The UK Chancellor’s emergency Budget

Paris, 08 juillet 2010 - Visualiser l'eAlerte

Le nouveau gouvernement britannique a dévoilé son budget d'urgence le 22 juin 2010. Hausse de la TVA et de l'impôt sur les plus-values de cession des particuliers mais aussi baisse de l'impôt sur les sociétés sont les mesures phares.

• Mesure largement attendue, le taux normal de TVA passera de 17,5% à 20% à partir du 4 janvier 2011.
• Le taux de l’impôt sur les sociétés passera lui de 28% à 27% à partir du 1er avril 2011 et devrait être ensuite réduit de 1% par an jusqu'à atteindre 24% en 2014. En outre, le taux d'imposition des petites entreprises va passer de 21% à 20% à partir du 1er avril 2011. En contrepartie les durées d'amortissement de différents actifs seront rallongées.
• Pour les personnes physiques, le taux de l’impôt sur les plus-values passe de 18% à 28% pour les contribuables imposés dans la tranche supérieure. Le taux de l’impôt sur les plus-values reste à 18% pour les autres contribuables.
• Une nouvelle taxe bancaire va être introduite à partir du 1er janvier 2011. Cette taxe devrait être basée sur les bilans des banques plutôt que sur leurs profits.

D'autres mesures concernant en particulier l'imposition des bénéfices étrangers, l’introduction de dispositifs anti-abus (similaire à l’abus de droit français) et la révision des règles favorables aux personnes physiques «non domiciliées» devraient faire l'objet d'une consultation préalable.

As promised, the new UK coalition government delivered their first budget yesterday less than 50 days after entering into office.  In his speech, the Chancellor set out his five-year plan to reduce the UK Budget deficit, rebalance the British economy, and design a new model for economic growth.

Corporate and business taxes

Corporation tax rates

The main rate of corporation tax will reduce from 28% to 27% from 1 April 2011. Further reductions to the main rate are proposed to reduce the rate by 1% per year to 24% by 1 April 2014. Corporation tax on ‘ring-fenced’ profits from UK oil extraction and oil rights will remain at 30%. In addition, the small profits rate will reduce from 21% to 20% from 1 April 2011.  The announced rate reductions mean the UK will have amongst the lowest tax rates in the G20 countries.

Tax depreciation (Capital allowances)

To balance the proposed reduction in corporation tax rates, the Government has announced a reduction in the rate of tax relief for capital expenditure, which in the UK does not generally follow accounting depreciation. Although companies will continue to receive full relief for their capital expenditure, the relief will be spread over a longer period as follows:

• The main plant and machinery writing down rates will reduce from 20% to 18% per annum.
• Longer life/special rate plant and machinery writing down rates will reduce from 10% to 8% per annum.

These changes will apply to chargeable periods ending on or after 1 April 2012 for businesses subject to corporation tax and on or after 6 April 2012 for businesses subject to income tax. Transitional rates will apply for periods which span the above dates.

In addition, from April 2012 the Annual Investment Allowance will reduce from £100,000 to £25,000 to ensure the relief is focused on small and medium sized businesses.

Bank levy

This will be introduced from 1 January 2011 based on the banks’ balance sheets. Details of the levy will be published following consultation. It is proposed that this will be set at a rate of 0.07%, with a lower initial rate of 0.04% in 2011.  It was announced that France and Germany will be putting something similar in place.

Research and development tax relief (R&D)

The Government will abolish the rule which requires small and medium companies who claim R&D tax relief to own the intellectual property deriving from those R&D activities. This change is effective for accounting periods ending on or after 9 December 2009.

Worldwide debt cap legislation

Broadly this legislation restricts the amount of tax deduction available to a UK company for interest on loans from group companies.  Changes to this legislation were announced in the previous Budget which will now be amended to clarify areas of uncertainty in order for the rules to work as originally intended.

Capital distributions

Earlier this year, UK companies raised concerns regarding the corporation tax treatment in relation to distributions from reserves following a capital reduction.  The legislation announced in this Budget ensures that certain distributions will not be prevented from falling within the distribution exemption rules introduced in 2009.  The legislation will be introduced retrospectively to 1 July 2009: however, there will also be an ‘opt out’ by election from the retrospective impact of the change.

Consortium relief

Legislation to be introduced later this year will include two changes to the consortium relief rules for loss surrender between claimant companies. Broadly, consortium relief is available where at least 75% of the ordinary share capital of a company is owned between numerous companies of which none owns less than 5% and no company controls the consortium company in question.

