Budget 2007

Personal Taxation Budget 2007/2008

Income tax allowances and reliefs and credits	2007/08	2006/07
Personal allowance (basic)	£5,225	£5,035
Personal allowance (age 65-74)	£7,550	£7,280
Personal allowance (age 75 & over)	£7,690	£7,420
Married/civil partners (minimum) at 10%*	£2,440	£2,350
Married/civil partners (age under 75) at 10% *	£6,285	£6,065
Married/civil partners (age 75 & over) at 10%	£6,365	£6,135
Age-related relief reduced by 50% of income over	£20,900	£20,100
Child Tax Credit (CTC)
- family element - family element baby addition CTC usually reduced by 6.67% of joint income	£545 £545 £50,000	£545 £545 £50,000
Childcare and childcare vouchers (weekly tax-free limit)	£55	£55
Blind person's allowance	£1,730	£1,660
Rent-a-room tax-free income	£4,250	£4,250
Venture Capital Trust (VCT) up to £200,000	30%	30%
Enterprise Investment Scheme (EIS) up to £400,000	20%	20%
EIS eligible for capital gains tax re-investment relief	No limit	No limit
Registered Pension Sceme
- annual allowance - lifetime allowance	£225,000 £1,600,000	£215,000 £1,500,000
*Where at least one spouse/civil partner was born before 6 April 1935

Income tax rates		2007/08	2006/07
Starting rate 10% on first		£2,230	£2,150
Basic rate 22% (20% for savings income) on next		£32,370	£31,150
Higher rate 40% on income over		£34,600	£33,300

Dividends	basic rate taxpayers higher rate taxpayers	10% 32.5%	10% 32.5%
Pre-owned assets tax (charged as income) - minimum taxable		£5,000	£5,000
Trusts:	standard rate band generally dividends (rate applicable to trusts) other income (rate applicable to trusts)	£1,000 32.5% 40%	£1,000 32.5% 40%

Personal tax reform

The structure of personal tax will be reformed, bringing national insurance contributions (NICs) and higher rate income tax thresholds into line. In 2008/09:

The basic rate of tax will be reduced to 20%.
The starting rate of tax (10%) will be removed for earned income and pensions. There will be no changes to dividend taxation.
Age-related personal allowances will be increased by a further £1,180 above indexation.
The upper earnings limit (UEL) for employee’s class 1 NICs will rise by £3,900 above indexation, with a corresponding increase to the class 4 NICs upper profits limit.

In 2009/10, the basic rate threshold will rise by £800 above indexation and the UEL will be aligned with it. By 2011/12, the personal age allowance for those aged 75 and over will rise to £10,000.

Individual savings accounts (ISAs)

From 2008/09, the maximum annual amount that may be invested in a cash ISA will rise to £3,600. The maximum for a stocks and shares ISA will be £7,200, subject to an overall subscription limit of £7,200.

Rebated commission arrangements for life assurance policies

A new tax treatment will apply to anyone who invests premiums of over £100,000 in any year into short to medium term life assurance policies, capital redemption policies or life annuity contracts where commission is rebated or reinvested in the policy by an intermediary.

If the policy owner holds the contract for less than three years after the year in which the £100,000 threshold is crossed, the amount of premium allowed in calculating the chargeable gains will be restricted to the true cost to the policy owner, taking into account the value of any commission rebate. The change takes effect for all policies and contracts made after 20 March 2007. It applies to all existing policies and contracts where further premiums are paid after that date.

Personal dividends from non-resident companies

From 2008/09, individuals who receive dividends from non-UK resident companies will be entitled to the tax credit of one-ninth of the distribution. Their shareholding must be less than 10% of the company, and the total dividends they receive from non-UK companies must be less than £5,000 a year.

Purchased life annuities (PLA)

An HMRC officer will no longer be required to determine the tax-exempt capital element of a PLA calculated by the insurer. This will clear the way for a re-write of the PLA regulations.

Alternative finance arrangements

New rules will apply from April 2007 to the taxation of certain types of investment bonds, known as ‘sukuk’, which satisfy Shari’a law. These bonds will be taxed on broadly the same basis as equivalent conventional securities.

Charities – gift aid

The limit on the value of benefits that individuals and companies may receive as a result of making gift aid donations of over £1,000 will be increased from 2.5% to 5% of the donation for all donations made after 5 April 2007.

Service charges and sinking funds

The existing relief from the 40% trust rate of tax for service charges and sinking funds will be given to all private sector landlords. As a result, such funds will normally be taxed at 20%. The change will take effect for income arising after 5 April 2007.

Landlords energy saving allowance

The current Landlords energy saving allowance (LESA) will be extended to cover floor insulation from 6 April 2007. The allowance will be increased to a maximum of £1,500 for each property, rather than each building, and its lifespan will be extended until 2015. LESA will also be made available to corporate landlords who let residential property, subject to state aid approval from the European Commission.

