The Finance Bill 2011
The coalition government has taken the new and welcome step of publishing draft clauses for next year’s Finance Act.
Although details of proposed changes have already been announced, the detailed provisions often show possible problems in implementing them, as we saw this year with restriction on tax relief for pension contributions. In areas such as anti-avoidance, a provision designed to catch an avoidance scheme can catch perfectly valid commerical transactions. Indeed the change on substantial donor rules is designed to deal with that problem.
These clauses were published at the beginning of December. The next Budget is schedule for 23 March 2011. So publication is in keeping with the promise to give three months’ notice of technical amendments.
Key changes proposed will affect:
• income and national insurance tax rates and thresholds
• employer supported childcare
• furnished holiday lettings
• substantial donor rules
• pension tax relief, and other pension changes
• corporation tax and capital allowance rates
• controlled foreign companies and foreign branches
• associated companies
• international accounting standards
• duty on beer and goods vehicles.
Employer supported childcare
There is a technical change to the rules regarding childcare provided in the workplace.
The tax and national insurance concessions only apply if the scheme is available to all employees on equal terms. Howevere, an issue arises if a salary sacrifice scheme is used. This is not available to lower paid employees who would otherwise earn less than the national minimum wage. The change allows such low-paid workers to be excluded from the scheme. This change is backdated to 2005.
It is worth noting that salary sacrifice schemes are only effective for tax if they change the contract of employment. We can advise you on whether a proposed scheme complies.
Changes are being introduced to bring within the PAYE charge various forms of “disguised remuneration” such as using investments and trusts to pay employees. These new provisions will only be of relevance if you have a tax avoidance scheme for paying staff.
Furnished holiday lettings
A long-running issue is whether a person who lets property for holidays is running a trade or merely making an investment. The former is preferable as it means the owner can claim capital allowances, loss relief and capital gains relief. The loss relief against other trades is particularly valuable.
Among the conditions that must be met are that the accommodation must be available for 140 days a year and actually let for 70 days. (There are restrictions on letting to the same person for more than 31 days.)
The government has long proposed increasing these two limits by 50% to 210 days and 105 days. It now announces that these changes will be brought into effect from 6 April 2012. There is a new relaxation, that a failure to meet the “actually let” condition for up to two years will not result in losing the tax advantages.
There are other provisions relating to such lettings, including other changes that take effect in 2011. We can advise on this matter to see if such lettings can continue to attract favourable tax treatment.
This provision is a relaxation of a rule relating to large donations to charity.
It was introduced in 2006 to counter some tax avoidance schemes where the donor and the charity are linked. Charities have complained that these rules create unnecessary paperwork and catch innocent donations.
The present law requires an analysis of donations of £25,000 or more in one year or of £150,000 over six years. Consideration must then be given to whether there are any “value extracting transactions” between the donor and charity.
The new provisions replace the analysis test with a purpose test, and to shift the compliance burden from the charity to the donor. We can provide further details.