Pre Budget Report - National Insurance Bad News

Whilst the Pre Budget Report included good increases to basic pensions, child benefits as well as the deferment of the increase in small corporate tax rates, the bad news was that all National Insurance rates were increased by a further 0.5% which, when added to the 0.5% increase already announced in the last Pre Budget Report now means that all National Insurance rates will be increased by a whole 1% from 6 April 2011.

The increases are likely to make salary sacrifice arrangements more attractive for both an employer and employee as well as business owners being more attracted to the receipt of dividends rather than a salary or bonus.

Whenever a decision is made to take rewards other than a salary, the non tax consequences need to be given due consideration e.g. the impact on:-

• National Minimum Wage;
• State benefits;
• Employer Scheme benefits;
• Earnings for the purpose of personal pension contributions; and
• Earnings for the purpose of obtaining mortgages.

If you are concerned about how the increases will affect your business, please contact AG Tax Consulting.

Disclosure of Tax Avoidance Schemes

The Pre Budget Report continued the Government’s attack on what they consider to be Tax Avoidance Schemes, with two proposals being made.

The first is to make Stamp Duty Land Tax Schemes in respect of residential property, as well as commercial property schemes, be reportable by the user.

The second, more general, proposal is that HMRC have identified five changes it wants to make to schemes:-

• The time at which the scheme must be disclosed;
• Powers to force intermediaries to disclose the identity of scheme promoters;
• Increased penalties;
• An obligation on promoters to provide HMRC with periodic lists of clients they have issued scheme reference numbers to; and
• Changes to the hallmarks.

Enterprise Investment Scheme and Venture Capital Trusts

The Pre Budget Report has introduced a new requirement that in order to qualify under either the Enterprise Investment Scheme (EIS) or a Venture Capital Trust (VCT), a company must not be in difficulty.

Furthermore, HMRC have also changed its view on whether investments in a company trading in partnership can qualify for EIS relief.  HMRC's new view is that such investments will not qualify and this adds a further difficulty in obtaining this attractive relief at a time when small companies are struggling and the change in policy introduces a new and unwelcome restriction on the relief.

Green Is The Colour

Electric cars and vans have been exempted from being benefits in kind if provided to employees and this means that no income tax or National Insurance costs arise on the private use of such vehicles.

As a further incentive, businesses will benefit from the extension of the 100% first year capital allowances on not only the cost of all new electric cars, but also on new electric vans purchased from 1/6 April 2010.

Finally, financial incentives may also be available to individuals and families under the clean energy cashback scheme by generating their own renewable electricity through small scale projects.  Grants will also be available to those upgrading their old boilers to new energy efficient ones.

Posted on 26 Jan 2010