Budget Update March 2010 Personal Tax Announcements

PERSONAL TAX ANNOUNCEMENTS

Changes to Stamp Duty Land Tax (SDLT)
First time buyer’s concession
One of the more politically charged announcements today was the introduction of a new relief for first time home buyers which will exempt them from StampDuty on a property purchase up to £250,000 – this is effective for transactions taking place on or after 25 March 2010 and before 25 March 2012. This additional relief is partly funded next year by the increase in SDLT on more expensive property sales.
To qualify all of the following conditionswill need to be met:
1. The individual or individuals jointly purchase a major interest in land which is wholly residential, and
2. The consideration is more than £125,000 but not more than £250,000, and
3. The individual(s) intends to occupy the property as his/her or their only or main residence and has or have not previously purchased such an interest or its equivalent anywhere in the world.

New rate of Stamp Duty for expensive properties
From 6 April 2011 a new 5% SDLT rate will be applied to residential property sales where consideration exceeds £1m.

Income tax rates and thresholds
The changes to tax rates and thresholds announced in the pre-budget report last year have been confirmed, including the advent of the 50% income tax rate for tax payers with taxable earnings in excess of £150,000 per annum.
A reminder of 2010-11 position is set out below:

  • the basic rate will remain at 20%
  • and higher rate will remain at 40%
  • the additional rate will be set at 50%
  • the basic rate limit will remain at £37,400
  • the starting rate limit for savings will remain at £2,440
  • the personal allowances will remain at their 2009-10 amounts.

From 2010-11 the additional 50% rate will apply to taxable income above £150,000.
From 2010-11 the amount of the personal allowance will be gradually withdrawn for all individuals (regardless of age) with "adjusted net incomes" above £100,000. The rate of reduction is £1 for every £2 above the income limit.

NIC rates and thresholds
Apart from minor adjustments to the Lower Earnings Limit for 2010-11, NIC rates and thresholds remain as in 2009-10.
The previously announced combined increase of 1% in the main rates of NIC will be effective for 2011-12.

Pensions
The restriction of tax relief for tax payers earning in excess of £150,000 per annum is confirmed. This will take effect from 6 April 2011.
The Registered Pensions Scheme 2010-11 Lifetime Allowance of £1.8 million and Annual Allowance of £255,000 will continue to apply at these levels for a further five tax years, i.e. up to and including the tax year 2015-16.

Furnished Holiday Let Property
As previously announced the special tax concessions offered to owners of qualifying Holiday Let Property will cease from 6 April 2010. From this date, income from such property will be taxed in the same way as income from other property rental businesses.

Inheritance Tax
The current Nil Rate Band of £325,000 will be frozen at this level for all tax years up to 2014-15.

Company Car Tax changes
A new 10% car benefit rate will be introduced on 6 April 2012 for all company cars with emissions up to 99g/km.
Additionally, from 6 April 2010 to 5 April 2015 there are two further changes to the chargeable benefit in kind for company cars and vans with zero emissions or emissions up to 75g/km. These are:

  • the first change is full relief from the chargeable benefit in kind on company cars and vans which cannot produce more than 0g/km CO2 engine emissions under any circumstances when driven
  • the second change reduces the chargeable benefit in kind on company cars which have an approved CO2 emissions figure of exactly 75g/km or less, to 5% of list price.

Tax Credits
A number of changes to tax credits were announced including:

  1. From April 2012 an increase in the child element of £4 per week for 1 and 2 year olds.
  2. From April 2010 awards for fixed period childcare costs (such as claims of a few weeks during the school holidays) will be averaged and paid over that fixed period rather than averaged over a year. This will enable families to receive all the financial support towards their childcare costs they are entitled to receive for these periods when they need it.
  3. From 6 April 2011, people aged 60 and over will qualify for Working Tax Credits if they work at least 16 hours a week.
  4. As announced at the 2009 Pre-Budget Report and confirmed at Budget on 24 March 2010, from 6 April 2010:
  • the Child element in Child Tax Credit will increase by £20 above earnings indexation to £2300 per year. An increase of £65 per year overall
  • the disabled elements of Child Tax Credit will increase by 1.5%
  • the elements of the Working Tax Credit (except the childcare element) will increase by 1.5%
    maximum amounts for child care, family and baby element for Child Tax Credit, the income disregard, the first and second tax credit threshold and the withdrawal rates remain unchanged; and
  • the income threshold for those on child tax credit only rises to £16,190.

From 12 April 2010 Child Benefit rates and Guardians Allowance will increase by 1,5%.

This Budget sets out the action the Government is taking to promote long-term sustainable growth.

If you feel that these changes will affect you and your business then please don’t hesitate to give us a call in the office for further clarification.

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Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.