HMRC is updating its rights and powers.

Some of the reforms make perfect sense (though in my opinion not all). My concern, which is growing, is that taxpayers’ rights are not being correspondingly updated.

Currently HRMC’s “customers” have: 

• No automatic right of appeal against every new power;
• No right to the independent scrutiny of a tribunal; and 
• No automatic right to compensation if it all goes wrong.

HMRC’s solution to this is the Charter which has no statutory rights.

This is not satisfactory at all. Now might be a good time to start lobbying your MP.

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Seems to be very popular for UK companies at the moment. It is important to remember, however, that moving the Head Office to a lower tax jurisdiction does not remove UK activities from the UK tax net. Furthermore, companies whose activities or customers are primarily in the UK are unlikely to want to emigrate, the potential savings could well be outweighed by additional costs.

However, where significant profits arise outside the UK the position should, at least, be considered.

It is, in reality, not difficult (from a tax perspective at least) for companies to move outside the UK at the moment.

For shareholders an exchange of shares in a UK company for shares in a non-UK holding company is unlikely to trigger a tax liability.

Additionally, the sale of non-UK subsidiaries to a new non-UK holding company may qualify for the Substantial Shareholdings Exemption and so, again, be tax free. It seems odd that one of the Government’s policies to enhance the UK’s competitiveness should be used as a means for exit. That’s tax for you!

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Using private cars for business travel is hurting drivers by potentially hundreds of pounds a year due to HMRC's refusal to increase mileage rates.

The tax free mileage rate that private car drivers can claim has not moved at all over the last five years despite the increasing cost of petrol.

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HMRC have recently published a consultation document on interest, titled “Interest – Working Towards a Harmonised Regime”

The document explains the rationale for charging and paying interest, sets out the principles underpinning the regime, looks at the anomalies of the current system, and outlines and invites comments on the new proposals.

The document is quite long. Having read through it, there are some significant points:

•  “the purpose of interest is to reinforce the fact that particular taxes are due for payment on particular dates, and to bring a degree of fairness into the system where those payment dates are not met by some taxpayers but are by others.”
  

This should be contrasted to the statement in the next paragraph:

• “interest is not intended to be a penalty for late payment”
  

and very shortly after

• “interest is not designed to influence behaviour in the way that penalties are, and there is no consideration of the reason for late or overpayment. It is simply recompense for not having use of the money, measured by reference to the amount and time. It is for this reason that an appeal right against an interest charge is not appropriate.”

The document supports the view that if HMRC has financially disadvantaged someone by charging interest because of HMRC’s own mistake or unreasonable delay, it should cancel the charge.
One other key point is the discussion on whether or not interest charged and paid should be on a compound rather than a simple basis – this could be very significant.

Again, if you have a comment, this is your chance to make it.

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A report by a working group for the conservatives is recommending that the next conservative government should make radical changes to the way new tax legislation is drawn up and scrutinised - with a view to simplifying the UK’s tax code.

It proposes setting up an Office of Tax Simplification (OTS) to examine the existing law and practise and make proposals for simplification. As well as being staffed by HMRC and academics, it should also include individuals from the tax professions to provide both expertise and a fresh perspective.
The group also proposed setting up a new Select Committee on Taxation with membership drawn from both Houses. This committee should improve the scrutiny of government initiatives and proposals, and review proposals presented to it by the OTS.

Finally, the conservatives would look to re-establish the Pre-Budget Report as the time to propose technical changes in advance of the full Budget and Finance Bill. The thought is that this would have avoided many of the recent problems of badly thought through proposals, produced with little consultation and last minute legislation rushed through Parliament without sufficient scrutiny.

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Below is a blog written by my colleague Barry Hallam - author of our sister blog Tax Plus...

Included in the Finance Act 2008 was a provision to enable HM Revenue & Customs to charge a fee for certain methods of payment of tax liabilities. This has enabled a Statutory Instrument be issued which introduces a charge of 0.91% for tax payments made by credit card. The regulation comes into force on 13 August and only relates to credit card payments made by telephone. This may be extended to other methods of payment in due course.

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Below is a blog written by my colleague Barry Hallam who contributes to our sister blog Tax Plus blog...

HM Revenue & Customs (HMRC) have warned of a number e-mail scams inviting people to provide credit card details in order that a tax refund can be sent to them. The latest example includes an official looking form requesting full details of a credit card with the instruction that it must be returned within 2 days or the tax refund will be declined!

