Enter Your E-mail

TaxationWeb by Mark McLaughlin ATII TEP

Well, how was it for you? Here are some key points from Budget 2004, compiled by Mark McLaughlin ATII ATT TEP

INCOME TAX

Tax Rates - the 10% starting rate income tax band is increased from £1,960 to £2,020 for 2004/05, with an increase in the basic rate from £30,500 to £31,400;

Simpler Tax Returns - a shorter four page self-assessment tax return will be introduced nationally from 6 April 2005, for taxpayers with ‘simple’ tax affairs, such as:

- ‘straightforward’ investment income or modest levels of property income;

- employees (other than company directors);

- small businesses (i.e. self-employed with a turnover less than £15,000); and

- pensioners in receipt of state retirement pension, an occupational pension or a retirement annuity.

Company Vans - a nil benefit-in-kind charge on company vans is to be introduced from 6 April 2005, for employees who have to take their van home, and are not allowed other private use. From 6 April 2007, the van scale charge for unrestricted private use increases to £3,000 (presently £500, or £350 for older vans). In addition, if the employer provides fuel for unrestricted private use a fuel charge of £500 will apply.

Tax-Free Childcare - from 6 April 2005, employees will be able to receive up to £50 a week of childcare free of tax and National Insurance if the employer contracts with an approved childcarer or provides childcare vouchers for the purpose of paying an approved childcarer.

Tax-Efficient Investments (Part I) - tax relief for investments in Venture Capital Trusts (VCTs) is increased from 20% to 40% for the tax years 2004/05 and 2005/06 only. In addition, the annual investment limits in VCT shares in relation to the tax reliefs available to individuals are to be raised from £100,000 to £200,000 for shares acquired from 6 April 2004. However, Capital Gains Tax deferral relief ceases to be available for gains reinvested in VCT shares issued from that date.

Tax-Efficient Investments (Part II) - the Enterprise Investment Scheme (EIS) annual investment limit for income tax relief is to be raised from £150,000 to £200,000 for shares issued on or after 6 April 2004.

Pre-owned assets – an income tax charge will apply from 6 April 2005. The Inland Revenue state that this charged is aimed at ‘People who have entered into contrived arrangements to dispose of valuable assets, while retaining the ability to use them’, mainly for inheritance tax purposes. The charge is subject to a de minimis threshold of £2,500 per annum, below which the cash value of benefits in a given year will be disregarded.

CAPITAL TAXES

Capital Gains Tax - the CGT annual exemption is increased from £7,900 to £8,200 (and £4,100 for most trustees) for 2004/05;

Inheritance Tax - the IHT threshold is increased from £255,000 to £263,000 for 2004/05;

NATIONAL INSURANCE

National Insurance – the class 1 NIC lower limit is increased from £77 to £79 per week for 2004/05, with an increase in the upper earnings limit (class 1 and class 4 NIC) from £30,940 to £31,720 per annum. Class 2 NIC is increased from £2 to £2.05 per week;

BUSINESS TAX

‘Dividend tax’ - a minimum rate of corporation tax of 19% applies to company profits distributed to non-company shareholders from 1 April 2004. Companies already paying tax at a rate of 19% or above are unaffected;

Jointly-Owned Shares - from 6 April 2004, married couples will be taxed on dividends from jointly owned shares in close companies according to their actual ownership of the shares. For example, if shares are owned jointly between spouses in the proportion 95% to 5%, dividends will be taxed in the same proportion, with an automatic 50:50 income split no longer applying;

Capital Allowances - first year capital allowances on expenditure by small enterprises is increased from 40% to 50% for one year from 1 April 2004 (for companies) and from 6 April (for unincorporated businesses);

Investment in British films – the existing tax relief ends on 1 July 2005, and is to be replaced by a new relief either as a deduction against profits, or by surrender to the Government for a cash payment.

STAMP DUTIES

Stamp Duty Land Tax - SDLT is to apply to certain partnership transactions involving an interest in land (i.e. the transfer of an interest in land into a partnership, the acquisition of an interest in a partnership (where the partnership property includes an interest in land) and the transfer of an interest in land out of a partnership). The SDLT charge will be based on market value, irrespective of whether any consideration actually passes.

VAT

Registration Limit - the VAT registration threshold is increased from £56,000 to £58,000, with effect from 1 April 2004;

Simplified VAT - there is also an increase in the threshold for the annual and cash accounting schemes, from £600,000 to £660,000, also from 1 April 2004;

Anti-Avoidance - a register of ‘VAT abusive avoidance schemes’ will be introduced. Businesses with an annual turnover of £600,000 or more will be required to disclose use of these schemes to Customs and Excise.

TRUSTS AND ESTATES

Trust Tax Rate - the tax rate applicable to discretionary trusts in which trustees receive income or realise capital gains is increased from 34% to 40%, and the corresponding dividend trust rate is increased from 25% to 32.5%, both with effect from 6 April 2004;

A basic rate tax band will be introduced, applying to the first £500 of income for all trusts liable at the rate applicable to trusts. Trusts which receive all their income up to the basic rate band either net of tax or with an associated tax credit will have no further tax to pay. Those receiving their income gross will have to pay tax at the basic or lower rate, depending on the nature of that income.

Personal Representatives - the rate of capital gains tax is also increased from 34% to 40% for personal representatives in respect of chargeable gains.

GENERAL

Avoidance Schemes - tax scheme promoters will be required to provide details of potential tax avoidance schemes and arrangements to the Inland Revenue, for placing on a register. Taxpayers using such schemes will be required to notify the Inland Revenue regarding the use of the scheme(s), in most cases by indicating it on their tax returns.

Pensions tax simplification – a single regime will be introduced from 6 April 2006, to replace the eight existing tax regimes. Key features of the new system include a lifetime allowance on the amount of pension savings qualifying for tax relief (initially £1.5 million) and an annual allowance (initially £215,000).

The National Minimum Wage is increased, with a main rate of £4.85 per hour (main rate) applying from 1 October 2004.