Welcome to the October 2010 Newsletter from Connolly Accountants Ltd

Following a period of consultation, the Treasury has this month announced that the tax relief on pension contributions will be reduced from next April. Under the proposals, individuals will only be able to save £50,000 into a pension with tax relief - down from the current limit of £255,000. The plans replace those announced by the previous Government, which had proposed limiting tax relief on contributions for people earning over £150,000.

And business groups have been giving their reactions to the Government's long-awaited Comprehensive Spending Review. While the Chancellor's plans to reduce public sector spending and tackle the deficit were largely welcomed, questions have been raised over the Government's 'strategy for growth'.


Cap on pensions tax relief to be reduced

The annual tax-free amount that individuals can invest into a pension will be significantly reduced from next April, the Government has announced.

Earlier this month, the Treasury confirmed that the annual allowance for tax-privileged pension saving is being cut from £255,000 to £50,000 - a move that is expected to save around £4bn a year.

The Government claims that an annual allowance of £50,000 will affect 100,000 pension savers - 80% of which it said will have incomes over £100,000. It was originally thought that the cap on tax relief would fall to a figure between £30,000 and £45,000.

In addition, the lifetime allowance on money that can be accrued in a pension fund and still receive tax relief, is set to fall from £1.8 million to £1.5 million.

While the new annual allowance will come into force in April 2011, the cut in the lifetime allowance will not take effect until April 2012.

Announcing the changes, Mark Hoban, the Financial Secretary to the Treasury, said: 'We have abandoned the previous Government's complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision.

'The Coalition Government believes that our system is fair, will preserve incentives to save and - compared to the last Government's approach - will help UK businesses to attract and retain talent.'

The Confederation of British Industry (CBI) has welcomed the move, adding that it was 'not as bad as feared'.

Deputy Director-General John Cridland said: 'It rightly heeded warnings about the impact that restrictive regimes can have on pension saving, and these new proposals are a significant improvement on the approach proposed by the previous Government, which was simply unworkable.

'We particularly welcome the Government's commitment to consult on how to proceed with changes to the lifetime allowance, and to consider delaying this change until 2012'.

We can help you to plan for a comfortable retirement - please contact us for more information and advice.


Business reacts to Comprehensive Spending Review

The UK's leading business groups have largely welcomed the measures announced in the Comprehensive Spending Review, although warned that more should be done to help small firms expand.

The Forum of Private Business (FPB) applauded the raft of spending cuts but argued that the changes alone 'will not be enough' to substantially create employment to replace jobs lost in the public sector.

With Government departmental cuts averaging 19%, official estimates suggest that 490,000 public sector jobs could be lost over the next four years.

'Of course, small business growth and job creation driving a private sector led recovery will also depend on further removing SMEs from taxation and reducing other costs altogether, wherever possible,' said Jane Bennett, the FPB's Head of Campaigns.

'It is important that these spending cuts and efficiency measures do not exist in isolation but are joined by further bold policies addressing issues such as red tape reform and late payment'.

Meanwhile, the Federation of Small Businesses (FSB) has also praised the Chancellor's recent announcements, but said it believes that 'the missing link in the Government's deficit programme is the need to create growth'.

Its comments were echoed by the British Chambers of Commerce (BCC). 'Now that the review is complete, our message to Government is that it is now time for a clear strategy for growth - which in turn will give companies, and especially small and medium-sized enterprises, the confidence to invest,' said the BCC's Director General, David Frost.

'Businesses and Government must work together to deliver a real year for growth in 2011. This is the only way that the private sector will be able to take up the slack'.

The Chancellor, George Osborne, presented the Comprehensive Spending Review to the House of Commons on 20 October. Some of the key points from the Review are outlined below:

  • The state pension age will rise to 66 for men and women by 2020 - four years ahead of the previous plan
  • Educational maintenance allowance for 16-19 year olds is being dropped
  • Further increases in the child element of the Child Tax Credit
  • New universal credit to replace benefits and tax credits over the course of the next two Parliaments
  • Confirmation that child benefit will be removed from higher earners
  • Increase of 50% in apprenticeship funding over the next four years, covering 75,000 extra places
  • The Train to Gain scheme will be dropped
  • Introduction of a permanent tax levy on banks.

More information on the Comprehensive Spending Review is available on the Treasury website: http://www.hm-treasury.gov.uk/spend_index.htm


Please note: As part of a cost-cutting exercise, HM Revenue and Customs (HMRC) has reviewed the forms it sends to tax agents and advisers. Consequently, some of these documents will no longer be issued and the issue of some others will be suspended and reviewed further.

A list of the forms that are being withdrawn or suspended is available on the HMRC website: http://www.hmrc.gov.uk/news/forms-tax-agents.htm


ESSENTIAL TAX DATES AND DEADLINES

31 October: Last day to file 2010 paper Tax Return.

1 November: Please ensure you are retaining your documents for the 2011 Tax Return.

2 November: Quarterly submission date of P46 (Car) for quarter to 5 October.

For more information on key tax dates and deadlines, visit our 2010/11 Tax Calendar.


QUOTE OF THE MONTH

'The spending cuts, though painful, are essential to balance the UK's books and build its future prosperity.'

Richard Lambert, Director General of the Confederation of British Industry (CBI), reacts to the Government's Comprehensive Spending Review.


WEBSITE OF THE MONTH

www.workingfamilies.org.uk

Provides advice for businesses and families on flexible working and employment rights.


ON OUR WEBSITE

Essential information for business owners

For advice on all aspects of owning and running a business, visit our Business Guides.

The latest tax information

View the 2010/11 tax rates and allowances, plus a host of other tax information here.

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