How will the latest tax changes affect you? - Veterinary Practice
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How will the latest tax changes affect you?

MARILYN MARTIN reviews the changes made in the pre-election Budget.

THE Chancellor had promised a “sensible and workmanlike” Budget for the economy and there were few fireworks in his speech in the House of Commons on 24th March.

However, sufficient measures were announced to make it important for vets to take an active interest in the changes that were fast-tracked through before the General Election.

Income tax rates and allowances

The 50% additional tax rate applies from 6th April to individuals with incomes in excess of £150,000. An equivalent additional rate of 42.5% applies to dividend income (which is an effective rate of 36.11%, taking into account the dividend tax credit).

The basic personal allowance is reduced by £1 for every £2 that the individual’s taxable annual income exceeds £100,000. The personal allowance is £6,475 in 2010-11, so this will be reduced to nil for individuals with income of £112,950 or more, resulting in an effective rate of tax of 60% and another £2,590 payable.

Also from 6th April, non-UK residents are longer entitled to personal allowances and reliefs from income tax if the sole reason for this entitlement is because they are commonwealth citizens.

Other rates and allowances for 201011 are frozen at 200910 levels. NIC rates and thresholds will also remain at 200910 levels – apart from the NIC lower earnings limit which increases by £2 to £97 per week and the special rate of Class 2 for volunteer workers which increases to £4.85 per week (both from 6th April).

It now seems clear that the controversial proposals to increase NIC rates in 2011-12 will depend on the outcome of the election.

Entrepreneurs’ relief

The amount of an individual’s capital gains that can qualify for entrepreneurs’ relief was subject to a lifetime limit of £1 million until 5th April 2010.

For trustees, the £1 million limit was that of the beneficiary of the settlement who meets the conditions for the trustees to claim the relief.

This lifetime limit has been increased to £2 million with effect from 6th April. The effect of this relief is a tax rate of 10% on gains, rather than 18%, the prevailing capital gains tax rate.


The Government has confirmed that it will introduce legislation which will restrict the availability of tax relief on contributions made by or on behalf of high income individuals to registered pension schemes on or after 6th April 2011.

The individuals affected are those with annual incomes, without deduction or relief for pension contributions and charitable donations, but including employer pension contributions, of £150,000 or more. However, those individuals with annual incomes of less than £130,000, excluding employer pension contributions, are not affected.

Individuals with an annual income of £180,000 or over will have tax relief on such contributions restricted to the basic rate of income tax.

The rate of tax relief for an individual with an annual income of between £150,000 and £179,999 will be somewhere between the individual’s marginal income tax rate and the basic rate.

The restriction will be applied by way of a recovery charge payable through the self-assessment regime.

It has been announced that the annual and lifetime allowances with regard to contributions to registered pension schemes will be increased to £255,000 and £1.8 million respectively for the tax year 2010-11. These allowances will then be frozen for a further five years, up to and including 2015-16.

Also from 6th April 2010, any man or woman reaching pensionable age will only need 30 qualifying years to earn the full basic state pension.

Inheritance tax

The nil rate band for inheritance tax (IHT) will remain at £325,000 for all years up to and including 2014-15.
ISAs The annual ISA subscription limits for individuals aged over 50 (£10,200 total and £5,100 for cash only ISAs) will apply to all individuals from 2010-11 onwards. The ISA limits for 2011-12 and later tax years will be increased in line with inflation (but not reduced if the rate is negative).

Corporation tax rates

The Government has confirmed that the main rate of corporation tax will remain at 28% with the small companies’ rate also unchanged at 21% for 2010-11.

Capital allowances

The 100% annual investment allowance (AIA) available on qualifying plant and machinery was doubled to £100,000 from 1st April 2010 for companies (6th April for other businesses).

New anti-avoidance rules were introduced to counteract tax avoidance arrangements that use the AIA to create property tax losses and offset these against general income.

The Government has announced that the list of qualifying technologies covered by the enhanced capital allowances scheme is to be amended. The date of this change has yet to be announced, although this should be prior to the summer 2010 parliamentary recess.

Legislation will come into effect from 1st April 2010 for companies and 6th April for other businesses to allow a 100% first year allowance for business expenditure on new and unused zero-emission goods vehicles.

VAT returns

All businesses whose annual turnover exceeds £100,000 and all newly VAT registered businesses are required to file VAT returns online and pay electronically from now on.

Penalties for late return filing and payment of tax

HMRC has outlined its new penalty system for late filing of returns and late payment for indirect taxes. This affects not only VAT, but also excise duties, environmental taxes and air passenger duty.

As always, many other detailed provisions were announced – although not all made it into Finance Act 2010 in the rush to get it into the statute book. So it is now vital to consult a specialist when carrying out tax or business planning exercises, particularly as the impact of ever-broader anti-avoidance legislation is now seen in areas where it may not have been expected to apply.

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