Homes abroad owned through companies

The Finance Bill 2008 will include legislation to ensure that individuals with a home abroad will not face a benefit in kind charge for any private use of the property if they buy it through a company. The exemption will have retrospective effect and will apply if:

The property is held by a company owned by individuals.
The company’s only activities are incidental to its ownership of the property.
The property is not funded directly or indirectly by a connected company.
The property is the company’s only or main asset.

Microgeneration

Householders installing microgeneration for their personal use will not be subject to income tax on any payment for surplus electricity sold to the grid. For these householders, Renewables Obligation Certificates acquired in respect of electricity generated from microgeneration technologies on their property will not give rise to an income or capital gains tax charge from 6 April 2007.

Tax credits

The child element of child tax credit will be £1,845 for 2007/08 and £2,080 for 2008/09.

From April 2008, the threshold for working tax credit will rise by £1,200 to £6,420 and the withdrawal rate will be 39% from April 2008. Currently, the working tax credit is withdrawn at the rate of 37% of income above £5,220 a year.

Pensions and employment taxation

Personal pension term assurance

Individuals will not be entitled to tax relief for their contributions to fund pension-related personal term assurance. The change will not affect relief for contributions paid by employers.

The change will affect all contributions made after 31 July 2007 under occupational registered pension schemes, unless the insurer received the application for the policy before 29 March 2007 and the policy was taken out as part of the pension scheme before 1 August 2007.

For contributions under other registered pension schemes, the change will take effect for all contributions made after 5 April 2007, unless the insurer received the application for the policy before 14 December 2006 and the policy was taken out as part of the pension scheme before 6 April 2007. The relief may be lost if such a policy is varied.

Alternatively secured pensions

The rules for alternatively secured pensions (ASPs) will be amended from 6 April 2007 to require that a minimum income level is drawn. There will also be an unauthorised payment tax charge where ASP funds remaining on a member’s death are transferred to the pension funds of another scheme member.

When a person with an ASP dies, the inheritance tax nil rate band will be allocated first to the residual (non-ASP) estate where the ASP death benefits are subject to both an inheritance tax charge and an unauthorised payments charge. Special rules will apply to residual estates which do not attract an IHT liability.

Company car and fuel benefit

Employees provided with a company car who receive free fuel for private travel are subject to a tax charge. This is based on a percentage rate related to the car’s CO2 emissions. The multiplier used with this rate is £14,400 and remains unchanged for 2007/08. From 2008/09 a 2% discount will apply to the company car benefit scales for cars which are capable of running on E85 fuel (ie fuel which is 85% ethyl alcohol (ethanol) and 15% petroleum).

Business Taxes

Corporation tax rates

Corporation tax rates are changing as part of a package of significant reforms to the business tax system. The main rate of corporation tax will fall by 2% to 28% from 1 April 2008. The small companies’ rate will increase by 1% to 20% in 2007/08, to 21% in 2008/09 and to 22% in 2009/10. These increases are aimed at reducing the tax benefits of incorporation for small businesses.

Capital allowances – plant and machinery

The 50% rate of first-year capital allowances for small business' expenditure on most plant and machinery will be extended for another year to 31 March 2008 for businesses charged to corporation tax, and to 5 April 2008 for income tax. There will be a new annual investment allowance for the first £50,000 of expenditure on plant and machinery starting from 2008/09. The government will consult on the details. Writing-down allowances will also change from 2008/09:

For most plant and machinery, the rate will fall to 20% from 25%.
For long-life assets, the rate will increase from 6% to 10%.
Certain fixtures integral to a building will be written down at 10% a year. The details of what constitute integral fixtures will be the subject of consultation.

Industrial and agricultural buildings allowances (IBAs and ABAs)

IBAs and ABAs will be phased out over the four years to 2010/11, falling from 4% in 2007/08 to 3% in 2008/09, to 2% in 2009/10, 1% in 2010/11 and abolished thereafter. The first stage, effectively from 21 March 2007, is the withdrawal of balancing adjustments and the recalculation of writing-down allowances when buildings change hands or cease to qualify for allowances.

Business premises renovation allowance

The scheme for tax relief for capital expenditure on renovating certain business premises will come into effect from 11 April 2007. The provisions, which were introduced in the Finance Act 2005, will give 100% relief on the conversion or renovation of properties in designated disadvantaged areas that have been vacant for at least a year.

Research and development (R&D) tax relief scheme

The rates of R&D relief will increase from 2008/09 to 130% for large companies and (subject to state aid approval) to 175% for small and medium-sized enterprises (SMEs). The SME R&D relief scheme is to be extended to large companies with fewer than 500 employees from a date to be announced.

Venture capital schemes

Technical changes will be made to the rules for the enterprise investment scheme (EIS), the corporate venturing scheme (CVS) and the venture capital trust (VCT) scheme. These include two new limits for companies receiving EIS, CVS or VCT investment. The changes generally take effect from 6 April 2007, subject to limited transitional reliefs.

The maximum amount raised from all three schemes must not be more than £2 million in any 12-month period. A company or group of companies must have no more than 50 full-time employees (or their equivalent) at the date on which the relevant shares or securities are issued.