It even covers the situation where you do not have a credit card by inviting you to provide details of a nominee.

As HMRC say on their website:

HMRC would not inform customers of a tax rebate via email, or invite them to complete an online form to receive a rebate of tax.

Do not visit the website contained within the email or disclose any personal or payment information.

Email addresses used to distribute the tax rebate emails include:

service@hmrc.gsi.gov.uk
claims@hmrc.direct.gov.uk
notice@hmrc.gov.uk
hmrc@hmrc.gov.uk
admin@hmrc.gsi.gov.uk
info@hmrc.gsi.gov.uk
no-reply@hmrc.gsi.gov.uk

HM Revenue & Customs (HMRC) does not send out emails using these email addresses.

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Following the merger of the Revenue and Customs a review of all existing powers needed to be undertaken; the merged Department had different rules for direct and indirect taxes and some of the powers were out of date.

The problem is we are not entirely happy with the results. The principle of matching a power with an appropriate safeguard is not being consistently followed. Some of the powers in the Finance Bill 2008 are likely to give rise to problems for a lot of people if they become law as they stand. New powers are being introduced without any right of appeal included in the law. Safeguards have no statutory force and can be changed without any independent scrutiny. This cannot be right. As an example, HMRC have the power to see statutory records but there is no right of appeal if you believe the request is unreasonable or irrelevant.

This is just a brief indication of the position. I think you will agree we are right to be wary.

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One easily missed proposed change in HMRC’s powers is that allowing HMRC to set-off sums payable to a taxpayer against sums owed to HMRC by the same taxpayer. This could cause financial problems, particularly as set-off is to be entirely within HMRC’s power and exercisable at its discretion.

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HMRC has now published its Freedom of Information guidance setting out what you can (and cannot) ask them for. Interesting!

The details are available at http://www.hmrc.gov.uk/freedom/foi-index.htm

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The Law Commission is considering duty of care provisions to protect taxpayers, as it believes the current position is unsatisfactory. Specifically it is considering the need for more redress against public sector bodies such as the Revenue when they act wrongfully.

The commission’s paper, which asks: ‘what mechanisms should be available for citizens to receive redress against public sector bodies?’ (not a catchy phrase I admit) is currently out for comment.

The full report can be found at http://www.lawcom.gov.uk/docs/cp187_web.pdf  

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New advisory fuel rates for company cars will apply to all journeys made on or after 1 June 2008:

Engine Size	Petrol	Diesel	LPG
1400cc or less	12p	13p	7p
1401cc to 2000cc	15p	13p	9p
Over 2000cc	21p	17p	13p

HMRC say:  “The recent fuel price increases which justify these AFR changes have happened very rapidly …  Consequently, where employers are able to do so, HMRC is content for the new rates to be implemented immediate, i.e. from 1 June.”

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HMRC have recently issued a factsheet to help you decide whether you are employed or self-employed for tax and National Insurance purposes. The leaflet covers issues such as:

• Is your employment status right?
• The special rules that apply to certain occupations and jobs 
• Working through a Company or partnership 
• Checking your employment status 
• Employment Status Indicator (ESI) tool 
• Your position if you have more than one job
• Why employment status is important 
• Your entitlement to benefits and employment rights
  

It gives links to other relevant information and provides helpline numbers.

The sheet can be found at http://www.hmrc.gov.uk/leaflets/es-fs1.pdf.  

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Just so you know, HMRC is planning to unveil the “biggest change to the way we process PAYE records in 25 years” in October of this year.

Under the scheme, the PAYE Service will bring together a dozen different databases covering information about individuals and, in theory, will be able to see at a glance what each person’s tax position is. At the moment, records are held with reference to employers so if, for example, someone has two jobs, their tax position is immediately complicated. HMRC says: “As a result of the change we will have a more comprehensive view of the individual’s PAYE and you will benefit from having fewer queries from both HMRC and your employees”.

The new system (called National Insurance Recording System 2) aims to make administration simpler – watch this space.

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The Times recently reported that the Treasury is to delay legislation on proposed changes to the taxation of companies’ foreign profits until 2010.

The discussion document published in June 2007 referred to implementation of the measures in 2009.

The complaints from, and emigration of some multinational companies over recent UK business taxation measures, appear to have convinced the Treasury that further discussions are needed before further progress can be made.

