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2010/11 and beyond - What we know now
Ever since the then Chancellor of the Exchequer, Gordon Brown, announced his intention to simplify the tax system I have been confused. The operation of many taxes has become ever more complex. Inheritance Tax remains more or less unchanged, Capital Gains Tax is simpler in most cases, but Income Tax and VAT have been through virtual revolutions especially in the last year.
The last change in the standard rate of VAT took place in 1991 so, in the midst of an economic crisis of biblical proportions, we are faced with 2 changes in a 13 month period. The reversion to 17.5% occurs on 1 January 2010 at the stroke of the bells. I wonder who pointed out to the Treasury that it would be awkward for those in the licensed trade to make the change precisely at this moment given that they could be quite busy! Belatedly they announced a relaxation so that these traders can delay the change in rate until the end of the shift.
In Income Tax we have moved from 3 rates (10, 20 & 40%) to 5 rates (10 (savings only), 20, 40, 50, and a marginal rate of 60%) from April 2010. Even more confusing has been the practice of announcing changes to tax several years in advance then amending the rules before they come into effect. This has been exacerbated by the increasing use of the pre-budget report for planned, and in some instances immediate, changes in tax rather than including these in the Budget itself. Given the likelihood of an election in the next few months and the consequential changes which will result - whatever the outcome - we will probably have to deal with more than one Budget in 2010. But still, lets look at what we think we know now.
VAT, as previously noted, will revert to 17.5% on 1 January 2010. At this point we don't know whether there is any change to the registration threshold but, given the current rate of inflation, it seems likely that there will be little movement from the present £68,000. Those traders using the flat rate scheme need to review their position after 1 January. Compared to the rates in use before the decrease in VAT, 36 of the 55 different rates have changed, most of them upwards.
For most of us Income Tax will not change much. The main rates and allowances all remain the same as 2009/10. It is only those earning over £100,000 who will gradually lose their personal allowances, and those earning over £150,000 and subject to the new 50% rate who will feel an increased pinch. Inheritance Tax rates and thresholds also remain constant for 2010/11 despite previous announcements to the contrary.
No information is available on Capital Gains Tax, giving rise to some concern over the Chancellor's intentions for the forthcoming Budget. A number of pundits have expressed doubt over the likely future of Entrepreneurs Relief and I have always felt that the 18% rate was likely to be increased to 20% or above. It is worth noting that the rate was 30% before it was originally harmonised with Income Tax rates.
The small companies rate of Corporation Tax has again been given a stay of execution and remains at 21% until 2011/12. The main rate will again be 28%. No indication has been given of plans in relation to Capital Allowances so at this point we must assume that the 100% Annual Investment Allowance will be unchanged and the temporary 40% First Year Allowance for plant & equipment not eligible for AIA will end on 31 March (5 April). If you usually use up your entitlement to AIA then bringing purchases forward to this tax year might be beneficial.
It has been confirmed that the special tax regime for furnished holiday lets will cease at the end of this tax year. There are some steps which you can take in advance of this change to make best use of the existing system so please get in touch with us to discuss your plans. It has been confirmed that any unused losses will be available for carry forward as property letting losses to future years so they won't disappear albeit they will be less useful than in the past.
There have been a number of changes to the tax treatment of business cars. Alterations to the capital allowance regime along with changes to benefits in kind and fuel-only mileage rates may result in a shift in the comparative costs of owning vehicles inside or outside a limited company. If you are about to change your car and have an incorporated business you should make contact with us to discuss the options.
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