In the Budget speech, there was some further good news for small businesses, building upon what we had already been told in 2010’s budget. This is clearly a key aim for George Osborne, the Chancellor, who has said he wants to “make Britain the best place in Europe to start, grow and finance a business”.
Whilst we think this budget is broadly favorable to larger businesses, we believe that more could be done to help smaller businesses.
The summary below sets out the changes that will have an impact for you or your business.
Individuals
Personal allowance
These allowances represent the amount of an individual’s income in the tax year that is not subject to income tax.
The personal allowance for 2011/12 will increase by £1,000 to £7,475, however the 40% tax threshold will reduce to £35,000. This ensures that higher and additional rate taxpayers do not benefit from the increased personal allowance in this year. From 6 April 2012 the personal allowance will be increased again by £630 to £8,105, and in that year the 40% threshold will be reduced further to £34,370. The government has to goal to increase the personal allowance up to £10,000 before next election.
The 2011/12 personal allowances:
Under 65 – £7,475
65-74 – £9,940
75 and over – £10,090
Blind person’s allowance – £1,980
Income limit for allowances for those aged 65 or more – £24,000
Income limit for allowances for those aged under 65 – £100,000
Income Tax Rates
The tax rates for 2011/12 will stay at 2010/11 levels but the threshold at which the 40% tax rate is applied is reduced to £35,000. This introduces a subtle tax increase as it pulls more taxpayers into the 40% tax bracket, and increases the amount of income subject to tax at 40%.
The 2011/12 rates and bands are:
Savings rate* (10%) – 0 to £2,560
Basic rate (20%) – 0 to £35,000
Higher rate (40%) – £35,001 to £150,000
Additional rate (50%) – over £150,000
* Only applies if non savings income is below this amount
Savings and investments
Enterprise Investment Scheme
Income tax relief for investors is to be proposed to be enhanced as follows:
Rate of income tax relief: 2010/11 – 20%, 2011/12 – 30%, 2012/13 – 30%
Annual maximum investment qualifying for income tax relief: 2010/11 – £500,000, 2011/12 – £500,000, 2012/13 – £1,000,000
Pension Contributions
The level of contributions that can be made with full tax relief to a registered pension scheme is to be reduced from £255,000 to £50,000 per pension input period (PIP) falling in the tax year. However, this cap can be expanded by bringing forward unused relief from the previous three tax years, up to a maximum of £50,000 from each year. If the annual allowance is exceeded the taxpayer must pay an annual allowance charge on the excess at their marginal rate of income tax.
The Lifetime Allowance will reduce from £1,800,000 in 2011/12 to £1,500,000 in 2012/13.
Independent Savings Accounts (ISAs)
The ISA savings limits applicable in 2011/12 for those over 18 are:
Overall limit – £10,680
Cash up to – £5,340
Balance in stocks and shares up to – £10,680
For those aged 16 & 17:
Overall limit – £5,340
Cash up to – £5,340
Balance in stocks and shares up to – nil
Savings for Children
Children born between 1 September 2002 and 2 January 2011 inclusive were eligible for a child trust fund account (CTF). Each child received a voucher to allow the account to be opened which also provided an initial deposit. The existing CTF accounts will continue and funds of up to £1200 per year can be contributed for each child tax free. The CTF account can only be accessed by the child when he or she reaches age 18.
Employers
National Insurance rates
From 6 April 2011 the rates and thresholds for the main NI contributions were already known with most increasing by 1%. After a bit of number crutching, here are the main rates for 2011/12:
Employer’s class 1 above £136/week (£7,072/year) not contracted out – 13.8%
Employee’s class 1 not contracted out from £139 (£7,228/year) – 12%
Employee’s additional class 1 above £817/week (£42,484)- 2%
Self-employed class 4 from £7,225 to £42,475 per annum – 9%
Self-employed class 4 additional rate above £42,475 per annum – 2%
Self-employed class 2 – £2.50 per week
Voluntary contributions class 3 – £12.60 per week
Usage of your own car- approved mileage allowance
Where an employee uses his or her own car for business journeys their employer can pay them an approved mileage allowance payment (AMAP), free of tax and NIC.
The AMAP will increase to 45p per mile from 6 April 2011 for the first 10,000 business miles per year, any additional miles can be reimbursed at 25p per mile.
Car Benefit
The tax charge for personal use of a company car is based on a percentage of the list price of that car when new.
From 6 April 2011 the percentages are all increased by 1% for those in the 15% to 35% range but with a 35% maximum kept. The taxable benefit of using a car with CO2 emissions of 121-129g/km is 15% of the list price. This percentage increases by 1% for each additional 5g/km of CO2 emissions to a maximum of 35% for cars with CO2 emissions of 225g/km or more.
Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to a set value, currently £18,000. This value will increase to £18,800 from 6 April 2011. The maximum taxable benefit of receiving fuel for personal use will increase from £6,300 (for 2010/11) to £6,580 (for 2011/12).
Businesses
There has been an extension in Business rate relief
If you have a small business with a property with a low rateable value, you might qualify for relief on your business rates. The relief will be extended until October 2012.
Corporation tax
The main rate of corporation tax will be reduced to 26% from April 2011.
The corporation tax for small businesses (i.e. businesses with profits up to £300,000) will be 20%. The small profits rate applies to profits of up to £300,000 where the company has no associated companies which are trading.
Capital Allowances
For a few years the Annual Investment Allowance (AIA) cap has been set high. Currently and ongoing into 2011 the cap is £100,000, this will be reduced from 6 April 2012 to £25,000
Capital Taxes
Rate for gains in basic rate band – 18%
Rate for gains above basic rate band – 28%
Entrepreneurs’ relief
The entrepreneur’s relief allows business owners to pay an effective 10% capital gains tax rate when a business is sold up to a lifetime “allowance”. This allowance is to be increased from £5 million to £10 million from April this year.
Inheritance Tax
The nil rate band for inheritance tax (IHT) will remain frozen until 2014/15 at £325,000. This is the amount of a person’s estate that is free of inheritance tax.
The rate payable on death for 2011/12 remains at 40%, with the rate payable on lifetime gifts to certain trusts remaining at 20%.
If you have any queries pleas contact Metric Accountants on 0845 3045473 or send us an email at info@metricaccountants.co.uk
