- 2011/12 RATES AND ALLOWANCES
- NATIONAL INSURANCE CONTRIBUTIONS (NICS)
- FURNISHED HOLIDAY LETTINGS
- EMPLOYER SUPPORTED CHILDCARE
- REAL TIME INFORMATION FOR PAYE
- CLASS 2 NICS – NEW PAYMENT ARRANGEMENTS
- CHANGES TO THE ADVISORY FUEL RATES FROM 1 DECEMBER 2010
- FIRST DATA PROTECTION ACT FINES ISSUED
- CORPORATION TAX RETURNS CHANGES AHEAD
- INCREASE IN THE STANDARD RATE OF VAT
For those aged under 65 the personal allowance will be increased by £1,000, from £6,475 to £7,475 for 2011/12.
However a new concept of withdrawing the personal allowance for those with adjusted net income over £100,000 was introduced in 2010/11 and will continue for 2011/12. The reduction in the allowance is by £1 for every £2 of adjusted net income above the income limit. Adjusted net income for these purposes is broadly all income after adjustment for pension payments, charitable giving and relief for losses.
Tax bands and rates for 2011/12
The basic rate limit will be reduced from the current £37,400 to £35,000. Therefore an individual will pay 40% tax rather than the basic rate of 20% when their total income exceeds £42,475.
The new rate of income tax of 50% (the ‘additional rate’) will continue for 2011/12. This applies to taxable income above £150,000.
If dividend income is part of total income this is taxed at 10% where it falls within the basic rate band, 32.5% where liable at the higher rate of tax and 42.5% where liable to the additional rate of tax.
Internet link: Treasury website
Changes to the rates of NICs had been announced by the previous government and the current government confirmed that the rate changes would be made. From April 2011 a further 1% will apply to the rates applicable to employers, employees and the self-employed. The main rate of Class 1 (employee) NICs will be 12% and the Class 4 rate will be 9%. The employer rate will increase to 13.8%. The additional rate of Class 1 and 4 contributions payable will be increased from the current 1% to 2%.
Changes to the thresholds for next year have now been announced and the point at which NICs are payable will increase significantly from April 2011.
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). The primary and secondary thresholds were aligned at £110 for 2010/11.
The upper earnings limit and the upper profits limit will continue to be aligned with the income tax higher rate threshold of £42,475.
Internet link: Treasury rates and thresholds
The tax treatment of Furnished Holiday Lettings (FHL) has been advantageous for many years. Provided that certain conditions are met, FHL are treated as a trade. This can be preferable to the tax regime for normal let property in a number of specific areas, as the rules and reliefs for trades are often more generous.
Currently the FHL treatment potentially applies to properties in the European Economic Area (EEA) but certain conditions need to be satisfied including that the property must be:
- available for letting for at least 140 days a year and
- actually let for at least 70 days.
Draft legislation has been issued to cover changes to FHL. However in an amendment to the original proposals the new qualifying conditions will not now take effect until April 2012.
From April 2012:
- the property must be available for letting for at least 210 days a year (generally the tax year) and actually let for at least 105 days.
- a ‘period of grace’ will be introduced to allow businesses that do not continue to meet the ‘actually let’ requirement for one or two years to elect to continue to qualify throughout that period.
From April 2011 there will be two types of FHL business; a UK FHL business consisting of properties in the UK and an EEA FHL business consisting of properties in one or more EEA states. FHL losses will only be able to be set against income from the same FHL business.
Internet link: Treasury FHL
Changes had previously been announced to the tax breaks for employer-supported childcare and draft legislation has now been issued covering the changes which take effect next year.
There is currently a £55 per week limit on the amount of exempt income associated with childcare vouchers and directly contracted childcare for employees in an employer’s scheme. From 6 April 2011 this will be restricted in cases where an employee joins a scheme and their earnings and taxable benefits are liable to tax at the higher rates.
Employers will be required, at the beginning of the relevant tax year, to estimate the level of employment earnings that their employee is likely to receive during that year, ignoring potential bonus and overtime payments, but including other known taxable benefits. Income for the purpose of the calculation will be reduced by the personal allowance as shown on the individual’s tax code for the relevant employment.
If the level of income:
- is within the basic rate band, the employee will be entitled to relief on up to £55 per week
- exceeds the 50% rate threshold for the year, the employee will be entitled to relief on £22 per week
- is between the above two bands the employee will be entitled to relief on £28 per week.
Where an employee is employed part way through the tax year their income will be grossed up to a full year.
Anyone in a scheme by 5 April 2011 will not be affected by these changes as long as they remain within the same scheme.
Internet link: Treasury employer supported childcare
HMRC plan to introduce radical changes to the PAYE system. HMRC have published a consultation document “Improving the operation of Pay As You Earn: Collecting Real Time Information”.
PAYE real time information means employers will send HMRC information about tax and other deductions from employees’ pay when the employee is paid, rather than at the end of the year as at present.
The Exchequer Secretary to the Treasury, David Gauke MP, said:
‘We are determined to improve the way the PAYE system works and real time information has the potential to reduce burdens on employers’.
HMRC’s Stephen Banyard, Acting Director General Personal Tax, said:
‘We are working closely with customers to develop the real time information system. We will pilot the system from April 2012 and begin to move employers onto the new system in stages over the following 18 months. We expect all employers to be using the new system by October 2013.’
The government welcomes responses to the issues and questions raised in this discussion paper by 28 February 2011.
We will keep you informed of developments.
Class 2 national insurance contributions (NICs) are currently payable by the self employed at a flat rate of £2.40 per week in 2010/11 (rising to £2.50 per week in 2011/12). Currently, these contributions are paid by quarterly account billing or by monthly direct debit. For April 2011 onwards, due dates for payment are to be aligned with the self assessment payment dates as for income tax and Class 4 NICs. This will mean that the payment will change for 2011/12.
