PBR(11): JSA summary of main measures

JSA Group, the specialist accountants for IT contractors, offers its summary of the measures in the Pre Budget Report.

Small Companies Consultation Document

The Treasury has published its discussion document relating to 'Small companies, the self-employed and the tax system.'

It aims to open up a discussion on strategic issues relating to the taxation of small companies and the self-employed. Issues raised in the post-PBR discussion with interested parties will inform Government thinking on the strategic development of the personal and corporation tax regimes as they relate to small businesses.

In particular, the Government would welcome thoughts on the following issues arising from this paper:

• how the government can improve targeting of incentives for growth and enterprise - for instance by adjusting the balance of tax and non-tax incentives;
  
• whether the Government should consider segmenting owner-managers of companies from other company owners for tax purposes;
  
• how the trade offs between the different tax treatments for different types of business can be managed, including between meeting the objectives of minimising the economic costs of raising tax revenue and of minimising compliance and administrative costs; and whether and to what extent businesses would value the benefits of certainty and simplicity over specific incentive structures.

Putting Small Business At The Heart Of HM Revenue & Customs

Details of a new small business unit that will transform tax administration for small businesses, were announced by David Varney, Chairman of Inland Revenue and Customs and Excise.

The new unit will sit at the heart of HM Revenue and Customs (HMRC), and will champion the needs of small businesses. It will be charged with improving customer experience and compliance as well as reducing costs - for both businesses and HMRC - by eliminating unnecessary contact. It will ensure that the development and delivery of the tax system takes full account of the needs of small business and that necessary contact is handled effectively, efficiently and comprehensively.

Rates

Income tax allowances, National Insurance Contributions, Child and Working Tax Credit rates 2005-06 and fuel duties.

National Insurance (NIC) limits for 2005-2006 were announced in the 2004 Pre-Budget Report, which are still to be ratified by statutory instrument. The starting point for employers', employees' and self-employed NICs is increased in line with inflation to £94 a week. NICs are not paid on earnings or profits below this amount although the lower earnings limit, which is increased to £82 a week, is relevant for contributory benefits. The upper earnings and profits limits for NICs are increased from 6 April 2005 in line with inflation from £610 to £630 a week (£32,760 a year). For the self-employed the rate of Class 2 contributions is increased in line with inflation to £2.10 a week.

Company car tax - diesel cars

Under the carbon-dioxide based company car tax system a three per cent supplement over the percentage of the car's list price that is used to calculate the taxable car benefit applies to diesel cars. For certain diesel cars, those that meet 'Euro IV' emission standards, this supplement was waived. The Government announced that the three per cent diesel supplement for diesel cars that meet Euro IV emission standards will be reinstated for cars registered on or after 1 January 2006.

Company car fuel

The Government has commenced work on the evaluation of the scheme linking the company car fuel benefit charge to the vehicle emissions. There is no indication that the benefit charge will change.

Capital allowances for business cars

Within the context of the corporation tax reform process the Government has put forward proposals for modernising the capital allowances system for business cars.

The Government has announced that it is currently evaluating proposals that would allow pooling of expenditure on all or some cars, in a similar way to the pooling of expenditure on plant and machinery, but applying a rate lower than 25 per cent in order to limit the cost to the Exchequer. Alternative options are being considered that would fit in with the Government's environmental objectives bringing the capital allowances available on cars more in line with the changes to company car tax.

Road fuel gases

The Government has announced its intention to simplify the alternative fuel discounts for company car tax at Budget 2005.

Pension schemes earnings cap

The earnings cap is a ceiling on the contributions that may be paid to, and that benefits can be paid by, tax approved pension schemes. For 2005/06 the cap is increased to £105,600. For the first time, the cap introduced in 1987 on the final remuneration for calculating pension benefits from occupational pension schemes will be aligned with the earnings cap. This will have the effect of increasing the tax free lump sum cap to £158,400 from £150,000.

R&D Tax Credits

There is an announcement of an ongoing study in 2005 into the impact R&D tax credits have on growing companies and those involved in the hi-tech manufacturing and service sectors.

Capital Allowances: renovation of business premises in disadvantaged areas

In the 2003 Pre-Budget report the Government announced its intention to introduce a Business Premises Renovation Allowance scheme (BPRA).

The Government has now released a consultation document outlining proposals for the scheme; the consultation period commences on 2 December 2004 and will run until 1 March 2005.