Managed service companies (MSCs)

Legislation will deem income to be employment income where individuals provide their services through MSCs and their income is not already treated as employment income. This means MSCs will have to operate and account for PAYE on all payments that individuals receive for services provided through the MSC. If the MSC does not pay the tax and national insurance contributions, HMRC will be able to recover them from others, principally the MSC’s director and the person who provided the company to the individual.

MSCs are mass-marketed service companies that allow individuals who have shares in the companies and provide services to pay less tax because they receive most of their income in the form of dividends. HMRC has found it difficult to apply the existing rules on personal service companies to MSCs. The requirement to operate PAYE starts on 6 April 2007 and the other powers come into effect at various dates during 2007/08.

Employer benefit trusts

Employers making employee benefit contributions by declaration trust will have their deduction against taxable profits restricted to the level actually paid to an employee in a taxable form within nine months of the end of the relevant accounting period. This applies from 21 March 2007.

Capital loss and gain buying

From 21 March 2007, legislation will aim to stop schemes that exploit an exception in existing anti-avoidance rules. These are intended to prevent groups of companies obtaining a tax advantage where a company changes ownership and one of the main purposes of the arrangements is for the new owners to gain access to the company’s capital losses or gains.

Secondments to charities and educational institutions

Employers subject to income tax will be able to obtain the correct deduction for salary costs of employees seconded to a charity or educational institution. The change will be effective from 6 April 2007 and corrects errors made when the law was redrafted in 2005.

Landfill tax

The standard rate of landfill tax will increase from £21 to £24 per tonne from 1 April 2007 and to £32 per tonne from 1 April 2008. The lower rate for inactive waste will increase from £2 to £2.50 per tonne from 1 April 2008.

Empty business property relief

The empty business property relief on national non-domestic rates will be reduced from 1 April 2008. Office and retail premises will receive 100% relief for a three-month period, and industrial and warehouse premises will receive 100% relief for a six-month period after they first fall empty. Relief will end for property remaining empty beyond these periods. Charities will be exempt from the effects of this reform.

Capital Taxes

Stamp duty land tax

A number of changes to stamp duty land tax (SDLT) were announced, including:

Where connected parties exchange property, the values of the two properties will not be ‘linked’ for determining the rate of tax from the date of Royal Assent.
Payment of SDLT will no longer have to accompany the SDLT return from Royal Assent.
There will be an exemption from SDLT for purchases of new zero-carbon homes valued at up to £500,000. For purchase prices above that level, a £15,000 reduction to the normal SDLT liability will apply from 1 October 2007.

Pre-owned assets tax – late elections

From 21 March 2007, HMRC will be allowed to accept, after the normal deadline, an election for assets to be treated as part of an estate for inheritance tax purposes rather than to be subject to pre-owned assets tax. The change may also apply to elections for 2005/06 that were late.

Capital gains tax

The capital gains tax annual exemption for 2007/08 will be £9,200 for individuals and a maximum of £4,600 for most trusts. The Finance Bill will contain anti-avoidance legislation, effective from 6 December 2006, aimed at certain capital loss based avoidance schemes.

Inheritance tax

The inheritance tax nil rate band will increase to £300,000 for 2007/08. It will then rise each year to reach £350,000 in 2010/11.

Recognition of stock exchanges

HMRC will be able to designate as a recognised stock exchange for tax purposes any investment exchange designated as a recognised investment exchange (RIE) by the Financial Services Authority (FSA). The move will ensure equal tax treatment for FSA-listed shares, regardless of which RIE is used as the primary market for the shares. The measure will take effect from Royal Assent.

VAT

Registration and deregistration

The VAT registration turnover limit rises to £64,000 from 1 April 2007. The deregistration limit increases to £62,000.

Reform of VAT fuel scale charges

The basis on which businesses can recover input tax on fuel used for private motoring is changing from engine size to carbon dioxide (CO2) emissions. This is in line with the income tax rules for employee benefits. Businesses must use the new scales from the start of their next prescribed accounting period beginning after 30 April 2007.

Fuel scale rates – quarterly

New scales apply from the start of the first accounting period beginning after 30 April 2007.

CO2 Emissions g/km	VAT Fuel Scale Charge	VAT due per car
	£	£
Under 145	182	27.11
145-149	195	29.40
150-154	207	30.83
155-159	219	32.62
160-164	231	34.40
165-169	243	36.19
170-174	256	38.13

CO2 Emissions g/km	VAT Fuel Scale Charge	VAT due per car
	£	£
175-179	268	39.91
180-184	280	41.70
185-189	292	43.49
190-194	304	45.28
195-199	317	47.21
200-204	329	49.00
205-209	341	50.79

CO2 Emissions g/km	VAT Fuel Scale Charge	VAT due per car
	£	£
210-214	353	52.57
215-219	365	54.36
220-224	378	56.30
225-229	390	58.09
230-234	402	59.87
235-239	414	61.66
240 & over	426	63.45

Carousel fraud

HMRC’s existing power to combat ‘carousel fraud’ on electronic goods such as computer chips and mobile phones is extended from 1 May 2007 to certain sorts of electronic equipment ordinarily used by individuals for leisure, amusement or entertainment. It allows HMRC to direct that a VAT-registered business that receives such goods from another VAT-registered business is jointly and severally liable for VAT, if the business had reasonable grounds to suspect that VAT would go unpaid elsewhere in the supply chain.