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The Employment Appeals Tribunal recently ruled in HM Revenue & Customs’ favour by supporting current National Minimum Wage legislation relating to tips.

This means that employers have to pay their staff at least the National Minimum Wage regardless of any tips, gratuities, service or cover charge unless the tips are paid directly through the employer’s payroll.

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Just to confirm that the amount payable tax free to employees working from home, without the need to keep receipts, had risen from £2 to £3 from 6 April 2008.

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The Revenue have recently issued a number of documents regarding their procedures and rights on PAYE inspections, together with some details on their obligations, what you can do, etc. You can find full details at www.hmrc.gov.uk/leaflets/c6.htm.

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The changes in the Finance Bill will preclude many companies that currently qualify for EMI from benefiting in the future. This will not apply to options granted prior to the date of Royal Assent. As this change is likely to take effect from mid-July, this is a one-off opportunity that should not be missed.

After Royal Assent, companies (or groups) will not be able to grant options unless, on the date of grant, they have fewer than 250 employees.

Companies affected by this change who want an EMI scheme, or want to issue further options under an existing scheme, must take speedy action to ensure that they are not too late.

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A proposed change in tax law in this year’s Finance Bill could leave many taxpayers disadvantaged.
Currently when HM Revenue & Customs (HMRC) makes an error or mistake in an individual’s tax affairs he can claim back taxes (with interest added) for the last 6 years. HMRC now wants to cut the time limit so it is only liable for repayments for the previous 4 years. This cannot be good news - not when HMRC can go back to collect tax for up to 20 years.

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As you are probably aware, you can claim interest relief on let properties. The mortgage interest on your let properties is set against any rental income received to reduce the taxable amount.

It is possible to increase the borrowings on let property, up to the market value of the property when it was first let, and continue to obtain relief for interest against the rents. There is no requirement for the funds raised to be used for the property – you can buy a car, pay off debts, whatever.

The tax saving may be significant.

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Many employers reimburse subsistence expenses by way of scale rate payments.

HMRC has now agreed that employers may use the benchmark rates published by the Foreign and Commonwealth Office when paying accommodation and subsistence expenses to employees who travel abroad on business without the need for the employees to produce expenses receipts. The rates can be found at http://www.hmrc.gov.uk/employers/wwsr-april08-revisions.pdf.

Accommodation and subsistence payments at or below the published rates will not be liable for Income Tax or National Insurance contributions and employers need not include them on forms P11D. However, if an employer decides to pay less than the published rates its employees are not automatically entitled to tax relief for the shortfall. They can only claim expenses supported by receipts, less any amounts paid by their employer.

These tax/NIC free amounts are in addition to the incidental overnight expenses that employers may reimburse tax/NIC free (http://www.hmrc.gov.uk/manuals/eimanual/EIM02710.htm).  

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When commercial property is acquired, capital allowances may be claimed on the part of the purchase price attributable to plant and machinery, whether fixtures or moveable chattels.
Historically the way of ascertaining the amount to be allocated to plant, a “just and reasonable apportionment”, involved a specialist valuation of the various components of a purchase (land, building and plant) relating the results to the actual price paid.

The amount claimable on this basis is generally higher than buyers expectation.
However, in 1997 an alternative procedure was introduced under which the buyer and seller could jointly elect to set a figure to be treated by both parties as the disposal sale proceeds and purchase price for the fixtures. This figure is binding on HMRC and any subsequent purchaser of the property.

The main problem with the election is that it tends to benefit one party over the other.

It is generally better for the seller to put a low value in the contract – the historical allowances over this figure are then retained by him. This means that the buyer then has minimal allowances. Conversely, the buyer wants as high a figure as possible while this may have tax implications for the seller. The only answer is to negotiate – and probably compromise.

The key thing though is to understand what you are being asked to sign and to know what previous owners have signed too.

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The basic rate tax cut would reduce pension value.

The change in the income tax basic rate from 22% to 20% means that a saver investing a typical £200 a month now needs to pay an extra £48 a year to end up with the same value in the pension fund.

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Yesterday, the Chancellor announced changes to the personal tax system in response to the furore over the abolition of the 10p rate of tax. Gordon Brown's "prudence" concept seems to have been abandoned as, in his new role, he has to balance the polls rather than the books. The government is apparently borrowing £2.7 billion to fund a tax cut that is much broader in scope than simply addressing those affected by the loss of the 10p rate.

