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Budget 2011 Summary

The Chancellor of the Exchequer, George Osborne, delivered his second budget on 23 March 2011 and was quoted in the Financial Times as saying:

"My Budget is going to be about reforming the nation's economy so that we have enduring growth and jobs in the future, and helping families with the cost of living."

And so, with that in mind, Mr Osborne's budget aims to provide a strong and stable economy, growth and fairness; purporting to provide tax simplification and create the most competitive Tax System in the G20. Here is an overview of the main points of Mr Osborne's budget.


CORPORATION TAX

From April 2011 the CT rate will be reduced by a further 1% to a rate of 26%. By 2014, the rate will have been reduced to 23%. This will hopefully encourage business to either locate to the UK, or perhaps, more importantly, not leave the UK, as has been the case over the past few years. To reduce the beneficial impact of these rate reductions on the banks, the rate of the bank levy is set to increase.


INCOME TAX AND NIC

The income tax allowance will be increased to £8,105 from April 2012, a £630 annual increase. Public sector workers on low earnings of less than £21,000 a year will be entitled to a £200 salary uplift.

The Government believes that the integration of income tax and NIC can help improve efficiency for business. Whilst this is to be welcomed, this will take time to implement and the Government will consult over the next year to see how this might be achieved.

Whilst the rate of CT has been reduced to encourage inward investment in the UK, the 50% income tax rate, for individuals, now described as a "temporary tax," has not; contradicting the Chancellor's stated aim that he wants business to thrive in the UK by rewarding entrepreneurs in taking half their income away.

The Chancellor wants to see whether this 'temporary' tax is effective and will ask HMRC for their feedback.


ENTERPRISE INVESTMENT SCHEME (EIS)

There will be a reform of the EIS and Venture Capital Trust legislation, including raising the rate of EIS Income tax relief to 30% from April 2011.


R&D TAX CREDITS

The R&D rate of relief for SME companies is raised to 200% from April 2011 and 225% from April 2012.


CGT ENTREPRENEURS RELIEF

The Chancellor has announced that, with effect from 6 April 2011, he proposes to double the amount of the relief from £5M to £10M.


NON-DOMICILED INDIVIDUALS

For non-domiciled individuals who have been in the UK for more than 12 years there will be an increased annual charge of £50,000. In a move to attract investment in the UK the government will remove the tax charge when an individual remits foreign income or capital gains to the UK for the purposes of commercial investment in the UK.


IHT REFORM

The government will encourage charitable giving by reducing the rate of IHT by 10% for those estates leaving 10% or more to charity. In essence this will reduce the rate from 40% to 36%.


FUEL DUTY

Cancellation of fuel duty escalator and 1p/litre reduction in fuel duty, financed by an increase in taxation on North Sea oil production from 20 per cent to 32 per cent. If oil prices fall below 75 per cent, this will be reviewed and the fuel duty escalator reinstated.

HMRC mileage rate for business car users increased to 45p/mile from 40p/mile.

TAX AVOIDANCE

Yet again, the Government is determined to reduce tax avoidance and have published a document called 'Tackling Tax Avoidance'. Their latest initiate is aimed at:

"Prevent avoidance at the outset where possible, earlier detection, a possible levy for late payment of tax and impact legislation to negate benefits but not retrospective legislation."

  • Initially they have identified two areas which are a pilot for their attack. These are Income Tax Losses and Unauthorised Unit trusts. Their plan of action is as follows:
  • Summer 2011 Publish a consultation on these 2 areas.
  • Budget 2012 Interim announcement.
  • Autumn 2012 Publish draft legislation.
  • Finance Bill 2013 Introduce legislation.
Whilst this is an area of concern for large amounts of tax payers, HMRC's plans will take time to implement.

HMRC are also consulting on whether a General anti-avoidance rule should be introduced to combat avoidance. A further consultation document will be published in May 2011.

In this budget HMRC has also targeted specific areas of avoidance. These are SDLT avoidance arrangements, including ones using alternative finance and sub sales, disguised remuneration, the details being reported on 9 December 2010 and which have been reported again, the sale of lessors and a degrouping charge which affects corporate capital gains.