Income tax rates and thresholds – There is no change in the three main rates of income tax. The personal allowance rises from £6,475 to £7,475 as announced. The 40% rate starts at taxable income of £35,000. This is a reduction from the current figure of £37,400.
This means that “higher rate taxpayers” will usually be those earning £42,475 a year, rather than £43,875. This can have a significant impact in terms of pension tax relief and capital gains tax rates. It also makes the provision of tax-advantaged benefits in kind worth reconsidering. We can advise in these areas.
Of more significance are the changes to national insurance rates. The lower earnings limit is increased by 5.1% from £97 to £102 a week. This is the threshold for statutory sick pay and similar benefits, and the threshold at which a week’s pay counts towards the state retirement pension. As few low-paid and part-time workers can expect a pay rise above 5%, this means that many will now no longer qualify for these benefits or pension. We can advise on appropriate action.
The earnings threshold for an employee increases from £110 a week to £139, but this is compensated by an increased rate. Employees earning between £110 and £510 a week will pay less national insurance; above the threshold, they pay a little more.
Capital losses on a change of ownership
This change affects a company that makes a loss on the disposal of a capital asset and then changes ownership, such as by a takeover or merger.
The present rules restrict how far the capital loss may be offset. Broadly, the capital loss may be offset only newly acquired assets of the company used in the same trade as before acquisition. This is known as streaming of losses.
The consequence is that a group can find that it has still not fully relieved a capital loss, years after assets have been disposed in a wholly commercial merger.
Finance Act 2011 will remove the restriction that pre-acquisition loss relief may onlu be claimed where the company carried on a trade.
This change is expected to affect no more than ten companies a year. If you believe you may be one of them, please contact us. We can advise on whether this new provision may assist you. If it does not, we may be able to advise on how to minimise your tax liability.
From a date yet to be announced in 2011, there will be changes to the law relating to UK businesses that operate through foreign branches.
The change broadly exempts the profits from foreign branches from the amount chargeable to UK tax. This will be done by allowing a company to make an irrevocable election for all its foreign branches wherever located in the world.
There are some special provisions to deal with countries whose treaties include non-discrimination articles. There are also transitional and anti-avoidance provisions.
This is a complex area of specialist tax. Most companies affected are in the oil and banking industries. If you believe you may be affected, please contact us.