Summary of Changes Affecting Business Clients
Chancellor Alistair Darling’s first Budget was not quite what it seemed at first glance, when it appeared to be a fairly ‘steady as you go’ Budget with a green tinge. It contains a great many changes in detail relating to capital allowances in particular and pages of announcements of anti-avoidance legislation, especially regarding abuse of the tax law on lease payments.
This bulletin looks at the most important changes announced by the Chancellor which will affect businesses. Many changes were announced in the Chancellor’s pre-budget statement last autumn. Here we are concentrating on what is new and particularly those changes which may affect clients adversely if action is not taken promptly.
A word of warning, however. The forecasts are based on growth forecasts of between 1.75 per cent and 2.25 per cent for 2008, 3 per cent for 2009 and 2.5 to 3 per cent for 2010 – estimates considerably higher than those of most independent commentators. Should these targets fail to be met, the impact on tax revenues will almost certainly mean tax increases next year and the year after.
The Loan Guarantee Scheme – the Government scheme by which it acts as guarantor for lending institutions which lend to small businesses otherwise unable to raise loan finance – is to be extended by £60m and a £12.5m ‘capital fund’ is to be made available to entrepreneurs.
Tax Powers Generally
Tucked in page 228 of the Budget Notes is a list of changes in the powers the tax authorities will have in order to obtain information about a taxpayer’s affairs. It makes somewhat worrying reading and includes the power to require third parties to provide information which is relevant to establishing a taxpayer’s correct tax position and the introduction of a criminal offence of destroying or concealing records requested under a notice authorised by a tribunal.
Capital Gains Tax
The abolition of taper relief and indexation relief has been confirmed as well as the new flat rate of 18 per cent for chargeable gains. Most small businesses will benefit from the new Entrepreneurs Relief, which will reduce the effective rate of tax to 10 per cent on the first £1m of gain. This will apply to disposals of:
· all or part of a trading business which the individual carries on alone or in
· assets of the individual’s or partnership’s trading business following
the cessation of the business;
· shares in (and securities of) the individual’s ‘personal’ trading
company (or holding company of a trading group);
· assets owned by the individual and used by his/her ‘personal’ trading
company (or group) or trading partnership.
Enterprise Zone Allowances are being withdrawn in 2011. However, on the plus side, where the main capital allowances ‘pool’ reduces to less than £1,000, the whole balance will be able to be claimed. This will allow businesses to make a ‘one off’ claim instead of a series of smaller claims. There are a number of changes to the capital allowances regime affecting property.
The reduction in the large companies’ rate of Corporation Tax to 28 per cent from April 2008 was confirmed. Directors and others caught in the complex web of the UK’s associated companies’ rules (which can lead to significant increases in the tax liabilities attaching to companies) will be pleased to note the proposals to simplify that legislation.
The various changes announced earlier have been confirmed. Important among these are the changes that clarify which parts of buildings (such as cold water systems and thermal insulation) do qualify for capital allowances. These will be included in a special capital allowances pool from April 2008 and a 10 per cent writing-down allowance (WDA) will apply.
Anti-avoidance rules are being introduced to prevent associated businesses obtaining ‘second portions’ of the new Annual Investment Allowance, which applies to the first £50,000 of capital investment in a year.
One remarkable change is that the Finance Bill 2008 will contain legislation enabling loss-making companies to surrender losses attributable to 100 per cent first-year allowances (enhanced capital allowances) on designated energy-saving or environmentally-beneficial plant and machinery in exchange for a cash payment from the Government.
Surging oil prices mean that the Chancellor has opted for the safe course of not implementing the expected 2p per litre price increase, although fuel duty will in due course rise by 0.5p per litre. This is much less generous than it might seem as the price rises which have already taken place mean that the additional tax revenue per litre has risen substantially. The tax regime on motoring is being revamped so that cars which have lower emissions of carbon dioxide will be taxed more lightly and the heaviest producers will pay more.
The bad news for businesses is that the benefit in kind regime for private fuel for vans is being changed to bring it in line with that for cars. Road Tax on most light vans is also being increased by £15 from 2009. There are a number of less significant changes broadly aimed at making having a company car less attractive.
With effect from 1 April 2009 for Corporation Tax purposes and 6 April 2009 for Income Tax purposes the capital allowance treatment of business cars will be reformed. Expenditure on cars with carbon dioxide emissions above 160g/km will attract a 10 per cent WDA and expenditure on cars with carbon dioxide emissions of 160g/km or below will attract a 20 per cent WDA. The rules disallowing a proportion of car lease rental payments will also be reformed in line with the new capital allowances rules. The 100 per cent first year allowance for qualifying expenditure on cars with very low carbon dioxide emissions will be extended until 31 March 2013.
From 1 April 2008, the VAT registration threshold is being substantially increased, from £64,000 to £67,000, and the deregistration threshold is increased from £62,000 to £65,000. Following a recent setback in the courts relating to time limits on reclaims of VAT, legislation is being introduced to make it clear that from 1 April 2009 all claims for over-declared or under-claimed VAT will be subject to a three year time limit. If you have overpaid VAT for a substantial period, make sure your claim goes in before the law is changed.