- Capital gains tax reform
- Advisory fuel rates
- Proposed cuts in ‘red tape’
- Inheritance tax nil rate band
- Capital allowances
- Employment Bill
- Consultation on residence and domicile
- Income shifting consultation
The proposed changes announced in the Pre-Budget Report to the capital gains tax (CGT) system are radical. Taper relief for CGT will be abolished for disposals on or after 6 April 2008. Other changes to the CGT system include introducing a flat rate of CGT of 18% and abolishing indexation, an allowance for inflation.
Last month we reported that the Chancellor, Alistair Darling, had said at the CBI conference that he would ‘publish final proposals’ in December 2007. There have been many rumours of changes to the proposals including the introduction of some form of retirement relief, with the figure of £100,000 being mentioned by several sources.
Alistair Darling has now said that final proposals will not be issued before the New Year, which has disappointed many, as it gives little time to plan effectively before the introduction of the new rules.
On 17 December 2007 the Director General of the CBI, Richard Lambert, expressed disappointment at the Chancellor’s decision to postpone an announcement.
Richard Lambert said:
‘We are glad that the Chancellor is paying attention to the submissions he has received from the business community, but he needs to get on with this decision urgently, as he promised at the CBI’s conference a fortnight ago.
People need to be able to make decisions about their businesses – whether to invest, or whether to sell up. This uncertainty mustn’t be allowed to continue.’
The proposed changes will generally increase the amount of tax payable by individuals who own assets that currently qualify for full business asset taper relief but everyone has different costs and entitlements to reliefs, so it is difficult to speak in generalities.
If the government does introduce a form of retirement relief then it may be beneficial to retain business assets and dispose of them on or after 6 April 2008 depending on the amount of the relief, the conditions which have to be met and how it is calculated.
We will continue to keep you informed of developments. However if you have any concerns please do get in touch.
Internet Link: CBI press release
To reflect the increases in fuel prices, HMRC have issued new advisory fuel rates for company car drivers. These take effect for all journeys undertaken from 1 January 2008 so employers wishing to use the new rates should advise affected employees and update any expense forms as soon as possible.
1400cc or less
1401cc – 2000cc
Other points to be aware of about the advisory fuel rates:
- employers do not need a dispensation to use these rates
- employees driving company cars are not entitled to use them to claim a deduction if employers reimburse them at lower rates. Such claims should continue to be based on actual costs incurred.
- the advisory rates are not binding where an employer can demonstrate that the cost of business travel in company cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.
If you would like to discuss your company car policy, please contact us.
Internet Link: Advisory fuel rates
According to a government report, cuts in ‘red tape’ are saving UK businesses and third sector organisations more than £800 million per year.
The report, ‘Delivering Simplification Plans’ outlines more than 280 government initiatives to tackle ‘red tape’. The report is wide ranging and covers almost 20 departments and agencies. The government aims to hit its goal of saving businesses and the third sector over £3.5 billion in administrative costs by 2010.
Secretary of State for the Department for Business, Enterprise and Regulatory Reform, John Hutton, said:
‘Today’s plans demonstrate we are making significant headway on what is a difficult and challenging agenda.
By tackling redundant regulation we are making a difference to the way people run their businesses and in their everyday lives.’
Chancellor Alistair Darling announced in his Pre-Budget speech a change to the way in which the inheritance tax (IHT) nil rate band of £300,000 can be used for married couples and civil partners.
Before the introduction of this change, where an individual died and left some or all of their property to their spouse or civil partner, then that transfer was exempt from IHT. However, on the death of the second spouse or civil partner, only one nil rate band was available, meaning that a nil rate band had been effectively wasted. This is because of the IHT exemption for transfers between spouses or civil partners.
The Pre-Budget change means that the proportion of any nil rate band unused on the first death may be used when the surviving spouse or civil partner dies.
This change is effectively backdated for situations where a spouse or civil partner died before the announcement of the change, as long as the ‘surviving’ spouse or civil partner dies on or after 9 October 2007.
This is a significant change that will affect many families and HMRC have now issued the relevant form IHT216 to claim a transfer of any unused IHT nil rate band.
Please do contact us if you would like more advice on this issue.
Internet Link: IHT216 form
In November’s e-news we reported on proposed changes to the capital allowances system and HMRC have now issued a 91 page document including draft legislation.
In a written statement the Financial Secretary to the Treasury, Jane Kennedy, said:
‘The government announced a major package of reforms to the business tax system in Budget 2007. These reforms will enhance the international competitiveness of the UK, by encouraging investment, promoting innovation and ensuring fairness across the tax system.
The publication of the draft legislation marks a significant milestone in the implementation of this major series of reforms, which will enable the UK’s tax system to encourage businesses to invest for the future.’
The legislation is draft at this stage and we will let you have more information on the details of the proposals in the New Year.
A new Employment Bill will, if enacted, impose tougher penalties on employers and dispute resolution procedures will be simplified. The overall effect of the Employment Bill is to strengthen and clarify key aspects of employment law. It was introduced and had its first reading on 6 December 2007 with the aim of receiving Royal Assent by summer 2008.
The proposed legislation would increase the fines paid by businesses not paying workers the National Minimum Wage and introduce unlimited fines for employment agencies that try to exploit workers.
Pat McFadden, Employment Relations Minister, said:
‘These changes would make sure everyone who is caught not paying their workers will be punished. No business should be allowed to get away with unfairly undercutting legitimate operations by exploiting workers.’
In response to the Gibbons review on dispute resolution, the Bill repeals the statutory procedures, easing the regulatory burden on business. It introduces a package of replacement measures to encourage early and informal resolution. Changes to the employment tribunal system are also planned.
In the Pre-Budget Report the government announced a package of reforms affecting the personal tax rules on residence and domicile. The government has now published a consultation document which contains further detail on the proposed changes.
This guidance is consultation, at this stage, and we will keep you informed of developments.
Internet Link: Consultation document
You may well remember that the Arctic Systems case involved a husband and wife who owned a company 50/50 and, broadly, took the profits out by way of dividends, again 50/50. HMRC attempted to tax the dividends solely on the husband, as he was performing most of the work which generated the profits of the company.
Following HMRC’s defeat in this case, the government has published draft legislation to prevent a tax advantage being gained through what has become known as ‘income shifting’. This legislation will apply from 6 April 2008 to:
- company distributions, usually dividends; and
- profits from a partnership.
The proposed rules are very widely drafted and will catch many owner-managed businesses involving husbands, wives and other family members, as well as businesses run by non-family members, leaving many with a substantially higher tax bill.
We will, of course, keep you informed of developments. However, if you have any questions or concerns in the meantime, please do not hesitate to contact us.
Internet Link: Income shifting consultation