Welcome to the December 2010 Newsletter from Connolly Accountants Ltd

As part of its new approach to tax policy making, the Government has this month published draft clauses for inclusion in the Finance Bill 2011. While many of the proposed measures confirm those first unveiled in the Emergency Budget, the Treasury has provided updates on key issues including furnished holiday lettings and pensions annuitisation.

And as the UK prepares for the forthcoming rise in VAT, a new report has found that the increase will cost the average household an estimated £225. The standard rate of VAT will rise from 17.5% to 20% on 4 January 2011.

We would like to wish all of our customers Season's Greetings and best wishes for the New Year.


Draft Finance Bill clauses are published

On 9 December, the Government published draft clauses of the Finance Bill 2011, as part of its policy to publicise tax changes early, allowing proposed legislation to be scrutinised ahead of time. Here we provide a brief summary of the main points.

Income tax and personal allowances - For 2011/12 the personal allowance for those aged under 65 will increase by £1,000 to £7,475. However, the basic rate limit will reduce from the current £37,400 to £35,000.

Furnished holiday lettings - The minimum period over which a qualifying property must be available for letting to the public in the relevant period will be increased from 140 days to 210 days in a year with effect from April 2012. Meanwhile, the minimum period over which a qualifying property is actually let to the public in the relevant period will be increased from 70 days to 105 days in a year with effect from April 2012.

ISAs - The Government will create a new tax-free Junior Individual Savings Account (ISA) in replace of the Child Trust Fund. The new accounts should be available by autumn 2011. The annual subscription limit for an adult ISA will rise from £10,200 to £10,680 in 2011/12.

National Insurance Contributions - As previously announced, from April 2011 a further 1% will apply to the rates applicable to employers, employees and the self-employed. The level at which employees start to pay contributions will increase to £139 per week (the primary threshold) and for employers the weekly limit will be £136 (secondary threshold).

'Tainted' charitable donations -The Government has released draft legislation to deny tax relief on charitable donations where one of the main purposes of the donation is to receive an advantage for the donor or connected person directly or indirectly from the charity.

Pension annuitisation - The existing effective obligation for members of a defined contribution pension scheme to purchase an annuity by age 75 is to be abolished. More flexible options will be introduced instead, including giving individuals the ability to continue investment or 'draw-down' money from their pension pot.

Employer-supported childcare (ESC) - The current limit on the amount of exempt income associated with childcare vouchers and directly contracted childcare for employees in an ESC scheme, is £55 per week. From 6 April 2011 this will be restricted in cases where employees join a scheme and their earnings and taxable benefits are liable to tax at the higher or additional rates.

Corporation tax - It has already been announced that the main rate of corporation tax is to reduce from 28% to 27% from 1 April 2011, with progressive annual 1% cuts so that the main rate will be 24% by 1 April 2014. Also with effect from 1 April 2011, the small profits rate of corporation tax is to reduce from 21% to 20%.

For a more detailed overview of the draft legislation, visit the hot topics section of our website. To discuss how the changes may affect you, please contact us.


VAT rise will cost average household £225, report finds

The rise in the standard rate of Value Added Tax (VAT) will cost the average household an estimated £225, new research has suggested.

According to a report by the marketing services group Acxiom, UK households will collectively be £6.2 billion worse off after the increase, while those likely to be hit hardest by the change include married couples living with grown up children.

Young childless couples who frequently eat out and married pensioners will also be amongst those groups most likely to feel the impact, Acxiom said.

'The VAT rise of 2.5% may seem insignificant, but is actually going to have a major effect on many UK households' finances,' commented Stephen Whyte, chief executive of Acxiom Europe. 'The effect of the increase will not only be nationally, but also at an individual household level.'

As announced in the Emergency Budget in June, the standard rate of VAT is due to rise from 17.5% to 20% on 4 January 2011.

For any supplies of standard-rated goods or services that take place on or after 4 January 2011 businesses should charge VAT at the new rate of 20%. As a consequence, firms currently calculating their VAT using the VAT fraction of 7/47 should use the new fraction of 1/6 from 4 January 2011.

Anti-forestalling legislation has been introduced to prevent the 17.5% rate applying to supplies of goods or services that are provided on or after 4 January 2011.

If you have any questions about the VAT increase, please do not hesitate to contact us.


ESSENTIAL TAX DATES AND DEADLINES

30 December: Last day to file your 2010 Tax Return electronically if you wish to have a 2009/10 balancing payment of less than £2,000 collected through your 2011/12 PAYE code.

31 December: Last day for non-EC traders to reclaim recoverable UK VAT suffered in the year to 30 June 2010.

End of relevant year for taxable distance supplies to UK for VAT registration purposes.

End of relevant year for cross-border acquisitions of taxable goods in the UK for VAT registration purposes.

End of CT61 quarterly period.

Filing date for Corporation Tax Return Form CT600 for period ended 31 December 2009.

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


QUOTE OF THE MONTH

'The VAT rise is not temporary. It can't be. We are talking about a totally different scale of revenue, and the VAT rise is a structural change to the tax system to deal with a structural deficit.'

Chancellor George Osborne reveals that the 20% rate of VAT will be here to stay


WEBSITE OF THE MONTH

http://www.hm-treasury.gov.uk/finance_bill_2011.htm

Click on the link above to view the draft Finance Bill 2011 clauses on the Treasury website.


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.

New measures to 'ensure EU legislation will not harm UK firms'
New measures to prevent British firms being unfairly restricted by European legislation have been announced by the Business Secretary, Vince Cable.
Click here for the full story

OTS publishes recommendations for reforming UK tax reliefs
The Office of Tax Simplification (OTS) has published its provisional recommendations for reforming a selection of the UK’s tax reliefs.
Click here for the full story

Call to postpone withdrawal of default retirement age
The Government is being urged to postpone its plans to scrap the default retirement age (DRA) amid business concerns over the changes.
Click here for the full story

Government relaxes plans on gender pay disclosure
Businesses will not be obliged to disclose how much they pay men and women after the Coalition Government relaxed plans to impose gender pay audits.
Click here for the full story

New advisory fuel rates published
HM Revenue & Customs (HMRC) has published new advisory fuel rates, which apply to all relevant journeys made on or after 1 December 2010.
Click here for the full story