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- March 2005 |
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Introduction
As normal in the world of tax and business, March
has been a busy month. Most notably Gordon Brown presented
his ninth Budget. This has been well reported and
documented elsewhere but we take the opportunity to
highlight a few points for you in relation to Pre-owned
assets, stamp duty land tax and the Civil Partnership
Act.
One of the main themes of the Budget was anti-avoidance
legislation following on from the introduction last
year of the requirement for tax scheme promoters to
register certain schemes with the Inland Revenue.
There is no doubt that this has had the effect of
giving early warning of tax avoidance schemes, hence
the raft of anti-avoidance provisions announced in
the Budget.
Please browse through this month's articles
using the links below and contact us if any issues
or questions arise. By the time of next month's
enews we are likely to have something to report on
a General Election date and, no doubt, plenty of news
for you as a result.
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Capital
allowances for smaller businesses
In Budget 2006, the government announced that capital
allowances in the form of first year allowances (FYAs)
on plant and machinery acquisitions would be at the
rate of 50% for small businesses. The normal rate is
40%. The increased rate was to apply for 12 months from
1 April 2004 for companies and 6 April 2004 for unincorporated
businesses.
The government has chosen not to extend the deadlines
in Budget 2005 so that FYAs for small businesses revert
to 40% from 1 April 2005 for companies and 6 April 2005
for unincorporated businesses.
Perhaps the government felt that raising the rate from
40% to 50% had not affected purchasing decisions given
the limited amount of additional relief and therefore
there was no merit in continuing with the higher rate.
Employer
payment deadlines and electronic filing
Interest will start to run on any 2004/05 PAYE, NIC,
student loan and CIS deductions not paid over by 19
April 2005.
Large employers (those with 250 employees or more) must
pay electronically. Where payment is made electronically,
the deadline is 22 April rather than 19 April. The Inland
Revenue Employers' Bulletin Issue 19 contains
more information on payment. Click on the link below
to see the detailed text.
In addition to paying electronically, large employers
are also obliged to file their 2004/05 end of year returns
electronically. Medium-sized employers (those with between
50 and 250 employees) will be required to do likewise
with effect from 2005/06.
Smaller employers will not be obliged to file electronically
until 2009/10. However to encourage an earlier switch
to online filing small employers are being offered financial
incentives amounting to a total of £825 if they
begin to file electronically from 2004/05. The
government is concerned that, in a tiny minority of
cases, there has been exploitation of the incentives.
As a consequence, anti-avoidance provisions have been
introduced with effect from 18 March 2005 to counter
artificial arrangements and refuse the tax-free incentive
payments in certain circumstances.
Roll-over
relief for farmers on payments under the Single Payment
Scheme
Farmers may be able to claim business assets roll-over
relief when they sell or buy an entitlement to payments
under the new Single Payment Scheme (SPS) that is
used for the purposes of their trade.
Entitlement to payments under the SPS has been added
to the list of assets that qualify for roll-over relief
as from 22 March 2005. Farmers will be able to defer
capital gains tax when gains arise to them on the
sale of entitlements, provided that the proceeds of
the sale are used to acquire a replacement asset which
is a qualifying business asset used by the farmer
for the purposes of the same, or a successor, trade.
Reducing
the administrative burden on small business
The Inland Revenue and Customs and Excise are merging
to form a new department called HM Revenue and Customs
(HMRC). The new department is keen to look at ways of
reducing the administrative burden the tax system imposes
on small business. With this in mind, a consultation
document, 'Working towards a new relationship: a consultation
on priorities for reducing the administrative burden
of the tax system on small business' has been published
by the Inland Revenue and HM Customs and Excise. The
consultation period, which began on 16 March 2005, runs
until 30 June 2005. A three-page summary of the consultation
document, and of the questions that it asks small businesses,
is available.
The cynics amongst you may feel that this will be a
very lengthy process indeed but it is a step in the
right direction nonetheless. Do let us know if you have
strong views on any of the issues raised.
Civil
Partnership Act
The CPA which gives legal recognition to same-sex couples
became law in November 2004. However the Act does not
come into effect until 5 December 2005. The Act will
allow same-sex couples to make a formal legal commitment
to each other by entering into a civil partnership through
a registration process. A range of important rights
and responsibilities will flow from this including legal
rights and protections.
With effect from 5 December 2005 registered same-sex
couples will be treated in the same way as married couples
for tax purposes. The key areas affected will be as
follows:
- Inheritance
tax
Transfers between civil partners both during
lifetime and on death will generally be exempt.
- Capital
gains tax
Main residence exemption will only be available
for one property per couple.
Transfers between partners will be on a 'no
gain no loss' basis and thus not attract an
immediate CGT charge.
- Settlements
Anti-avoidance legislation that currently applies
to spouses will be extended to civil partners. Broadly
the legislation prevents the effective transfer
of income in certain circumstances from a higher
rate taxpaying spouse to one liable at a lower rate.
- Jointly
owned property
Married couples often own property jointly.
Any income arising from such property is taxed on
the couple 50/50 unless they elect for the income
to be split in the proportion in which the asset
is owned if this is other than 50/50. Civil partners
will be treated in exactly the same way.
