Unfortunately IR35 is here to stay. The Government has realised that its abolition would hit tax revenues. It is a shame that the revenue implications outweigh the fact that this was poor legislation which has been poorly implemented. The Government has committed to making clear improvements in the way IR35 is administered, which in itself will not be a challenging target given on where they are starting from. These improvements will supposedly include setting up a dedicated helpline staffed by specialists, publishing guidance on those types of cases HMRC view as outside the scope of IR35, targeting compliance activity by restricting reviews to high risk cases and setting up an IR35 Forum which will monitor HMRC’s new approach. We wait with interest to see what, if anything, happens.
Thursday, 31 March 2011
Plan to merge Income Tax and NICs
The Chancellor announced plans to start consultation on merging income tax and National Insurance Contributions (NICs). The government will maintain the contributory principle in any changes and will not extend NICs to individuals above state pension age or to other forms of income such as pensions, savings and dividends. This will take years and no doubt will be a painful process for everyone.
Monday, 28 March 2011
Research and development expenditure (R&D
The current rate of R&D tax credit for SME businesses is 75% of the amount spent, so that a business can obtain tax relief for 175% of the amount of qualifying expenditure.
The rate of relief is to be increased from 1 April 2011 to 100%, so that a business will benefit from 200% tax relief on qualifying expenditure. This means that the tax system will contribute a maximum of £55 for each £100 of qualifying expenditure for businesses in the marginal corporation tax band of 27.5%. Relief at the small profits rate will be worth £40 per £100 spent.
There have been no changes to the R & D rate available to large companies which is currently 30%.
Further changes will come in 2012. Where R & D losses are surrendered for payable tax credit relief, the limit of the relief to the amount of PAYE and NIC paid in the year will be abolished, as will the minimum spend of £10,000. Further changes will be proposed following the Dyson report, to which a detailed response will be published in May.
The rate of relief is to be increased from 1 April 2011 to 100%, so that a business will benefit from 200% tax relief on qualifying expenditure. This means that the tax system will contribute a maximum of £55 for each £100 of qualifying expenditure for businesses in the marginal corporation tax band of 27.5%. Relief at the small profits rate will be worth £40 per £100 spent.
There have been no changes to the R & D rate available to large companies which is currently 30%.
Further changes will come in 2012. Where R & D losses are surrendered for payable tax credit relief, the limit of the relief to the amount of PAYE and NIC paid in the year will be abolished, as will the minimum spend of £10,000. Further changes will be proposed following the Dyson report, to which a detailed response will be published in May.
Capital allowances - short-life assets
The existing short-life asset (SLA) regime allows businesses, who invest in plant or machinery and subsequently sell or scrap that plant or machinery within four years, to elect to treat such assets separately from the main capital allowances pool and generate a balancing allowance on disposal. This Budget extends the period from four years to eight years from the end of the chargeable period when the original expenditure is incurred. This applies to expenditure from 1 April 2011 for corporation tax and 6 April 2011 for income tax payers.
Owing to the administrative burden of keeping detailed records for individual assets and the dates of their sale or destruction, as well as the recent introduction of the Annual Investment Allowance (AIA), many businesses choose not to make SLA elections. The extension of the regime is likely to make it more attractive to businesses that are incurring expenditure substantially above the AIA limit, however, the scale of the balancing allowance generated between years four and eight is less than half of that up to year four.
Owing to the administrative burden of keeping detailed records for individual assets and the dates of their sale or destruction, as well as the recent introduction of the Annual Investment Allowance (AIA), many businesses choose not to make SLA elections. The extension of the regime is likely to make it more attractive to businesses that are incurring expenditure substantially above the AIA limit, however, the scale of the balancing allowance generated between years four and eight is less than half of that up to year four.
Thursday, 24 March 2011
The Patent Box Regime
The Government has confirmed in the Budget that a reduced 10% rate of corporation tax for profits arising from patents will be effective from 1 April 2013 but it will continue to consult on the detail of this measure.