Other VAT changes

Where a business is transferred as a going concern after 31 August 2007, the seller will retain the VAT records, except in cases where the buyer takes over the seller’s VAT number.
Smoking cessation products will become liable to VAT at the 5% reduced rate for one year from 1 July 2007.
New rules will shorten to ten years the period over which VAT charges on non-business use of land and buildings are paid. The legislation, which follows decisions in the European Court of Justice, will take effect from 1 September 2007.

Self-assessment and compliance

Tax return filing dates

Tax returns for 2007/08 onwards made on paper will have to be filed by 31 October. So a 2007/08 paper return will have to be filed by 31 October 2008. The date will be the same for taxpayers who want HMRC to calculate their tax liability (currently 30 September). The present filing date of 31 January will remain for returns filed online.

Taxpayers will still be able to amend a tax return by the first anniversary of the 31 January filing date, whether the return was filed online or on paper. The new dates apply to returns filed by individuals, partnerships and trustees.

Tax enquiries and incorrect returns

The period during which HMRC can enquire into tax returns will be one year from the date HMRC receives the return, instead of one year from the fixed filing date. The change will apply to tax returns for 2007/08 onwards for individuals, partnerships and trustees, and to accounting periods ending after 31 March 2008 for companies.

There will be a single new penalty regime for incorrect returns for income tax, corporation tax, PAYE, NIC and VAT. Penalties will be determined by the amount of tax understated, the nature of the behaviour giving rise to the understatement and the extent of disclosure by the taxpayer. The new rules will apply from a date to be set, expected to be for return periods starting after 31 March 2008 where the return is filed after 31 March 2009.

The rules in the Police and Criminal Evidence Act 1984 (PACE) will be extended to all HMRC’s criminal investigations in England and Wales from a date likely to be later in 2007. At present, PACE only applies to former Customs and Excise matters. Similar legislation will apply to Northern Ireland, and new and consistent powers will be introduced in Scotland.

Online filing and tax payments

All taxes for which HMRC is responsible will be subject to a single set of powers to make regulations to require online filing and electronic payment. Eventually, most businesses will be covered. HMRC will be able to make regulations under which cheque payments of VAT and corporation tax will be treated as made when funds have cleared into HMRC’s account.

National insurance contributions (NIC)

Class 1 (Employees)
Not Contracted out of State Second Pension S2P
2007/08	2006/07
Employee	Employee
No NICs where earnings are up to £100 a week 11% NICs on £100.01-£670 a week 1% NICs over £670 a week	No NICs where earnings are up to £97 a week 11% NICs on £97.01-£645 a week 1% NICs over £645 a week
Employer	Employer
No NICs on the first £100 a week 12.8% NICs over £100 a week	No NICs on the first £97 a week 12.8% NICs over £97 a week

Earnings limit or threshold	2007/08			2006/07
	Weekly	Monthly	Annual	Weekly	Monthly	Annual
	£	£	£	£	£	£
Lower limit (LEL)	87	377	4,524	84	364	4,368
NICs start	100	435	5,225	97	420	5,035
Upper limit (UEL)	670	2,903	34,840	645	2,795	33,540

Contracted-out S2P rebate	2007/08	2006/07
Reduction on band earnings	£87.01-£670 pw	£84.01-£645 pw
Employer rate reduction
Salary-related scheme	3.7%	3.5%
Money-purchase scheme	1.4%	1.0%
Employee rate reduction	1.6%	1.6%

Class 1A (Employers)
Most taxable employee benefits	12.8%	12.8%

Class 2 (Self-Employed)	2007/08	2006/07
Flat rate	£2.20 pw £114.40 pa	£2.10 pw £109.20 pa
If earnings over	£4,635 pa	£4,465 pa

Class 4 (Self-Employed)	2007/08		2006/07
On profits	£5,225-£34,840 pa	8%	£5,035-£33,540 pa	8%
	Over £34,840 pa	1%	Over £33,540 pa	1%

Class 3 (Voluntary)	2007/08	2006/07
Flat rate	£7.80pw £405.60 pa	£7.55pw £392.60 pa

Tax Tables 2007/2008

Basic State Pension

	2007/08		2006/07
	Weekly	Annual	Weekly	Annual
Single person	£87.30	£4,539.60	£84.25	£4,381.00
Dependant’s addition	£52.30	£2,719.60	£50.50	£2,626.00
Total married pension	£139.60	£7,259.20	£134.75	£7,007.00

Pension Credit - Standard Income Guarantee 2007/08
Single	£119.05	£6,190.60
Married	£181.70	£9,448.40

