July 2009

Penalties For Late Submission of Self Assessment Tax Returns

Previously it has been possible to avoid the £100 late submission filing penalty if all the tax due by the relevant deadlines has been paid (or a refund was due).

From April 2010, a penalty of £100 will be imposed for late submission regardless of whether or not the tax due has been paid.

In addition, returns that are between 3 and 6 months late will suffer a daily penalty of £10 (to a maximum of £900). If the return is still outstanding 6 months after the deadline, a further penalty of 5% of the tax due will be imposed. This happens again if the tax return is 12 months late. After this a penalty of 70% can be imposed if HMRC believe that information is being withheld preventing them from determining your tax position. This can rise to 100% if the information is being concealed or withheld deliberately.

Budget

Corporation Tax

There has been no change to Corporation Tax rates which remain at 28% standard rate and 21% small company rate for profits up to £300,000. The small company rate is expected to increase to 22% from 1 April 2010.

Capital Allowance

The Annual Investment Allowance (AIA) giving 100% tax relief on the purchase of any capital equipment up to £50,000 from April2008 continues but is enhanced by a temporary First Year Allowance (FYA) of 40% on any further expenditure beginning 1 April 2009 for companies and 6 April 2009 for other businesses.

Cars are not eligible for AIA but from April 2009 new rules will apply. Expenditure on cars with CO ₂emissions exceeding 160g/km will be dealt with in a special rate pool and will attract a Writing Down Allowance (WDA) of just 10%. Cars emiting no more than 160g/km will be included in the main pool and will qualify for the normal 20% WDA. Cars purchased before April 2009 continue to be subject to the old ‘expensive’ car rules for a transitional period of 5 years. Motorcycles will no longer be treated as cars and so will qualify for AIA.

Company Losses

The loss carry back rules announced in the Pre-Budget Report have been improved by the extension of the loss making period for one to two years. For companies, losses which arise in corporation tax periods ending between 24 November 2008 and 23 November 2010 can now be carried back and offset against any profits from the preceding three years. For income tax, losses arising in 2008/09 and 2009/10 will benefit from the extended carry back rules. However the maximum amount that can be carried back for more the one year is restricted to £50,000 per loss making period. The £50,000 is an annual limit so short loss making periods will also be restricted.

Self Assessment Tax Returns

For 2009/10 returns, the limit allowing small businesses with turnover of less than £15,000 to disclose only three figures of income, expenditure and net profit on their SA returns, rather than the normal more detailed disclosure, will be increased to align with the VAT registration threshold (£68,000 from 1 May 2009) and this threshold relationship will be maintained in future years. The limit will apply to both trading income and rental businesses and to both individual and partnership returns.

Income Tax

From April 2010 the higher rate of income tax applicable to taxable income above £150,000 will be 50% rather than the 45% previously announced in the Pre-Budget Report. Dividends within this band of income will be taxed at 42.5%

From April 2010 individuals with ‘adjusted net income’ of £100,000 will lose £1 of personal allowance for every £2 of their income that exceeds this limit. The adjusted net income is calculated in the same way as for the restriction of allowances applying to taxpayers over 65, which deducts losses, grossed up pension contributions and gift aid payments from gross income.

The rate of tax relief on pension contributions will be restricted from 6 April 2011 for those with income of £150,000 or more. The relief will be restricted to basic rate, which is normally given at source. There will be anti forestalling measures to prevent those with income currently in excess of £150,000 from accelerating their pension contributions into the period between now and April 2011, to gain benefit of tax relief at 40% and 50%.

Furnished Holiday Lettings

From 6 April 2010 the furnished holiday letting (FHL) rules will be repealed because HMRC have operated them in a way that was potentially non-compliant with European Law. These measures currently give FHL landlords trading status for most tax purposes provided they satisfy certain conditions such as availability to let and minimum letting periods each year, Until the FHL rules are repealed in 2010 HMRC will extend them to include foreign furnished holiday accommodation elsewhere within the European Economic Area but not outside it. This could give rise to the possibility of retrospective claims for any unrelieved losses on foreign holiday lets.

Once the rules are repealed it will mean that any losses can only be offset against other rental profits within the year or in the future, the 10% wear and tear allowance will be replaced with capital allowance claims, profits will not be pensionable and CGT reliefs such as rollover, holdover and entrepreneurs relief will no longer be available.