The scheme will provide for 100 per cent first year capital allowances for the capital costs a business or person incurs in converting or renovating business premises situated in Enterprise areas that have been vacant for at least a year, in order to bring them into productive use. The scheme is initially designed to run for 5 years.

Corporation Tax Reform

A Technical Note has been released which further develops the ongoing consultation on Corporation Tax Reform in three areas:

• The reform of the schedular system
  
• The taxation of capital assets
  
• The taxation of leases

As in previous rounds of consultation, the aim of the reforms is to simplify and increase fairness in the corporation tax system without significant cost.

Individual Savings Accounts (ISAs)

ISAs were introduced in 1999 and guaranteed to run until 2009. The overall annual investment limit was set at £5,000, with a maximum of £1,000 in cash. Higher initial limits of £7,000 and £3,000 respectively apply until April 2006. Subject to consultation, the Government intends to extend the existing higher ISA limits until 2009.

Working Tax Credit

The Chancellor announced substantial increases to the childcare element of Working Tax Credit. The maximum eligible cost for two or more children will increase to £300 per week from 6 April 2005. The maximum eligible costs for one child will increase to £175.

The percentage of eligible costs covered will increase from 70 per cent to 80 per cent from 6 April 2006.

Child Trust Fund

The Chancellor announced a consultation inviting views from industry, consumer organisations, charities and other stakeholders on the following aspects of the Child Trust Fund:

• Whether £250 is an appropriate value for the universal top up payment to Child Trust Fund accounts at age seven.
  
• Whether £500 is the appropriate value for the higher initial endowment to children in lower income families, broadly those families eligible for the full Child Tax Credit.
  
• Whether the correct ratio of progressivity for top up payments at age seven is 1:2.

Child Trust Fund accounts are due to be available from April 2005 and the value at age seven of top up payments to be announced will take account of consultation responses.

Childcare

In addition to the announcement in the 2003 Pre-Budget Report that, with effect from April 2005, where an employer allows childcare vouchers or childcare provision, the first £50 per week will be NIC free, the Chancellor announced a number of further initiatives relating to childcare:

• A ten year strategy setting out the government's vision of providing quality childcare for all parents;
  
• The extension of entitlement to paid maternity leave from 6 months to 9 months from April 2007. (it is the intention that this will ultimately be increased to 12 months by the end of the next Parliament)
  
• To give the mother the right to transfer a proportion of her maternity leave to the father and pay to the father by the end of the next Parliament;
  
• To put forward proposals for extending the right to request flexible working to parents of older children and carers of sick and disabled relatives.

Charity giving

The Government is committed to ensuring that the generous set of tax incentives available to encourage corporate giving is understood and used. The Guide to Tax Incentives for Corporate Giving, to be published shortly, will explain this set of incentives; helping to boost corporate tax efficient giving in the 2005 Corporate Challenge National Campaign.

Payroll Giving

In 2004, around 530,000 employees gave £85 million to charity through Payroll Giving, with one in five employees having access to a Payroll Giving scheme. The Government believes that employees should benefit from the opportunity to make regular charitable donations provided by Payroll Giving. Following the announcement in budget 2004, the Home Office has launched an £8.3 million scheme to improve access to Payroll Giving and encourage more of the UK's 12 million employees in small - medium-sized enterprises (SMEs) to give to charity. The scheme works in two parts: SMEs will receive a grant of up to £500, depending on their size, when they establish a scheme; and the Government will match each employee's donation pound-for-pound, up to a maximum of £10 per month for six months, from when the employee signs up.

VAT & Indirect Taxes

The Chancellor has announced plans to align the VAT fuel scale charge with the company car benefit charge (for income tax purposes). An informal consultation exercise with business will be undertaken before these plans are introduced and the aim is to provide consistent tax incentives for less polluting cars.

Other key issues

• publication of the interim report of the Hampton Review consulting on improvements to the current system of regulatory inspection and enforcement to reduce the administrative burden on business;
  
• setting out the vision of how significant reductions in compliance burdens for small businesses will be delivered through the integration of HM Customs and Excise and the Inland Revenue;
  
• an extension of paid maternity leave from 26 to 39 weeks from April 2007;
  
• an increase in the entitlement to free nursery education for all three and four year olds to 15 hours a week for 38 weeks a year, reaching all children by 2010;
  
• further steps to encourage saving and asset ownership, through Individual Savings Accounts, the Saving Gateway and Stakeholder products.