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| Carl's Budget Blog April 2010 |
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One thing I’ve learnt about the New Labour government is that things are never what they first seem. With the budget there is always a raft of further releases after the main event, and these always seem to contain the important detail. So I’ve avoided the clamour to be the first accountant with a budget release, and taken my time to read everything about the subject and all serious comment. Actually I’ve been on holiday.
Perhaps the biggest surprise has been that they haven’t changed anything previously announced. This in itself could possibly be said to be saving businesses millions of pounds after previous very costly scandals. In fact I’m surprised they haven’t said that.
So – to recap, the following changes will take effect from April 2010:
a) 50% tax rate for earnings over £150k
b) the phasing out of the Personal Allowance on earnings from £100k to £113k (above which no PA at all)
c) State pensions changes – lower criteria for qualifying for full state pension, but the pensions age for women is to rise to 65 gradually over the next 10 years
d) lower amounts of pension tax relief where earnings exceed £130k
e) new showroom tax on new cars – higher (mostly) or lower tax based on emissions levels
f) the additional 3p rise in fuel duty has now been phased in over 9 months
Here are the main points from this Budget:
Tax Credits
Child tax credits to rise by £4 per week for children under 2 from 2012.
Over 60’s need to work less hours to qualify for Working Tax Credit.
Property – stamp duty
SD suspended until 2012 for properties below £250k for first time buyers only. This is quite tightly defined and improves the previous position where no SD on purchases up to £125k. However the chronic shortage of mortgage products available for FTB’s is expected to significantly detract from this benefit. One way of taking advantage is where parents are able to guarantee their children’s mortgage.
Properties over £1m – SD raised from 4% to 5%.
Business owners
Entrepreneurs Relief is a highly relevant tax relief on which we base a lot of our tax planning measures. It can reduce the tax rate on selling or ceasing a business down to 10%. I feared this might be attacked but instead the qualifying amount for the relief has been doubled to £2m. Good news.
Business opportunities for government contracts
The gov’t have pledged to open up their contracts and provide 15% more contracts to small / medium sized businesses. You can register at the Supplier Route to Government site at www.supply2.gov.uk to access all public sector contract opportunities – and can receive a daily email alert of contracts relevant to your business.
Business Rates
From Oct 2010 no rates will be payable for 1 year on business properties with rateable values less than £6k.
Smaller reductions on properties with RV’s between £6k and £12k – on a sliding scale. To check your RV www.2010.voa.gov.uk
Allowances on Fixed Asset purchases
You will now be able to get 100% tax relief on purchases of £100k worth of Fixed Assets, increased from £50k.
Tax deferral Scheme
This allows tax liabilities to be spread over a period of time. The scheme has been extended for the whole of the next parliament. Call 0845 302 1425 to take advantage.
National Insurance
Employers NI will rise from 12.8% to 13.8% in 2011 – of course most employers will take account of this when calculating pay rises.
Business Loans
RBS & Lloyds are to provide £94m of small business funding.
ISA’s
Limits to increase with inflation over the next Parliament. However there are reports that many providers of cash ISA’s offer poor interest rates compared to non ISA’s.
Mortgage Interest Scheme
This scheme helps a homeowner pay the interest on their mortgage after being made redundant. Claims can be made after 13 weeks – the scheme has been extended to Dec 2010.
Inheritance Tax
Thresholds to remain frozen at £325k for the next 4 years, thus becoming less valuable in real terms.
Green Investment Bank
A new Bank will be funded with £2bn of government money plus private funds, to invest in low carbon projects. This compares with China’s public funding of £221bn and USA’s £112bn.
Proposal for state funding of Long Term care
Labour have pledged to make major reforms to the system of care provision. Currently the situation is as follows:
- if care is needed for ‘medical reasons’ it will be funded by the NHS although not usually without a fight!
- otherwise if your personal assets exceed £23,250 (including any house) you will have to pay all of your care fees.
- if your assets are above that amount you will be forced to sell your assets to pay for care.
The proposals are to replace the above system with one where the State will pay for care – but presumably there will be qualifying criteria re age and maybe health? If health is a criteria then is it very different to the existing structure?
There are still ongoing consultations about how these changes will be funded.
The practical reality at the moment is that people are very choosy about the standards of care homes they attend so I would imagine that many people will still choose private care provisions.
So as I’m writing this I’m envisaging a system where everybody will be expected to fund a care provision system, but the care provision won’t significantly change from what it is now. Apart from we’ll be funding it over and above the funding we’ve always provided through our taxes. Am I becoming cynical in my old age???
State Pensions
Of course the same thing is happening with pensions. New compulsory employment pension schemes are being introduced from 2012 where we all have to fund our state pensions on top of what we already thought we were doing through our taxes.
There is a lot happening in this area so here are some details:
- from 2012 employees will need to contribute 4% of salary towards their additional state pension. Employers will contribute a further 3%.
- men and women will only need to work for 30 years to qualify for the basic state pension (currently 44 and 39 years respectively)
- women’s state pension age to rise gradually from 60 to 65 between 2010 and 2020.
- from 2024 both men and women’s state pension age to rise to 68 by 2046.
- basic state pension will rise by 2.5% in April
- but all additional state pensions will be frozen at current levels for 2010-11.
- full time carers can now build up their pension entitlement despite not earning.
- although employers NI will increase, what you actually get from your contributions is reducing with regard to state pensions. It is very complex so I won’t bore you with the details now….
- he has also said he wants to either scrap or raise the default retirement age (65)
SUMMARY AND CONCLUSION
This budget contained little of any great significance, which was a relief. It is clear that we are in an era of very significant tax rises, which are being skillfully disguised. I doubt if a change of government will reverse these changes as we have an ageing population which will have a huge effect on public finances in the future.
Although the headline tax rate remains at 20% there are already plans for 7% of salary to be paid towards our state pension – something we thought our taxes were funding. What is this if not a tax? Add the 1% increase in NI rates and the real tax rate is heading towards 30% (50% higher rate, 60% as a super-high tax rate). I would bet there will be more of this kind of arrangement in the future – for example funding of long term care.
Oh, and cut down on the cider.
If you would like further information or would like to discuss any of the issues raised in this article, please give us a call on 01604 678470 or 01604 678473.
Thank you
Carl Elsby
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