As previously reported by wwtaxclub, companies with income from patents commercialised after 29 November 2010 cam benefit. Industries in pharmaceutical, technology, manufacturing, energy and utilities, telecoms, aerospace, defence, consumer and media businesses should benefit.
A further consultation document will be published in May 2011, with legislation proposed for Finance Bill 2012. The reduced rate of corporation tax will apply to profits arising from patents from 1 April 2013.
We continue to be positive on this. Should be an opportunity for these businesses and it is not too soon to look at discussing what areas of your business might be able to take advantage of this regime.
As previously reported by wwtaxclub, companies with income from patents commercialised after 29 November 2010 cam benefit. Industries in pharmaceutical, technology, manufacturing, energy and utilities, telecoms, aerospace, defence, consumer and media businesses should benefit.
A further consultation document will be published in May 2011, with legislation proposed for Finance Bill 2012. The reduced rate of corporation tax will apply to profits arising from patents from 1 April 2013.
We continue to be positive on this. Should be an opportunity for these businesses and it is not too soon to look at discussing what areas of your business might be able to take advantage of this regime.
Corporation tax rates - additional 1% reduction from April
The main rate of corporation tax will now reduce to 26% in April 2011, and not 27% as previously announced. The small profits rate of tax paid by small companies will however still reduce only by 1% to 20%.
The reduction in the rate of corporation tax only applies to tax on profits in excess of £1.5 million in a year. The marginal rate on profits between £300,000 and £1.5 million will also reduce, with a marginal rate of 27.5% applying to profits in that range from April 2011, rather than the current rate of 29.75%.
The main rate of corporation tax will continue to reduce by 1% per annum until the rate reaches 23%.
Once the full rate of corporation tax reaches 23%, the marginal rate on profits between £300,000 and £1.5 million will be 23.75%, assuming that the small profits rate remains 20%.
One for the larger companies rather than many SME's and the relative benefit of the small companies rate continues to diminish over time. Note that changes in corporation tax rates do not help sole traders and those trading in partnership. Certainly worth another review of their trading structure for these businesses.
The reduction in the rate of corporation tax only applies to tax on profits in excess of £1.5 million in a year. The marginal rate on profits between £300,000 and £1.5 million will also reduce, with a marginal rate of 27.5% applying to profits in that range from April 2011, rather than the current rate of 29.75%.
The main rate of corporation tax will continue to reduce by 1% per annum until the rate reaches 23%.
Once the full rate of corporation tax reaches 23%, the marginal rate on profits between £300,000 and £1.5 million will be 23.75%, assuming that the small profits rate remains 20%.
One for the larger companies rather than many SME's and the relative benefit of the small companies rate continues to diminish over time. Note that changes in corporation tax rates do not help sole traders and those trading in partnership. Certainly worth another review of their trading structure for these businesses.
Entrepreneurs’ Relief lifetime limit doubled
The lifetime limit on Entrepreneurs’ relief has been doubled with effect from 6 April 2011. The limit for disposals from 23 June 2010 to 5 April; 2011 is £5 million, and the limit from 6 April 2011 onwards is £10 million. Those taxpayers who have made previous disposals up to or in excess of the limit can make further disposals after 6 April attracting the ER rate of 10% CGT, but previous disposals in excess of the old limit will not be revisited.
The previous limit of £5m would have covered most SME circumstances and therefore the benefit is likely to be limited to a small number of individuals, including serial entrepreneurs. No more than 30,000 claim any part of their relief in any one year. Perhaps more of a PR story for the government but welcome never the less.
The previous limit of £5m would have covered most SME circumstances and therefore the benefit is likely to be limited to a small number of individuals, including serial entrepreneurs. No more than 30,000 claim any part of their relief in any one year. Perhaps more of a PR story for the government but welcome never the less.
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