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Dean
Statham
Newsletter Pre-Budget Report December 2005
| Tax
News Introduction | This month we
have dedicated our newsletter to the tax changes outlined by Chancellor Gordon
Brown in yesterday's Pre-Budget Report. Please note this
is just a quick snap-shot of some of the forthcoming changes. No doubt we will
be elaborating in the months to come as the proposals become enacted.
Income Tax Allowances
- 2006-2007 All allowances
that are inflation proofed have been raised by 2.7%, (Based on the increase in
the Retail Price Index to September 2005). Personal Allowance
will be increased to ?5,035 (?4,895 2005-2006)
There are similar
increases in the lower, upper and other exemptions for national insurance purposes.
The standard
main rates of employees and employers contributions are unchanged. The flat rate
of Class 2 contribution remains unchanged at ?2.10 per week. Fuel Duty The Chancellor
announced a continuation of the freeze in main fuel duty rates and the rates for
road fuel gases. VAT The VAT Annual
Accounting Scheme turnover threshold will be doubled to ?1,350,000, and the Government
has written to the European Commission for permission to increase the Cash Accounting
Scheme turnover threshold to the same level. Child and Working
Tax Credit rates and Child Benefit - 2006-2007. Child benefit
is raised in line with inflation, the lone parent element remains frozen. The
disabled and severely disabled child elements rise with inflation. Interestingly
the Government is raising the disregard in Tax Credits for increases in income
from one tax year and the next - from the present ?2,500 to ?25,000. This should
ensure that almost all families with increasing incomes will not have their tax
credit entitlement reduced in the first year of a salary or income increase. The Revenue &
Customs will also put automatic limits on the amounts which can be recovered if
there has been an overpayment. These changes
should provide a greater degree of certainty for claimants particularly for families
with a rise in income. However new responsibilities
are being placed on claimants. From November
2006, claimants will have to report more changes of circumstances. They will be:
From April 2007
claiments will have just one month to report a change that reduces their tax credit
entitlement, not three months as at present. Tax Avoidance! If you have devised
your own in-house direct tax avoidance scheme, the Government are introducing
a provision that will require you to notify the Revenue within 30 days of implementation!
This will be effective from 6 April 2006.
The Government
is to bring forward legislation to introduce UK Real Estate Investment Trusts
in the Finance Bill 2006. The new status
will be open to public companies listed on a Recognised Stock Exchange. Companies
or groups that qualify will not pay corporation tax on qualifying property rental
income or qualifying capital gains. There will be a requirement to distribute
at least 95% of net taxable profits on rental income to investors, who will then
pay tax at their marginal rate. The Government
will announce a conversion charge applying to companies joining the scheme. More on Property. To deal with
the problems experienced by first time buyers getting a toe-hold on the property
ladder, the Government is to expand shared equity schemes, where lenders and the
government take a stake in the homes of first-time buyers. This will be
combined with a reform of the planning system aimed at speeding up the building
of new homes. Planning Gain
Supplement The Government
is to consult on the introduction of a Planning Gain Supplement (PGS) which would
give the government a slice of any rise in the value of the land which has been
granted planning permission. The imposition of a PGS is unlikely to be popular
with house builders, or individuals owning land! The aim is to
use the money raised to improve the infrastructure in areas where new building
is taking place. Small Company
Tax Rates - simplified! In 2002 the Government
introduced a zero per cent rate of corporation tax - it applied to companies with
profits up to ?10,000. This opened up
the possibility of earning up to ?10,000 profit as a limited company and then
distributing the profit as dividends to shareholders. For basic rate band shareholders
this allowed them to earn and receive the ?10,000 profit completely tax free. Somewhat concerned
by this apparent misuse of the zero rate band the Government introduced legislation
called the "non-corporate distribution rate" in 2004 that effectively taxed all
the company's profit at 19% if, the profits earned up to ?10,000 were distributed
to shareholders. In other words the first ?10,000 zero rate band only applied
if you retained the profit in the company. After discussing
this "over complicated" area of corporate tax with interested parties, both the
zero rate band and the non-corporate distribution rate are to be abolished. There
will now be a single small companies' rate of 19%. Pensions - tax
simplification 6 April 2006. Residential Property
and other assets. From the 6 April
2006 the new pension rules will be amended to remove the tax advantages
for investing in residential property, fine wines, classic cars and art and antiques,
where the benefits are "self-directed". This is aimed
at preventing tax payers benefiting from tax relief, in relation to contributions
made to pension funds, for the purpose of funding the purchase of assets for their
or their families own use. The change will
remove any tax advantages of holding residential property directly, or other exotic
assets within a SIPP. (Self Invested Personal Pension)
Presently it
is possible for pension scheme members to withdraw a tax free lump sum which is
then reinvested back into a registered pension scheme - this automatically generates
the possibility of more tax relief on the amount reinvested. This scheme will
be blocked by inserting an anti-avoidance rule into the new pensions legislation
to take effect from the 6 April 2006. Finally - two
allowances for pensioners. Winter Fuel Payments. This year the
Chancellor has increased the payments to pensioners to assist with winter fuel
costs:
This increased
amount will apply for the rest of this parliament. Free central
Heating! Pensioners on
Pensions Credit will be able to install central heating free of charge. Other pensioners,
not receiving Pensions Credit, can apply for a ?300 discount if they did not previously
have central heating in their homes.
1 December 2005
- Due date for
corporation tax for the year ending 28 February 2005. 19 December 2005
-
PAYE and NIC deductions due for month ending 5 December 2005. (If you pay your
tax electronically the due date is 22 December 2005) 1 January 2006
- Due date for
corporation tax for the year ending 31 March 2005. 19 January 2005
- PAYE and NIC
deductions due for month ending 5 January 2006. (If you pay your tax electronically
the due date is 22 January 2006) 31 January 2006
- Last day to
file your tax return for 2005, and to pay any balance of Self Assessment tax for
that year, to 5 April 2005. You may also need to make a payment on account for
the tax year ending 5 April 2006. If you cannot
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PLEASE NOTE: The ideas shared with you in this email are intended to inform rather
than advise. Taxpayers circumstances do vary and if you feel that tax strategies
we have outlined may be beneficial it is important that you contact us before
implementation. If you do or do not take action as a result of reading this newsletter,
before receiving our written endorsement, we will accept no responsibility for
any financial loss incurred. We have recently
sent to our clients the annual renewal notices for our tax enquiry fee protection
insurance scheme. This last week
we have settled with Revenue & Customs for a full tax enquiry into a roofing
contractor partnership based in Newcastle. The facts are:
- Enquiry started
October 2004 Paid to Revenue
& Customs
?nil settlement Paid by client
for fees to Dean Statham
?nil Paid by insurer
for fees to Dean Statham
?3,239.12 Normal annual
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