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Key Dates

U-Turn on Furnished Holiday Letting

However, in an apparent U-turn, on 7 April 2010, it was announced that the Government has removed these proposals from the draft 2010 Finance Bill.

It remains to be seen if this is just a temporary or more permanent change, but for now at least the possibility of income tax loss relief claims and a favourable capital gains tax and inheritance tax status looks set to remain in place.

Property Related Tax Issues Resulting from the 2010 Budget

The chancellor delivered what many considered to be a low key budget, possibly the first of two that could be delivered in 2010. There were no headline grabbing changes that are likely to effect the financial aspect of property ownership, but there are a few points worth mentioning.

Capital Gains Tax

Entrepreneurs' Relief is to be doubled to £2 million. This will clearly benefit businesses that use property within the trade. Generally, Entrepreneurs' Relief has not been good for the property owner as it is harder for a property to qualify for the preferential business tax rate of 10%, than was the case with taper relief.

Despite speculation to the contrary, the main rate of capital gains tax is to remain unchanged (for the time being) at 18%.

Capital allowances

The annual investment allowance is to be doubled to £100,000 for small businesses, which covers a lot of integral features that may exist within a business premises. Further items now qualify as energy saving or water efficient machinery that also qualify for 100% tax relief. The main purpose of these tax incentives is to encourage businesses to make their premises more energy efficient.

Furnished holiday lets

The 2010 Finance Bill will confirm that furnished holiday lets no longer qualify for the same tax treatment as businesses. Losses will not be available to be offset against other income, and advantageous capital gains tax treatment will be lost, but there may be scope to still claim Entrepreneurs' Relief in respect of a qualifying property, if it is sold before April 2013.

Stamp Duty and Land Tax

The Government announced first time buyers will be exempt from SDLT on purchases up to £250,000.

As a result of a significant increase in the use of schemes (typically involving partnerships) designed to avoid SDLT, measures have been announced to block such avoidance schemes.

As is often the case where any change is made to the tax legislation, it is a case of the devil is in the detail. If you would like any further information on any of the above matters, please contact Tom Foster of CW Fellowes Limited on 01329 220 554 or tomfoster@cwfellowes.com.

Budget 2010

Main Budget proposals:

• Entrepreneurs’ Relief limit doubled to £2 million
• Annual Investment Allowance doubled to £100,000
• Changes to certain loan write off rules for close companies
• Inheritance tax nil rate band frozen at £325,000 until 2014/15
• SDLT relief is introduced for first time home buyers.

Please see the articles on these specific topics to find out more details of the changes.

Internet link: Treasury website

Annual Investment Allowance Increased

Most businesses are able to claim an Annual Investment Allowance (AIA) on the first £50,000 spent on plant and machinery. This provides immediate 100% tax relief on qualifying expenditure. The allowance is to increase to £100,000 from 1 April 2010 for a business within the charge to corporation tax and from 6 April 2010 for a business within the charge to income tax.

As the chargeable accounting periods of many businesses will span the operative date of change, a pro rata calculation of their maximum entitlement will be required.

Please do contact us if you would like advice on how this increased allowance will affect your business.

Internet link: Budget report AIA

Close Company Loan Write Offs

Under the corporation tax rules governing corporate debt (the ‘loan relationships’ rules) the company may be entitled to a deduction against its tax liability. A loan released or written off will normally give rise to an expense recognised in the company’s accounts.

The release or write off of loans to participators will not obtain a corporation tax deduction when made on or after Budget day.

HMRC is seeking to clarify the law so that there is no tax advantage to a shareholder/ director receiving a loan from a company which then claims a corporation tax deduction compared to the shareholder/director receiving a dividend (for which there is no corporation tax deduction for the company).

Please do get in touch if you would like further advice in this area.

Internet link: Draft legislation

Entrepreneurs' Relief

The amount of an individual’s capital gains that can qualify for Entrepreneurs’ Relief are currently subject to a lifetime limit of £1 million. Gains qualifying for the relief are charged at an effective tax rate of 10% rather than the usual rate of 18%. Click here to view full article...

Inheritance Tax Nil Rate Band Frozen

Stamp Duty Land Tax And First Time Home Buyers

At present the Stamp Duty Land Tax rate is 1% for residential property purchases where the consideration is more than £125,000 but does not exceed £250,000. Legislation will be introduced in the Finance Bill to give relief from SDLT where the consideration is more than £125,000 but not more than £250,000. This relief will apply where the purchaser or all the purchasers are first time buyers and intend to occupy the property as their only or main home.