Capital Gains Tax

Exemptions	2007/08	2006/07
Individuals, estates, etc	£9,200	£8,800
Trusts generally	£4,600	£4,400
Chattels proceeds ( 5/3excess gain is taxable)	£6,000	£6,000

Rates
Individuals	As savings rates
Trusts and estates	40%	40%

Taper Relief for 2006-08
Percentage of gain chargeable is based on the number of complete years an asset is owned after 5/4/98

Years owned	1	2	3	4	5	6	7	8	9	10
Business Assets	50	25	25	25	25	25	25	25	25	25
Other Assets*	100	100	95	90	85	80	75	70	65	60
* One year's extra relief for other assets owned before 17/3/98

Income Tax

Rates		2007/08	2006/07
10% on first		£2,230	£2,150
22% (20% for savings income) on next		£32,370	£31,150
40% on income over		£34,600	£33,300

Dividends for:	basic rate taxpayers higher rate taxpayers	10% 32.5%	10% 32.5%

Trusts:	standard rate band generally dividends (rate applicable to trusts) other income (rate applicable to trusts)	£1,000 32.5% 40%	£1,000 32.5% 40%

Pre-owned assets tax (£5,000 minimum taxable)		As income

Company Cars – Advisory Fuel Rates From 1/2/07

Engine Size	Petrol	Diesel	LPG
1,400cc or less	9p	9p	6p
1,401cc to 2,000cc	11p	9p	7p
Over 2,000cc	16p	12p	10p

Fuel Benefit

	2007/08	2006/07
Multiply the CO2 percentage used for the car benefit by	£14,400	£14,400
Vans – flat charge	£500	Nil

Child Trust Fund

Children born after 31 August 2002
Endowment
Initial and at age 7	£250
Low income families	£500
Extra annual contributions from family and friends up to	£1,200 pa

Corporation Tax

Profits £	Effective rate to 31/3/08	Effective rate to 31/3/07
0-300,000	20%	19%
300,001-1,500,000	32.5%	32.75%
1,500,001 and over	30%	30%

Individual Savings Accounts (ISAs)

Maximum Investment Component	Maxi-ISA	Mini-ISA
	2006-08	2006-08
Cash	£3,000	£3,000
Stocks & shares	balance up to £7,000	£4,000

Inheritance Tax

						2007/08	2006/07
Nil-rate band						£300,000	£285,000
Rate of tax on excess						40%	40%
Lifetime transfers to and from certaintrusts						20%	20%
Overseas domiciled spouse/civil partner exemption						£55,000	£55,000
100% relief: businesses, unlisted/AIM companies, certain farmland/buildings
50% relief: certain other business assets used by qualifying businesses

Reduced tax charge on gifts within 7 years of death
Years before death	0-3	3-4	4-5	5-6	6-7
% of death tax charge	100	80	60	40	20
Annual exempt gifts	£3,000 per donor			£250 per donee

Main Capital and Other Allowances

Plant & machinery (P&M): first year		– medium sized firms – small firms	40% 50%
P&M, Patent Rights, Know-How			25% pa reducing balance
P&M Certain long life assets			6% pa reducing balance
P&M Energy & water-efficient assets			100%
Qualifying flat conversions			100%
Motor cars: generally with CO2 emissions of 120g/km or less			25% pa reducing balance max. £3,000 100%
Industrial and agricultural buildings, hotels, docks, dredging etc.			4% straight line
R&D:	capital expenditure		100%
	revenue expenditure	– small/mid-sized firms – large firms	150% 125%

Main Due Dates for Tax Payment

Income Tax and Capital Gains Tax – Self-Assessment
31 January in tax year	Normally 50% of previous year's income tax, less tax deducted at source
31 July following tax year	Normally 50% of previous year's income tax, less tax deducted at source
Following 31 January	Balance of income tax and all CGT

Inheritance Tax

On death:

Normally 6 months after month of death

Lifetime transfer 6 April-30 September:

30 April in following year

Lifetime transfer 1 October-5 April:

6 months after month of transfer

Corporation Tax

Small and medium-sized companies: 9 months after accounting period

Large companies (those paying tax at 30%): Quarterly instalments normally payable in 7th, 10th, 13th, 16th months after the start of the accounting period

Growing companies avoid instalments where profits are £10m or less and the company was not large for the previous year

National Insurance Contributions

Class 1 Employees Not Contracted-Out of State Second Pension (S2P)
	2007/08		2006/07
	Employee	Employer	Employee	Employer
NIC rate	11%	12.8%	11%	12.8%
No NICs on the first	£100 pw	£100 pw	£97 pw	£97 pw
NICs charged up to	£670 pw	No Limit	£645 pw	No Limit
1% NIC on earnings over	£670 pw	N/A	£645 pw	N/A
Certain married women	4.85%	12.8%	4.85%	12.8%

Contracted-out Rebate	2007/08		2006/07
Rebate on	£87.01 - £670 pw		£84.01 - £645 pw
Salary-related scheme	1.6%	3.7%	1.6%	3.5%
Money-purchase scheme	1.6%	1.4%	1.6%	1.0%
Personal Pension	No reduction		No reduction