Losses can be claimed/surrendered between the consortium member and the company owned by the consortium (link company) and certain of that company’s subsidiaries. The amount of relief is determined by the consortium member’s holding in the company owned by the consortium.  From the date of legislation later this year, companies in the European Economic Area will be able to act as link companies for consortium relief claims. 

In addition, further rules for consortium members will be included to limit the amount of losses that can be claimed by additional tests based on voting rights and the extent of control the member holds in the consortium.

Consultation on several key areas is dealt with at the end of this summary.

Indirect taxes

VAT

The standard rate of VAT will be increased from 17.5% to 20% from 4 January 2011 which brings it more into line with VAT rates around Europe. Anti-forestalling legislation will have effect from 22 June 2010 to counter arrangements that seek to apply the 17.5% rate to goods and services to be delivered or performed after 4 January 2011. There is no change in the scope of the rules for zero-rating, VAT exemption and the 5% reduced rate.

Other measures

The following measures announced in the previous Budget were also included in this emergency Budget:

• The higher rate of insurance premium tax will also rise from 17.5% to 20%. The standard rate will increase from 5% to 6%, coming into effect from 4 January 2010.
• The definition of aircraft for zero-rating purposes will change from 1 January 2011. Supplies of aircraft will be zero-rated only where used by “airlines operating for reward chiefly on international routes”. The previous Budget expected the changes to be introduced from 1 September 2010.
• The ‘place of supply’ rules on the supply of gas, heating and cooling, will be amended from 1 January 2011.

Personal taxes

Income tax allowance and basic rate limit

With effect from 6 April 2011, the personal allowance for individuals aged under 65 years of age will increase to £7,475 but the basic rate limit will be reduced so that higher rate taxpayers will not benefit. It is unclear at this stage whether this represents a real tax increase for individuals over £100,000 who will have had their personal allowances withdrawn.  This can create quite strange effective rates eg the higher rate up to £100,000 is 40%, the rate between £100,000 and £114,950 is 60%, the rate between £114,950 and £150,000 is 40% and the rate above £150,000 is 50%. There are planning opportunities for individuals in these income bands eg whether to take a bonus or ask the employer to make a pension contribution.

Capital gains tax (CGT)

From 23 June 2010, the rate of CGT will increase from 18% to 28% for higher rate tax payers. The rate of CGT will remain at 18% where a taxpayer’s total income (including gains) does not exceed the upper limit of the income tax basic rate band. For trustees and personal representatives of deceased persons, the normal rate will be 28%. However, annual exemption limits will not be reduced (currently £10,100).  Approved share incentive schemes continue to be a highly attractive for of remuneration in the UK.

To support investment in enterprise, the Government announced it will extend the lifetime-gains limit for entrepreneurs’ relief from £2m to £5m. This relief provides for certain qualifying gains to be taxed at 10% but relies on a minimum share ownership which will not be available in many corporate or private equity backed scenarios. This increase is effective immediately, from 23 June 2010.

Pensions

Following much pressure from pension professionals, the Chancellor is going to work with the pensions industry to review the higher earners pension tax regime due to come into effect in April 2011 and look to replace it with a reduced annual allowance limit. In consequence, we should see a somewhat simplified system, and one that keeps higher-earners in the workplace pension system, at least for some of their savings. With a lower annual allowance, employers will still need to review pension provision for higher earners, including seeking different ways for long-term saving, but administration and compliance will be much simplified.

Anti-avoidance and tax administration

Anti-avoidance

Some specific measures have been introduced by the Budget to prevent corporate tax avoidance using accounting ‘derecognition’ rules in relation to loans and derivatives, and specific schemes involving Alternative Investment Funds relating to UK tax credits for corporate investors where no UK tax has been paid. The Government has also stated their intention to take a more strategic approach to dealing with the risk of tax avoidance in order to prevent increasing complexity and frequent legislative change. Part of one possible element of such an approach includes further consideration and consultation in relation to a general anti-avoidance rule (GAAR).

HMRC powers, deterrents and safeguards

The Budget introduces a number of very specific measures to continue to bring harmonisation in the way interest is charged on late paid tax and reclaiming overpaid tax. In addition, some specific measures have been introduced to work towards a common regime on penalties for late filing and late payment of tax, a process which began in 2008.

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