Internet
Link: The Budget day notice giving
further detail can be found at Budget
note 28.
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Company
Law Reform Bill
The Company Law Reform Bill was published on 17 March
2005.
Small businesses in particular are set to benefit
from the proposed provisions once they become law.
The proposals include:
- simpler
rules for forming a company
- abolition
of the need for a company secretary
- making
the AGM opt in rather than opt out
- new
model articles.
For
all businesses there will be a range of measures including:
- greater
clarity on directors' duties
- an
option for all directors to file a service address
on the public record rather than a private address.
Internet
links: To
read the DTI Press Release on the Bill
go to DTI
Press Release.
The CBI has commented on the Bill. The
comments can be found at CBI
comment.
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Charities
news
SORP
The Charity Commission has announced the issue of
its revised Statement of Recommended Practice (SORP)
for preparing and reporting charity accounts. It comes
into force for accounting periods beginning on or
after 1 April 2005 though early adoption is encouraged.
New scam
It is a sad fact of life but the world is full
of scams these days. One of the latest potentially
affects charities. The Charity Commission has warned
that fraudsters are obtaining charities' bank
account details from Gift Aid forms and using this
information to extract funds from the charity by setting
up standing orders. Sign, the National Society for
Mental Health and Deafness uncovered the scam. The
Commission is warning charities to check bank statements
thoroughly and to consider deposit-only accounts for
charitable donations.
DTI
gains new powers
Consumers have certain protection against unscrupulous
sellers but, until now, businesses have not been afforded
the same protection. That is set to change. From April,
the DTI's Companies Investigation Branch will
gain new powers to help protect small businesses against
scams.
The new powers are designed to help in areas where
in the past it has been difficult to obtain enough
information to proceed with an investigation. The
new powers enable investigators to require entry to
business premises and to remain there for as long
as necessary. It will also be possible to request
information other than documents.
Furthermore the DTI encourages anyone who suspects
they are being targeted by a scam to call on 020 7215
3120 or log onto the website - details below.
Stamp
duty land tax changes
An increase in the threshold for SDLT on residential
properties was widely trailed ahead of the Budget.
The increase may have been less than some had hoped
but it was doubled from £60,000 to £120,000
with immediate effect. The fact remains that the threshold
would now stand at over £150,000 if it had been
increased in line with house prices since 1993 when
the threshold was last raised.
According to the Council of Mortgage Lenders 83% of
first time buyers paid SDLT last year and this is
expected to fall to around 48% as a result of the
increase.
Above the threshold of £120,000 SDLT continues
to apply to the full purchase price which many consider
to be unfair. The rate between £120,001 and
£250,000 is 1%, with the rate then rising to
3% up to £500,000 and 4% above that level. Therefore
a residential property purchased for £120,000
will now give rise to no SDLT but one purchased for
£125,000 will incur a charge of £1,250
- ie 1% on the full purchase price.
Purchasers of residential property in one of the UK's
designated 'disadvantaged areas', of which
there are nearly 2,000 will continue to benefit from
a £150,000 threshold.
The surprise on Budget day was reserved for purchasers
of non-residential property in disadvantaged areas.
Up until 16 March 2005 there was complete exemption
from SDLT for all such purchases whatever the price.
The exemption was withdrawn without warning with effect
from 17 March 2005. Any commercial property transaction
over £150,000 in a disadvantaged area now attracts
SDLT at normal rates.
Pre-owned
assets
New measures effective from 6 April 2005 introduce
an annual income tax charge in circumstances where an
individual has been able to remove an asset from their
estate for IHT purposes but still continues to be able
to enjoy the use of it or to benefit from it. These
new rules come as the Inland Revenue's response
to the successful use of IHT saving schemes particularly
in relation to the family home. The new rules apply
to land, chattels and certain interests in trusts.
The annual income tax charge is based on the value of
the benefit from using the asset, ie its rental value.
Logically there will be a deduction for any rent actually
paid and a de minimis threshold of £5,000. Other
exclusions cover situations where:
the asset still counts as part of the taxpayer's
estate for IHT purposes or
the asset was sold at an arm's length price, paid
in cash.
In addition individuals who have already entered into
a scheme now caught by the new rules can elect to avoid
the income tax charge and accept instead that the asset
is still in their estate for IHT purposes. The election
should be made on form IHT 500. Click on the links below
to see a copy of the form and guidance on its completion.
Certain aspects of the new regime are being dealt with
by regulation and a statement was issued on 7 March
dealing with the following:
- assets
are generally to be valued on 6 April for the purposes
of the new regime
- the
interest rate to be used for calculation of the
charge is the 'official' rate
- valuations
are required once every five years
- the
position with regard to equity release schemes is
clarified.
Finally
detailed guidance on the new regime has been issued.
Click on the link below to read this.
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Disclaimer
- for information of users
This newsletter is published for the information of clients.
It provides only an overview of the regulations in force at
the date of publication, and no action should be taken without
consulting the detailed legislation or seeking professional
advice. Therefore no responsibility for loss occasioned by
any person acting or refraining from action as a result of
the material contained in this newsletter can be accepted
by the authors or the firm.
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to carry on audit work for a range of investment business
activities by the Institute of Chartered Accountants in England
and Wales
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