Class 1A Employer 2006-08 on car fuel benefits and most other taxable benefits:	12.8%

Limits and Thresholds	2007/08			2006/07
Limits and Thresholds	Weekly	Monthly	Annual	Weekly	Monthly	Annual
Lower earnings limit	£87	£377	£4,524	£84	£364	£4,368
NICs start	£100	£435	£5,225	£97	£420	£5,035
Upper earnings limit	£670	£2,904	£34,840	£645	£2,795	£33,540
Low earnings threshold – S2P			£13,000			£12,500

Self-employed		2007/08	2006/07
Class 2	Flat rate	£2.20 pw £114.40 pa	£2.10 pw £109.20 pa
Class 2	if earnings over	£4,635 pa	£4,465 pa
Class 4*	On profits	£5,225 - £34,840 pa: 8%	£5,035 - £33,540 pa: 8%
Class 4*		Over £34,840 pa: 1%	Over £33,540 pa: 1%
*Unless over state pension age on 6 April

Voluntary
Class 3	Flat rate	£7.80 pw £405.60 pa	£7.55 pw £392.20

Stamp Duties

Stamp Duty Land Tax
Consideration is £125,000* or less	Nil
Consideration is over £125,000* and up to £250,000	1%
Consideration is over £250,000 and up to £500,000	3%
Consideration is over £500,000	4%
* £150,000 for residential properties in disadvantaged areas and all non-residential properties

Stamp Duty (including SDRT):
Stocks and marketable securities	0.5%

Value Added Tax

Registration level from 1/4/07:	£64,000
Standard rate	17.5%
Reduced rate, eg on domestic fuel	5%
Flat rate scheme turnover limit from 1/4/07	£150,000
Cash and annual accounting turnover limit	£1,350,000

news

INCREASE ENQUIRIES BY HMRC - 15 / 01 / 2009
POWER TO REQUEST FILES AT A SHORT NOTICE

As we all know H M Revenue and Customs are becoming far more sophisticated in their selection of Enquiry cases. We are aware of several initiatives that target trades associated with the Construction Industry.

One such project looks at accounts where all or most of the sales are received under CIS. HMRC have details of all payments and can see if purchases have been paid for by the main contractor. In most cases the answer is negative as these are provided by the main contractor. Assuming a claim has not been made in the accounts there will not be a problem.

However we have seen a number of cases that fall into two distinct categories:-

Estimated Purchases

Some accountants think they are doing their client a favour by estimating a figure for purchases. This is fine if there are some non-CIS sales and the purchase figure is consistent with those sales. If not and the case is taken up for enquiry it will be difficult to justify the claim. We all have to prepare accounts from incomplete (or non- existent) records so it is imperative that any estimated expenses can be reasonably justified.

Actual Purchases

If purchases are all provided by the main contractor then it follows that none will be need to be supplied by the subcontractor. No matter what we do some tradesmen will work for cash, claim the expenses in their accounts but omit the income. However, it sticks out like a sore thumb when comparing the CIS vouchers with the accounts. So be vigilant when letting staff loose on preparing accounts for those in the building trade. Make sure that if there are purchases these are consistent with the income.

Tax and Finance Deadline - 06 / 06 / 2008
June 1:

Due date for payment of corporation tax for accounting periods
ended 31 August 2007.
Changes to the VAT ‘option to tax’ rules for land and buildings
come into force. For full details, see VAT Information Sheet
03/08 VAT: Land and Buildings – New Schedule 10 of the VAT
Act 1994 accessible via http://www.hmrc.gov.uk

June 7:
End of the week of grace allowed by ESC B46 for the receipt of
CTSA returns for accounting periods ended 31 May 2007.

June 19:

PAYE: Remittances for the month ended 5 June 2008 due.
CIS: Return of payments to subcontractors for month ended 5
June 2008 due to reach HMRC.

June 30:

Accounts for private companies to 31 August 2007 and public
companies to 30 November 2007 due to be received at
Companies House.

July 1:

Due date for payment of corporation tax for accounting periods
ended 30 September 2007.
VAT: The £2,000 ceiling on corrections to errors in past returns
is revised to £10,000 or, if more, 1% of turnover within the
return period, subject to a maximum of £50,000.
EU Withholding Tax: The rate of tax withheld from interest on
offshore bank accounts increases from 15% to 20%.

July 6:

Forms P11D due to be received by HMRC. Copies should be
supplied to the employees concerned. Payment of Class 1A NIC
is due by 19 July.

July 7:

End of the week of grace allowed by ESC B46 for the receipt of
CTSA returns for accounting periods ended 30 June 2007.