The new relief will be available for residential property purchases where the effective date (normally the date of completion) is on or after 25 March 2010 and before 25 March 2012.

The current highest SDLT rate of 4% applies to residential property purchases where the consideration exceeds £500,000. A new rate of 5% will be introduced for transactions in residential property where the consideration exceeds £1 million.

This new higher rate will apply where the effective date is on or after 6 April 2011.

Internet link: Budget report SDLT

Payment of VAT

According to HMRC’s guidance:

“A cheque takes three bank working days to clear. Bank working days are Monday to Friday excluding bank holidays.
 
To allow for possible postal delays (for which HMRC is not responsible) please allow at least three working days for the cheque payment to reach them and a further three days for the payment to clear HMRC’s bank account.
If your cheque payment does not clear by the due date shown on your VAT return you may be liable to a surcharge for late payment.”

From 1 April 2010 it will be mandatory for all VAT-registered traders with a turnover of £100,000 or more, plus any newly registered traders (regardless of turnover), to submit their returns online and pay electronically. For guidance about electronic payment methods use the second link below or please do contact us.

Internet links: HMRC guidance, HMRC how to pay VAT

Employer Supported Childcare

In 2009 the government announced changes to employer supported childcare and HMRC have now issued further guidance on the changes. The amount of tax free childcare vouchers and directly contracted childcare for employees joining an employer’s scheme will be restricted in cases where an employee’s earnings and taxable benefits are liable to tax at the higher or additional rate.

Anyone already in a scheme by 5 April 2011 will not be affected by these changes as long as they remain within the scheme.

From 6 April 2011, employers who provide employer-supported childcare will be required, at the beginning of the relevant tax year, to estimate the level of employment earnings that their employee is likely to receive during that year, ignoring potential bonus and overtime payments, but including other known taxable benefits.

If the level of estimated earnings and taxable benefits is equal to or below the equivalent of the sum of personal allowances and the basic rate limit for the year, the employee will be entitled to relief on £55 exempt income for each qualifying week. This is the same as the current amount.

If the level of estimated earnings and taxable benefits exceed the equivalent of the sum of personal allowances and the basic rate limit for the year, but falls below the limit at which tax becomes payable at the additional (50%) rate limit for the year, the employee will be entitled to relief on £28 exempt income for each qualifying week.

If the level of estimated earnings and taxable benefits exceed the equivalent of the additional (50%) rate limit for the year, the employee will be entitled to relief on £22 exempt income for each qualifying week.

If you would like to review your childcare provision options in light of the above please do get in touch.

Internet link: HMRC childcare

National Insurance - New EU Rules

HMRC Will Publish Details Of 'Deliberate' Offenders

HMRC have the necessary power under existing tax law to publish the details of taxpayers where it is established that they have committed ‘deliberate’ tax offences. HMRC have confirmed that they will apply this provision for tax periods starting on or after 1 April 2010 and for offences which are committed on or after this date.   Internet link: HMRC press release

Official Rate Of Interest

Employment Rate Falls To 72.2%

The government has announced the latest employment statistics which show the number of people in employment has dropped by 54,000. Ian McCafferty, CBI Chief Economic Adviser, reacting to the latest statistics said:

“Although the fall in unemployment is welcome, the figures also show that the number of people actually in work continued to fall, which is a concern.

The number or people in full-time employment dropped by 54,000 in the three months to January, while the number of part-time jobs was unchanged. Unlike previous months, an increase in part-time work did not help to offset falls in full-time employment.

Clearly, the labour market is still very fragile. Growth is not yet sufficient to generate net new job creation.”

Internet links: Government Statistics, CBI press release

Fit Notes

According to the advice given on the Business link website:

“If a doctor uses this option, they will give advice about the effects of the patient's health condition and, if appropriate, some suggestions about the types of adjustment or adaptations you could consider making to help your employee back to work.

While you won't have to act on the doctor's advice in a 'may be fit for work' statement, it may help you make simple and practical adjustments to help your employee return to work and reduce unnecessary sickness absence.

If for any reason you can't make the changes necessary to support your employee's return to work, you should - for sick pay purposes - consider the statement as if the doctor had advised that your employee is 'not fit for work'.”

The initiative is designed to encourage employers to be more responsible regarding employee rehabilitation and aims to help reduce the impact of long-term sick leave.

Internet links: Department for Work and Pensions, Business link guidance for employers