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Spring newsletter 2011

Thoughts on the Spring Budget 2011

For me the most interesting thing about the spring budget 2011 is not what changed but what is likely to change! It appears this Government is at least prepared to tackle the issue of tax simplification!  Mr. Osborne hinted that they are reviewing National insurance and income tax amalgamations, We have two hugely complex systems which both require a massive amount of human resource to administer and their objectives are not dissimilar. It makes sense to reduce the bureaucracy and save the tax payer a fortune. Hopefully they will do the same with working tax credits and resign it to the bin as it’s a total shambles and creates more grief and hardship than it has eased. In addition to costing more to administer than it gives out! 

Much of what was introduced was already anticipated, however a major surprise was the cut in Corporation tax, useful indeed but it will probably not offset the increases Companies will suffer in Employers National Insurance contributions. What about the poor buggers that are self-employed what help do they get? Well they will benefit from a higher income tax starting point as personal allowances have increased but if they are higher rate tax payers they won’t receive the extra allowances in fact they could start to lose it all together. Also the self employed will suffer increased National Insurance contributions. It’s very much take with one hand and give to the other, how much of this is to appease both political sides of the coalition I don’t know.

If you have furnished holiday lettings you will not be able to offset any losses against other income, this is quite a blow for the local tourist industry and will make it even harder to sell those holiday flats now. This has been on the cards for some years and has been changed to put us in line with European Laws.

Mileage rates go up from 40p to 45p per mile for the first 10,000 miles per year, that’s useful if you can still afford to run a car of course!

If your Company provides a car and pays for your fuel your tax on the benefit will increase so even if you can’t afford to run the Company vehicle and it stays parked on the drive you will pay more than you did the year before and the Company will pay more in NIC too.

Entrepreneurs relief lifetime allowance rises from £5,000,000 to £10,000,000 effectively reducing the tax on a gain to 10% from 28% if that’s not robbing the poor to give to the rich I don’t know what is, having said that anyone that has a business that has gained that much in value must have paid an awful lot of Income tax, Corporation tax, National Insurance, collected VAT and administered benefits during the business life cycle so maybe I should not be so opinionated!

With regard to capital investment in your business now is the time to act as the annual investment allowance is reducing from £100,000 to £25,000 and the writing down allowances reducing to18% this means that it will take longer to get tax relief when you buy plant and equipment ,commercial vehicles. This may cause a small surge in expenditure in those fields good news if you sell tractors, computers, office furniture, vans and expensive tools. The surge will then be followed by a drop as businesses stop investing to save tax.

The VAT threshold will increase but so will the de-registration point this could be of benefit if you are on the VAT limit but have no intention of developing  your business further, you could consider de-registration, if your business service or product  is supplied to consumers you could either supply it cheaper of make 20% more by charging the same price as before.  

A number of large Companies which include Virgin and Tesco have offshore elements of their organizations which they use to sell CDs and goods with a small retail value; they exploit a rule with regard to the importation of goods into the UK. When you buy a CD through one of their websites you don’t get charged VAT because the Company is based in Guernsey, technically the receiver of the imported goods has to pay excise duty and VAT on import but a rule states that if the goods are below a certain value then no charge would be made.

The Chancellor has reduced the threshold below which goods imported from outside the EU (e.g. from the Channel Islands) are VAT-free will be reduced to £15 (from £18) from 1 November 2011. The Government will also explore options for limiting the scope of the relief. The organizations also benefits from being a foreign company so do not pay UK tax on the earnings from the trade. Imagine how much tax and VAT these Companies are avoiding because the rules allow them to and this is the tip of the iceberg, telecoms and web based business can easily trade as offshore companies and locate in Guernsey, Jersey or the Isle of Man and pay no UK tax!  At least they are starting to have a go at these businesses but the changes are very small and no where near tough enough. Maybe the Government believes that by sending the message that they will crack down on this exploitation the companies will relocate back to the UK?

The Chancellor and Prime Minister also recognize that small businesses like yours and mine are the back bone of our Nation and are planning on providing some support. They are going to create enterprise zones which will provide tax breaks if you are located within them, They are also encouraging people to create new businesses, with the start up Britain campaign, This appears to be private sector driven, I imagine that businesses will be created to provide services to the public sector at much reduced costs, saving the tax payers a fortune in the process. I like the idea, but that appears to be all it is at the moment, I will let you know as their plan or is it a dream develops!

Now for my last rant! The Government set up a department dedicated to the simplification of our tax system but rather than concentrate their efforts on the Common everyday stuff that effect us all and drives us mad in the office because it’s cumbersome, poorly thought out and difficult to administer they focused on removing obsolete taxes reliefs that no one claims anyway! What a waste of time money and human resource.

So the chancellor announced that following a review of reliefs by the Office of Tax Simplification, the Finance Bill 2011 will abolish seven obsolete reliefs. A further 14 reliefs will be removed by the Finance Bill 2012. Another 22 reliefs will be removed some time after 2012.

I have nearly finished now! The clocks have changed and it’s officially summer time and it’s started raining, at least things are back to normal! This is also traditionally a time for optimism.  If you are lacking that at the moment and are struggling to find that positive attitude you know where we are, a phone call or email away so if you need support we are here for you.

Thanks for bearing with me. Kind regards

Geoff Pym AFA FFTA