Tips on saving tax, the latest tax and business news, tax loopholes and useful links

The proposed changed to the tax rules governing furnished holiday lets have been dropped from the 2010 Finance Bill due to lack of Parliamentary time before the General Election.  They were due to take effect from 6 April 2010.

This effectively means that the rules return to how they had been up to 5 April 2010 which gives such properties significant tax breaks compared to other residential lettings.

Below are details of the more relevant changes in tax rates and thresholds as announced by Mr Darling in today’s 2010 Budget.  Changes are effective from 1 April 2010 for companies and 6 April 2010 for individuals unless stated otherwise.  Further details can be found on the HMRC website.

Surprisingly there were no increases announced (for now) to the rate of VAT or capital gains tax although we think this is more to do with the forthcoming General Election than the economic state of the country.

Income tax

A new rate of 50% introduced for earnings in excess of £150k pa (the equivalent effective rate for dividends increases from 25% to 36.1%).

The personal allowance is withdrawn at the rate of £1 for every £2 of earnings in excess of £100k pa.

Company tax

Previously announced increase in small company rate to 22% is deferred (again) until April 2011.

NIC

No changes this year but a general 1% increase is planned from April 2011.

VAT

Registration threshold increases to £70k pa.

Stamp duty

A temporary SDLT exemption for first time buyers of residential property valued up to £250k.  The exemption applies for transactions between 25 March 2010 and 25 March 2012.

A new 5% SDLT rate for residential properties purchased for over £1m with effect from April 2011.

Pensions

The annual allowance increases to £255k while the lifetime allowance increases to £1.8m.

Other

Annual investment allowance for the purchase of capital assets is doubled to £100k.

Special tax rules for Furnished Holiday Lets are withdrawn (previously announced).

ISA allowance increases to £10,200 (up to 50% can be saved as cash).

Entrepreneurs lifetime limit for capital gains is doubled to £2m.

HMRC has confirmed that the official rate of interest will be reduced from 4.75% to 4.00% as of 6 April 2010.  This interest rate is used to calculate the taxable benefit on interest-free and ‘cheap’ employment related loans. 

The average rate for 2009/10 has also been confirmed at 4.75%.

Click the link for details of previous rates.

A recent tax tribunal case considered the tax deductibility of work clothes for a TV newsreader who was an employee of the BBC.

The newsreader claimed tax deductions for: 

• Professional hairdo and colouring £975
• Professional clothing for studio    £3,231
• Laundry of professional clothes   £325

Unfortunately, the tax tribunal disallowed all claims.

The Tribunal found that:

• Her clothes were “not of a special character”, they were the same as worn “off-duty”.
• There were no express terms concerning clothing in her contract.
• Laundry and hairdressing was disallowed: an employee is not performing her duties when her clothes are being cleaned or when she is sitting in a hairdressing salon.

Further, the tribunal confirmed that it is impossible to divide the business and private benefit of such expenditure such that no apportionment of the costs are possible.

Link to the case: Ms Sian Williams v HMRC TC 00397

Gordon Brown confirmed this morning that the 2010 Budget will be held on 24 March 2010.

Given that a General Election is around the corner (we think 6 May is favourite) the Budget is likely to be more of a political announcement than an economic one.

A current case has in the European Courts has indicated that UK tax law that prohibits reclaiming the VAT on business entertaining costs may be invalid.  If this is the case, businesses can reclaim such VAT going back four years.

Once the case has concluded we will report the final decision.

HMRC has published details of changes to when you should pay your VAT bill if your method of payment is cheques.

this is all part of HMRC trying to encourage taxpayers to pay their bills electronically as it is less work for the Taxman.  As an incentive, you do get more time to pay if you use by BACS (7 days longer) or Direct Debit (10 days longer).

Of course, if you file your VAT return online you must pay the bill electronically.

From 1 April 2010, certain businesses will have to submit their VAT returns online.  Essentially these are businesses that either

• have an annual turnover in excess of £100k pa (exc VAT), or
• initially register for VAT after 1 April 2010. 

Full details can be found here:  http://www.hmrc.gov.uk/vat/vat-online/moving.htm.

6.4 million individuals have submitted their tax returns online this compared to 5.9 million for the previous year. 

We suspect this popularity is not so much people preferring to submit online as to do with the fact that the deadline for an online 2008/09 tax return, being 31 January 2010, is 3 months longer than the old style paper tax return deadline of 31 October 2009.

From 1 January 2010, to claim a refund of VAT you have paid in another EU county you must complete an online claim in the UK. You no longer have to battle with a multitude of forms in foreign languages, as the claim can be done entirely in English. The UK tax office will forward your claim to the relevant country, which will process the refund within four months of receipt. You should then receive the payment due within a further 10 days.

To make VAT refund claims in respect of VAT paid in other EU countries you (or your accountant) need to first register to use the Tax Office VAT EU refunds system, which is part of the VAT online service.

The minimum amount of the VAT to be included in each claim has been standardised at €400 per quarter.  For further information see VAT notice number 723A: Refunds of VAT in the European Community.