The personal allowance for the current is being increased by £600 to £6,035. So far so good - but then the basic rate band is being correspondingly reduced by £1,200 to £34,800. This means that anyone paying tax at the higher rate will no see no difference whatsoever in the amount of tax they pay. Individuals paying tax at basic rate will receive an extra £120 pa.

The full text of the Chancellor’s announcement is available on HM Treasury’s website

What is concerning is the lack of comment on national insurance bearing in mind the government's stated policy of aligning income tax and NIC payment rates. Watch this space.

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It is probably fair to say that one of the best known parts of our tax legislation allows employees being made redundant to receive up to £30,000 compensation, free of both tax and national insurance.

It is equally fair to say that the Revenue are far from keen on this and will find any legitimate reason they can to charge income tax on the payment. One of their main weapons in this is the so-called pay in lieu of notice (“PILON”) clause in an employment contract; if an employee is entitled to receive pay in lieu of notice, this payment is contractual (and hence taxable) rather than compensation (which would be exempt from tax up to £30,000).

Unlike the rest of us, MPs have been entitled to receive termination payments free of tax, even if the payments are made in accordance with a PILON clause in their contract, for some years.

This year’s Budget has extended this exemption to the Mayor of London and members of the Greater London Assembly.

So, when Ken Livingstone handed over the keys to City Hall to Boris Johnson at least he had the consolation of knowing that his pay off would not suffer tax.

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The latest Finance Bill aims to counteract the use of “artificial” arrangements on trade losses by restricting loss relief to £25,000 if an individual “trades” in a non-active capacity (i.e. spends an average of under 10 hours a week on the commercial activities of that trade). It therefore seems a good time to look at what other loss relief is allowable.

Commerciality test
As a basic test, a tax loss is not available for relief unless the trade is carried on on a commercial basis, with a view to the realisation of profit, and the trader must now prove that he is active on the trade for 10 hours a week. The following assumes this is the case.

Losses in early years
Losses incurred in the early years of a trade (i.e. the year in which the trade started, or in the next three years) may be carried back against total income for the preceding three years (earlier years first).

Pre-trading expenditure is relieved as if it has been incurred on first day of trading.

Offset trading loss against capital gain
Any trading loss that is potentially allowable against total income can also be offset against a capital gain where the loss exceeds your total income for the year.

Property losses
An excess of property expenses over rents creates property losses. These losses can be offset against current or future property income.

Capital losses
Capital losses can be used against capital gains of the same year or carried forward.
Losses can only be carried back on death, when a three-year carry back is allowed.

Disposal to a connected person
Where a capital tax loss arises on such a disposal, it can only be offset against gains on disposals to the same connected person.

Negligible value
If an asset has become negligible in value, a claim can be made such that the asset is treated as having been sold and immediately reacquired thus generating a loss. “Negligible” is not defined by statute but HMRC’s view is that the term means “worth next to nothing”.

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Under the old rules, where an individual acquired shares on more than one date, the legislation specified which shares were treated as sold for CGT purposes on a part disposal. Shares were generally matched on a ‘last in, first out’ basis, (with exceptions for “bed and breakfasting” within 30 days).

As part of the simplification of CGT, the rules for disposals after 5 April 2008 have changed and could produce some unfortunate results. From that date the cost of all shares in any one company will be averaged.

Assuming an increasing share price over the period in which shares have been acquired, the taxable gain on the first disposals made after 5 April 2008 could be considerably higher than would have been the case under the previous legislation.

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Apparently, such arrangements do not meet the new requirements that are being introduced from 6 April 2008.

HMRC is aware that over the years some employers have reached agreements with their local tax office, for example with regard to:

• Using substitute forms P46. 
• Not following the P46 procedures where forms P45 not received. 
• Not using tax code BR (Basic Rate) as the form P46 default tax code. 
• Sending data on CD-ROMs.

These local agreements are now being ended and may lead to the rejection of the information submitted.

HMRC is reviewing all local arrangements with a view to terminating them and any affected business should urgently conduct a similar review to avoid having your data rejected.

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HMRC has published new guidance on the new penalty provisions that will apply from April 2008.

