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Summary of main business tax changes for 2010-11

In this article we cover taxes relating to employees, VAT, PAYE, the Annual Investment Allowance, capital allowances, National Insurance and business rates.

Employees

Changes to the taxation of company cars aim to encourage greater take-up of energy-efficient vehicles. From 6 April 2010 to 5 April 2015, the appropriate percentage in the benefit calculation is set at 0 per cent for ‘zero-emission’ vehicles (which includes but is not limited to electric cars) and 5 per cent for vehicles emitting 75g/km CO2 or less. The flat rate charge for zero-emission vans will be £0.

A change to rules for childcare vouchers and employer crèches provided through salary sacrifice means that schemes no longer have to be open to employees at or near the minimum wage. This is backdated to 2005–06.

The enterprise management incentive rules are to be relaxed so that the scheme is no longer restricted to businesses carried out wholly or mainly in the UK. They will merely need a permanent establishment in the UK.

Effective from 24 March 2010, anti-avoidance measures aim to stop employees receiving more than £30,000 of shares through company share option schemes via ‘geared growth’ arrangements.

Paying and reclaiming tax

The arrangements allowing small businesses to request extra time to pay their taxes (Business Payment Support service) is to continue for now.

Trusts and shares

From mid-2010, real estate investment trusts are to be allowed to pay out stock dividends and these will count towards the 90 per cent distribution requirement.

From mid-2010, the rules for venture capital trusts (VCTs) and the enterprise investment scheme are being extended to include shares in businesses trading mainly in the EU as well as the UK. VCTs will be able to include preference shares as well as ordinary shares.

VAT

The main rate of VAT returned to 17.5 per cent from 1 January 2010. The threshold for registrations rises to £70,000 (was £68,000) from 1 April 2010. The threshold for deregistrations also rises to £68,000 (was £66,000).

The VAT exemption for Royal Mail postal services is to be removed for non-statutory services (e.g. Parcel Force) from 31 January 2011.

Annual Investment Allowance

The Annual Investment Allowance (AIA) is doubled to £100,000 (was £50,000) for expenditure from 6 April 2010. Where your accounting period straddles this date, the two rates are time-apportioned but relief for spending before 6 April 2010 is restricted to £50,000.

There have been some changes to the items eligible for 100 per cent first-year capital allowances for environmentally beneficial spending (see www.eca.gov.uk). A new 100 per cent first-year allowance is introduced for new zero-emission goods vehicles purchased between 6 April 2010 to 5 April 2015, inclusive – but firms in the following industries are excluded: fisheries, aquaculture, waste management.

Business rates

From October 2010, there is a temporary (one-year) relief from business rates through the small business rate relief scheme. This means firms with premises whose rateable value is up to £6,000 will pay no rates. Up to a £12,000 rateable value, there will be a tapered reduction.

PAYE

Employers operating PAYE with a history of serious non-compliance can be asked to put up security and face criminal fines of up to £5,000 if they refuse. This is with effect from 1 April 2011.

National Insurance

The level of earnings (primary threshold) up to which no Class 1 national insurance contributions are paid is unchanged at £5,715 (£110 a week) in 2010–11. The upper earnings limit is also unchanged at £43,875 (£844 a week).

In 2010–11, Class 2 contributions paid by the self-employed are unchanged at £2.40 a week and the threshold below which payment is optional remains at £5,075. The lower and upper profit limits for Class 4 contributions are also unchanged at £5,715 and £43,875, respectively. Voluntary class 3 contributions remain at £12.05 a week.

Rates are unchanged in 2010–11, but an additional ½ per cent increase is now due on top of a previously announced increase. This means, from 2011–12, that rates are due to rise as follows:

  • Employees (Class 1): main rate 12 per cent (currently 11 per cent) and additional rate 2 per cent (currently 1 per cent)
  • Self-employed (Class 4): main rate 9 per cent (currently 8 per cent) and additional rate 2 per cent (currently 1 per cent).

The primary threshold at which Class 1 contributions start to be paid (and the lower profit limit at which Class 4 contributions start) is to be raised by an extra £570 from 2011–12. This will protect anyone with earnings below £20,000 from the additional ½ per cent rise (but not the original ½ per cent rise that had already been announced).

Other

The government intends to introduce single integrated online services for starting up a business and checking tax liabilities.

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