£2.7 billion for 10p

The chancellor has, as we all know, announced his intention of
borrowing £2.7 billion to fund a £600 increase in the personal
allowance, in order to compensate low income taxpayers for the
increase they currently have to pay because of the abolition of
the 10p tax band. This appears to have silenced his critics in the
short term, but does in fact leave some people on relatively low
incomes (between £6845 and £10505) worse off by up to £61.
Meanwhile, most basic rate taxpayers have an unexpected £120
bonus.
The Basic Rate limit reduces from £36,000 to £34,800. This
effectively ensures that higher Rate taxpayers do not benefit from
this exercise.
The increased personal allowance will be reflected in PAYE codes
from the end of September and this will generate a refund. Note
however that anyone on a BR tax code will not benefit from the
refund unless and until they are allocated a weekly/monthly tax
code.

Tax credits

H M Treasury has published a consultation paper on the Tax
Credit system, inviting comments by 5 September. We have
already commented about the difficulty of providing final figures
of profit for those who started self-employment in the final
quarter by 31 January following, and members may wish to
express their own views on problems with the system.

Fixed deductions for expenses
Some fixed deductions for employees’ expenses are increased
with effect from this year. These deductions need to be claimed
in tax returns and are often incorrect in PAYE codes. The full
table is in HMRC’s Employment Income Manual
(http://www.hmrc.gov.uk/manuals/eimanual/EIM32712.htm).

One law for them …
It has become evident recently that Members of Parliament are
able to benefit from generous expense allowances for their
second homes, without apparently having to demonstrate that
their constituencies are outside reasonable daily travelling
distance from Westminster Bridge. For the ordinary taxpaying
employee who necessarily performs some of his or her duties at
home, HMRC has raised the amount allowable in the absence of
4
specific vouchers from £2 per week to £3 per week from 6 April
2008. The manual suggests that strictly speaking holiday weeks
should be disallowed.
http://www.hmrc.gov.uk/manuals/eimanual/EIM32815.htm

Penalties
As previously reported, a new penalty regime comes into force for
SA returns for 2008-09 and for CT returns for periods beginning
after 31 March 2008. HMRC has published guidance on the
application of the new penalty regime at
http://www.hmrc.gov.uk/about/new-penalties/index.htm

Backdated pensions

A pensioner who has lost part or all of an occupational pension
due to the winding up of an underfunded superannuation scheme
may be entitled to a payment under the Financial Assistance
Scheme. The payment may relate to pension losses arising over
a number of tax years. HMRC has confirmed that in such cases
the payment will be taxed by reference to the rates for the years
to which it relates and not treated as a single payment taxable in
the year of receipt.
http://www.hmrc.gov.uk/news/tax-treatment.htm.

Tax clearance for businesses

HMRC has a long-standing non-statutory clearance procedure for
large corporations, where it will give its view on the tax treatment
of a proposed or completed transaction where there is ‘material
uncertainty around the tax outcome of a real issue of commercial
significance to the business.’ This procedure is now extended on
an experimental basis to businesses of all sizes, and ‘commercial
significance’ is defined by reference to the size of the business
and the impact of the ‘real issue’ on it. Where IHT is involved,
the trial period is intended to run until 31 October 2008; for other
taxes no closing date is currently fixed.

Residence and non-residence

HMRC have published an interim revised version of booklet IR20,
incorporating developments since 1999. It can be downloaded
from http://www.hmrc.gov.uk/pdfs/ir20.pdf. There will be a
further revision to incorporate the Budget changes in due course.

Low income non-domiciles

The Chancellor appears to be unaware of the problems the new
proposals for non-domiciled taxation may cause. Attention has
concentrated on the wealthy, but the Low Income Tax Reform

Group points out that the proposals as drafted are likely to bring
overseas students’ vacation earnings into the charge to UK tax.
This may be somewhat theoretical, but the provisions could be
used to charge tax, interest and penalties on a foreign student
whose vacation earnings are already taxed in the country of
origin, especially if some overzealous HMRC officer had a grudge
against overseas students.

Changes to P46 procedure

From the start of this tax year it is no longer necessary for an
employer to obtain a completed P46 for new employees with no
P45 and earnings below the NIC threshold. Employers need to
obtain the appropriate information from such employees and
keep a copy of any documentation or a note of how the
information was provided.

TAX CASES

Tomlinson v HMRC
An appellant attempted to quash a Section 95 penalty. He had
submitted a form R40 to HMRC on 6 April, and on the same day
HMRC served notice to make a Self-Assessment return for the
same year. They lost the R40 and in due course charged a
penalty for failure to make the tax return. The High Court upheld
the penalty on the grounds that a form R40 is not a selfassessment.
The appellant was saddled with costs of £3,520 as a
result of taking his appeal to Court.

Walsh v HMRC

This appeal concerned an enquiry case in which no evidence was
offered and the agent who prepared the accounts and tax return
was uncooperative. The Commissioners simply held that the
appellant had failed to show to their satisfaction that the
amendment to the return was excessive, and that it must
therefore stand good.

McCall and Ors v HMRC

In this IHT appeal it was held that agistment (the letting of
agricultural land for grazing) constituted a business of investment
and not a business within the meaning of the provisions for
Business Property Relief. There is a useful discussion of the
meaning of the word ‘business’ and how it relates to Business
Property Relief in the judgement.

