesses need to examine all the implications carefully.  Look again at the various schemes to see if you are on the most efficient method.  There are different levels for the flat rate scheme and you may find this is a better way to manage your VAT.  If you undertake a lot of work to private persons, then the flat rate scheme avoids issuing VAT invoices.  It enables businesses to present more attractive prices.

The VAT levels remain largely the same.  The answer is to talk to Stephen and the team.  The changes will affect your cash flow so be prepared.  There is time to adjust your pricing.  But be aware that some companies – your competitors - may decide to absorb the VAT increase.   By not adding the increase it becomes a good marketing ploy and likely to build sales or move customers to new suppliers.

Inheritance tax

  • The Government will consult on bringing IHT on trusts within Disclosure of Tax Avoidance Scheme.

Bank levy

  • A bank levy based upon balance sheets will be introduced from 1 January on banks.

Disclaimer
In producing this summary any aspects which concern you must be discussed with us to ensure that complete information and liabilities are known.  The summary has been produced as an aide-memoire and no responsibility can be accepted for any loss occasioned by anybody taking action as a result of this summary.

 
 
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