HMRC states that it has designed the new penalties so that:

• If people take reasonable care when completing their returns they will not be penalised.
• If they do not take reasonable care errors will be penalised, and the penalties will be higher if the error is deliberate.
• Disclosing errors before HMRC find them will substantially reduce any penalty due.

The new penalties initially apply to VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme.

Further information can be found at:
http://www.hmrc.gov.uk/about/new-penalties/penalties-leaflet.pdf
http://www.hmrc.gov.uk/about/new-penalties/faqs.htm  

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HMRC has stated that businesses that can demonstrate good management and accounting systems will be viewed as low risk, giving them more time to spend on higher risk businesses.

Family businesses are often regarded by HMRC as a higher risk because of the overlap between business and family.

So what can you do to reduce the risk of an investigation?

1. Loans to family members constitute a taxable benefit (and can create a charge on the company) and should be declared. 
2. Expenses that are not wholly and exclusively for the purposes of the business need to be clearly identified and the tax treatment clarified. 
3. Entertaining expenditure (other than staff) is not allowable. 
4. Salaries paid to family must be wholly and exclusively for business purposes. 
5. Benefits provided for family members must be declared. 
6. Tax planning is high on HMRC’s agenda and aggressive planning is likely to cause an enquiry. Careful implementation and documentation is crucial. 
7. Acquisition and sale of business assets should be properly recorded. 
8. Ownership of assets such as yachts and aircraft often cause problems when these are used by family members. 
9. Overseas companies which are part of the group, with UK-based decision makers, are likely to face a company residence challenge from HMRC.

HMRC is carrying out a full review of tax systems and processes for companies which it considers to be high risk; especially where there is a history of mis-declaration. Some time spent now to tidy things up could save a lot of problems later.

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The shortage of skilled staff is encouraging businesses to incentivise their workforce by giving greater control over the make-up of their remuneration package – “flexible benefits”.

The employees’ participation in a flexible benefits scheme is usually funded by agreeing to reduce salary in return for a non-cash benefit.

Savings can be realised where the benefit provided to staff is tax and/or NIC free. Typical examples include employer’s pension contributions; employer-provided childcare arrangements; and ‘bikes for work’, as well as alternative options, such as a reduction of pay in return for increased holiday entitlement, All of these need to be implemented correctly for the sacrifice to be effective.

Generally, salary sacrifice arrangements are effective where the contractual right to cash is reduced, and the employee is not freely able to revert to their original higher salary in place of the benefit being provided. It is important that the employee’s contractual entitlement to future pay must be relinquished before the point at which it is treated as received for both income tax and NIC purposes. The revised contractual arrangement must also genuinely entitle the employee to a reduced cash payment, in exchange for the provision of a benefit by the employer.

Usually, HMRC’s approach will be that in cases where there is a variation to the contract, lasting for a minimum period of a year, it will accept the position. However, if the agreed period is less than twelve months, the risk of HMRC challenging the arrangement is considerably higher. In a worst case the sacrifice is ineffective and tax and NIC is charged on the gross amount.

It is worth taking time to get this right but done correctly both employer and employees can be winners.

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The way the new rules work it is likely that a number of businesses may be moved from gross to net under CIS. There is a reason to be worried.

One of the key aims of the new CIS scheme was to improve compliance in the construction industry.

Under the new scheme, HMRC may raise a determination transferring a subcontractor from gross to net payment status at any time if HMRC believes that were the subcontractor to apply for registration for gross payment at that time this would be refused.

From last year HMRC has a programme for businesses to review their tax compliance over the previous 12 months. If there are unacceptable breaches the businesses receive a determination moving them to net status and notice of right of appeal. This is a rolling programme to ensure every business is checked once a year.

To pass the compliance test, the trader and any business partners (or the company and each of its directors) must, during the 12 months up to the date of the application, have done all of the following subject to some small margins for error.

• Completed and returned all tax returns sent. 
• Supplied any information to do with the tax that may have been requested. 
• Paid by the due dates 
  • all tax due personally or by the business
  • all National Insurance contributions (NICs)
  • any PAYE tax and NICs due as an employer
  • any deductions due as a contractor in the construction industry.

This is likely to be a real problem for businesses.

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The CBI recently published a paper setting out their view on why the UK corporate tax system is uncompetitive.

Basically the CBI has four areas of concern:

• The rising tax burden
• The increasing level of complexity 
• Growing uncertainty 
• Threat to revenues.