Smith v HMRC

This enquiry appeal concerns unexplained bank deposits and the
use of a company credit card for private expenditure. Its main
interest lies in the fact that one of the assessments under appeal
was described as a ‘jeopardy’ assessment; although the
conditions for such an assessment did not exist the assessment
was held to be valid.

Grace v HMRC

This case concerned the residence status of an airline pilot who
owned a house near Gatwick Airport but was domiciled in South
Africa and claimed to be resident and ordinarily resident there.
His appeal was successful on the grounds that he only came to
the UK for a temporary purpose (i.e. to carry out the duties if his
employment) and had no other connection with this country apart
from holding a British passport and having an estranged wife in
the country. There is a useful discussion of the concepts of
residence and ordinary residence, including a review of several
earlier cases, in the judgement.

MKM Computing Ltd v HMRC

The Special Commissioner reviewed a number of relevant factors
and concluded that on the balance of probabilities the legislation
applied in this IR35 case.

Nelson Dance Settlement Trustees v HMRC

In this IHT case, the Special Commissioner held that Business
Property Relief applies to the disposal of business assets where in
a lifetime transfer the value of the business was reduced.
http://www.bailii.org/uk/cases/UKSC/2008/000682.html

NATIONAL INSURANCE

Peter Arrowsmith’s Tip of the Month
Since the introduction of Capital Gains Tax taper relief it has been
good NIC planning to ensure that where land and buildings owned
outside a company are used by that company in its trade full
market rent is paid. Rent of course attracts no NIC liability unlike
salary, nor the opprobrium that dividends attract. In fact the
justification for paying rent is (apart from what follows)
unassailable. The reason that this was not the case before taper
relief was the restriction that applied for CGT retirement relief.
Now the position has again reversed as the same restriction once
again applies in the case of the new CGT entrepreneurs’ relief.
Where there is any possibility that entrepreneurs’ relief will be
required in the future the payment of rent should cease. If the
rent is being paid under a lease or other formal, binding
agreement that lease or agreement will need to be varied (with
all the consequences that may ensue) – it will not be sufficient to
merely stop the payment of rent.
The position is not quite so clear cut as with retirement relief. If
an individual has sold one business and used all their relief then
started another business the question of entrepreneurs’ relief on
the next disposal does not arise – unless the next chancellor
increases the lifetime limit or reintroduces retirement relief!
Similarly (as was the case with retirement relief also) if the
disposal of the company shares alone is expected to use up all
the available relief, there will be none available to use against the
associated disposal of the separately owned land and buildings in
any event – so rent could still be paid (subject to the usual
crystal ball re future changes).

As the Finance Bill is presently drafted, the payment of rent
before 6 April 2008 will also impact on the future entrepreneurs’
relief that will be available. Lobbying is taking place to remove
this retrospective effect. Only time will tell whether there is any
success on this point.

Budget 2008 Analysis - 17 / 03 / 2008
Comparing 2008/9 with 2007/8, we can see that the loss of the starting rate band leaves those with lower incomes considerably worse off. Many employed earners on low incomes will, however, receive more Tax Credits in 2008/9. A single person earning £10,000, for example, will receive an additional £372 in Tax Credits leaving them £265 better off overall.
Where the employee is earning the second wage in the household, however, the tax increases may not be offset by Tax Credit increases and, in the worst case, someone with a salary of £7,455 could be as much as £158 worse off in 2008/9 (a lot of money to them).
Those with moderate income are a little better off (but perhaps not in real terms when you take inflation into account).
Those with a salary of £40,000 make a saving of just £9. This is due to the large increase in the upper earnings limit for National Insurance meaning that these people have to pay National Insurance at 11% on over £5,000 more of their salary than in 2007/8.
In fact, there is a small band of salary level from £39,721 to £39,906 for which employed earners will be slightly worse off in 2008/9, with the worst affected on a salary of £39,825 losing £9.
Self-Employed Earners
The self-employed pay National Insurance at the main rate at 8% instead of 11%,
In addition to the above taxes, most self-employed earners also have to pay Class 2 National Insurance, which is increasing from £2.20 to £2.30 per week from 6 th April 2008.
Landlords
For those whose income is derived solely from rental income, the tax burden over the next few years will will also increas dramatically
The burden here is lower due to the fact that National Insurance is not due on rental income.
Pension Income
Pension income received by a person aged under 65 at the end of the tax year will suffer the same rates of tax as rental income in the previous table.
As explained above, persons aged over 65 are benefitting from significant increases in personal allowances for 2008/9.
The tax burden on a person aged between 65 and 74, but born on or after 6 th April 1935 (and not married to, or in a civil partnership .
A large number of reforms to the system of capital allowances claimed by businesses are to take place from April 2008. Most of the changes apply to capital expenditure by companies on or after 1 st April 2008 or to capital expenditure by sole traders or partnerships on or after 6 th April 2008.
The main changes are as follows:
• The 50% first year allowance for qualifying expenditure by small businesses (or 40% for medium-sized businesses) will cease to apply.

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