Capital allowances
The Government has announced that the rates of writing-down allowances (WDAs) for new and unrelieved expenditure on plant and machinery will be reduced:
• from 20 per cent to 18 per cent per annum for expenditure in the main rate pool; and
• from 10 per cent to 8 per cent per annum for expenditure in the special rate pool.
Expenditure on long life assets, thermal insulation, integral features and cars with emissions of 160g/km or more (in the case of cars purchased on or after April 2009) is allocated to the special rate pool. These rate changes will take effect from 1 April 2012 (for corporation tax) or 6 April 2012 (for income tax).
The annual Investment Allowance (AIA) allows most businesses, regardless of size, to reduce their taxable profits by the full amount of their annual capital expenditure on most plant or machinery (apart from cars) up to a maximum amount, which is currently £100,000 a year. The maximum amount of the AIA will be reduced to £25,000 a year with effect from April 2012.
Value added tax (VAT)
The rate of VAT is to rise from 17.5% to 20% on 4 January 2011 (the first business day of 2011). The scope of VAT will not be extended, so items such as food and children's clothing remain exempt and the 5% reduced rate that applies to domestic fuel is unaltered.
Anti-forestalling legislation will be included in the Finance Bill 2010 to prevent the 17.5 per cent rate applying to supplies of goods or services that are provided on or after 4 January 2011, subject to certain conditions.
A new bank levy
A non-deductible bank levy of 0.07% will be introduced with effect from 1 January 2011 (with a reduced rate of 0.04% applying in 2011). The levy will apply to institutions with aggregate liabilities of more than £20bn, so only the larger banks will be affected.
A consultation on a remuneration disclosure scheme for banks has been announced and the Government will explore the costs and benefits of a Financial Activities Tax on profits and remuneration. The FSA (as part of its review of its Remuneration Code) will also consider imposing more stringent requirements on the deferral and award of variable pay, examine ways to strengthen performance and remuneration to ensure that incentives are aligned with long term performance and consider how to vary capital requirements to offset risk in remuneration practices.
Other points to note
• Rates of duty on cigarettes and alcohol have not been increased and the 10p increase in duty on cider announced in the March Budget has been dropped.
• The Conservatives proposal to increase the inheritance tax nil rate band to £1 million did not make the Budget. The only mention of inheritance tax in was in the context of aproposal to extend the Disclosure of Tax Avoidance Scheme rules to inheritance tax planning using trusts. No further details have been announced.
• New rules will be introduced to ensure that expenses paid to MPs under the new scheme will continue to be specifically excluded from taxation.
• The Chancellor has announced that the Government will review the taxation of nondomiciled individuals. This reiterates a statement made previously in the Coalition
Agreement.