There will be no collections of monthly Class 2 NICs payments from April 2011 until August 2011. Monthly direct debits will then recommence from August onwards. This means that by January 2012 six instalments will have been paid, equal to half the liability for the year. By July 2012, the liability for the year will have been paid in full. Unlike income tax and Class 4 NICs there will be no balancing payment on 31 January 2013, as Class 2 is a set amount and does not need to be estimated.
There will be an alternative option to pay Class 2 by two six monthly direct debits, one on 31 January in the tax year and one on 31 July following the end of the tax year, instead of paying monthly direct debits.
If you have any queries please do not hesitate to contact us.
Internet link: HMRC guidance
To reflect the increase in fuel prices, HMRC have issued new advisory fuel rates for employees driving employer provided cars. These take effect for all journeys undertaken from 1 December, so employers using the advisory rates should advise affected employees and update any expense forms as soon as possible.
The advisory fuel rates may be used for journeys undertaken on or after 1 December 2010.
|1400cc or less||13p (12p)||2p (11p)||9p (8p)|
|1401cc – 2000cc||15p (15p)||12p (11p)||10p (10p)|
|Over 2000cc||21p (21p)||15p (16p)||15p (14p)|
According to the HMRC website:
These rates apply to all journeys on or after 1 December 2010 until further notice, allowing them to reflect fuel prices more quickly. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.
Other points to be aware of about the advisory fuel rates:
- Employers do not need a dispensation to use these rates.
- Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
- The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided 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 car policy, please contact us.
Internet link: HMRC advisory fuel rates
Data protection has hit the headlines again with news that two bodies have been issued with substantial fines by the Information Commissioner, Christopher Graham, after serious breaches of the Data Protection Act (DPA).
The first two reported fines are as follows:
Firstly Hertfordshire County Council has been issued with a fine of £100,000 after two data protection breaches. Both involved faxing sensitive information to the wrong number. The cases related to child sex abuse and child care proceedings. The Commissioner ruled a monetary penalty of £100,000 was appropriate, due to the fact that the council’s procedures failed to prevent two serious breaches. And that after the first breach the council did not take sufficient steps to reduce the likelihood of another breach occurring.
The second fine was issued to A4e. An employee, who worked from home was given an unencrypted laptop to use. The laptop was stolen from the employee’s home. The laptop contained personal details for 24,000 people who had used community legal advice centres. The thieves unsuccessfully tried to access the data. The Commissioner ruled that A4e did not take reasonable steps to avoid the loss of the data when it issued the employee with an unencrypted laptop, despite knowing the amount and type of data it contained. As a result A4e has been issued with a fine of £60,000.
The Commissioner said:
‘These first monetary penalties send a strong message to all organisations handling personal information. Get it wrong and you do substantial harm to individuals and the reputation of your business. You could also be fined up to half a million pounds.’
Broadly all corporation tax returns (including form CT600, supplementary schedules, tax computations and company accounts) in relation to accounting periods ending after 31 March 2010 and submitted after 31 March 2011, must be filed online as paper returns will no longer be accepted. In addition, corporation tax and related payments must be paid electronically.
Compulsory online filing will not change:
- Who has to file a company tax return
- When the return has to be filed or the tax paid
- What is legally required to be filed as part of a company tax return
However, what will change is the format in which the returns and accompanying computations and documents will have to be filed. Specifically CT600 returns will have to be submitted online in XML (Extensible Markup Language) format together with the accounts and tax computations in iXBRL (Inline eXtensible Business Reporting Language) format.
The iBXRL format is a development of web page HTML which allows a document to be read in human-readable form but also allows the information in the same document to be read by computer software.
We will work with you to comply with the new obligations but please contact us if you want any further information.
Internet link: HMRC guidance
HMRC are reminding businesses to be ready for the VAT increase. In a recent press release HMRC Director of CT & VAT Jim Harra said:
‘With the Christmas and New Year holidays almost upon us, businesses must be ready to implement the increase to the standard rate of VAT.’
‘Don’t leave it until the last minute to make any necessary changes to your book-keeping and accounting systems including invoicing and tills. You also need to make sure your staff are fully aware that the new 20 per cent rate must be charged from 4 January.’
As you are no doubt aware the standard rate of VAT will increase from 17.5% to 20% from 4 January 2011. The reduced rate of 5% and the zero rate will remain unchanged. Businesses need to ensure that they are ready for this change.
For any sales 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%.
This means that businesses currently calculating their VAT using the VAT inclusive fraction of 7/47 should, from 4 January 2011, use the new VAT fraction of 1/6.
There are many rules which determine the correct rate of VAT to apply.
Goods/services provided before the change
The new rate generally applies to all VAT invoices issued by a business on or after 4 January 2011. However, where a business issues an invoice on or after 4 January 2011 and the goods or services were provided prior to 4 January 2011, the business may apply VAT at 17.5%.
Goods provided after the change
If a business has received a payment or issued an invoice before 4 January 2011 but the goods will be provided (or services delivered) after 4 January 2011 then the supplier has a choice, either:
- to leave the VAT charged at 17.5%; or
- to account for VAT at the new 20% rate.
Electronic tills and accounting software
Electronic tills and accounting software will also need to be adjusted to reflect the new rate. This will be a particular issue for those tills which are set up to provide VAT information.
Most accounting software packages do have a facility to change the rate of VAT or create an additional rate of VAT. It may be preferable to create a new 20% rate, rather than delete the 17.5% rate, as some businesses (especially those who use cash accounting) will need the old standard rate for certain transactions for some time to come.
HMRC have issued lots of guidance which can be found at the link below. If you would like help dealing with the change please do get in touch.