In the CBI’s opinion the key principles for a corporate tax system are: 

• Simplicity and clarity 
• Certainty and stability 
• Flexibility
• Neutrality, i.e. tax should not distort business decisions.

In their view the rapid legislative change coupled with inadequate scrutiny and consultation has added to uncertainty for all taxpayers. At present, looking at the position for individuals on capital gains tax and on the changes for those not domiciled in the UK, it is hard to argue with their view.

If you would like to read more, you can find the full document at http://www.cbi.org.uk/ndbs/press.nsf/0363c1f07c6ca12a8025671c00381cc7/c9f94d05d0d0975b80257403003c66a6?OpenDocument.  

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Under the draft legislation there appears to be a problem for shareholders in companies or groups participating in joint ventures. Activity carried on with a view to acquiring an interest of 10% or more in a joint venture company is trading activity under the legislation but actually holding shares in a joint venture company appears not to be. This means that a company or group can fail the trading tests if the shareholding in the joint venture is substantial in relation to the overall activity.

If this were to be the case, entrepreneurs relief would not be available.

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Historically, the government’s response to an avoidance “scheme” has been to block it (and then block scheme mark 2, et seq). Look at national insurance (NIC). I am (sadly) old enough to remember when employees were paid bonuses in gold coins to save NIC. Gold coins were of course blocked, so the market moved on to platinum sponge, fine wine and, as I recall, carpets. It took a long time to introduce legislation to stop all similar schemes.

From the Treasury’s perspective principles-based avoidance legislation makes perfect sense.

There has been a lot of sophisticated planning around interest income and HMRC and the Treasury are seeking to change the rules of the tax planning “game” with the introduction of a principle. The consultative document states: ‘A return designed to be economically equivalent to interest is to be taxed in the same way as interest.’ (Regrettably the ensuing draft legislation is nowhere near as succinct).

If this principle based approach is successful in this area, we have to ask – what will be the next step?

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This is a perennial question – should I take additional income from my private company in the form of a bonus or a dividend? From 1 April 2008 the answer to this question may have changed for some people.

Prior to 1 April 2008 it was preferable to declare a dividend if the company was paying tax at the small company rate or at the full rate of corporation tax. If profits fell into the marginal rate band then a bonus was more cost effective. On 1 April the marginal rate fell to 29.75% and so, from a tax perspective alone, dividends will now be preferred regardless of the level of company profits. There may of course be other factors to consider, such as pension contributions and minimum wage legislation but, provided these are factored in, paying dividends is likely to give a lower overall tax bill.

Companies with accounting periods straddling 1 April will have to calculate their own marginal tax rate for that period but, as a general rule of thumb, if the rate is 30% or lower then dividends will be the answer.

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Over the last 24 hours there have been a number of blogs posted in relation to the 2008 Budget announcement – on both SME Plus blog and our sister blog Tax Plus blog.

For your reference and convenience please find below a list of the respective blogs posted:

SME Plus

Budget 2008 - Pension Tax Relief
Budget 2008 - Capital Allowances
Budget 2008 - Enterprise management incentives ("EMI") share options
Budget 2008 - VAT
Budget 2008 - Trade losses for individuals...
Budget 2008 - Pensions
Budget 2008 - Associated companies
Budget 2008 - ISAs
Budget 2008 - Income shifting
Budget 2008 - Corporation tax simplification...
Budget 2008 - Enterprise Investment Scheme
Budget 2008 - Previously announced

Tax Plus

Budget 2008 - All Settled Offshore?
Budget 2008 - The Remittance Basis - Offshore Mortgages
Budget 2008 - Non Doms and Capital Losses
Budget 2008 - Personal allowances and the remittance basis
Budget 2008 - Non Doms and the £30,000 charge for the remittance basis
Budget 2008 - VAT
Budget 2008 - Changes to taxation of foreign dividends
Budget 2008 - Relaxation on Residence Test and Day Counting Rules

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The previously announced reduction in basic rate income tax from 22% to 20% from 6th April created concerns for 2 sectors.

Firstly, charities were concerned that they would lose out because Gift Aid donations would only benefit from 20% income tax relief with a resulting reduction in the gross donation.

Secondly individuals making personal pension contributions would only benefit from 20% tax relief at source instead of 22%. For instance a personal pension contribution of £78 would be worth £100 after basic rate tax relief in 2007/08. After 6th April the same £78 contribution becomes £97.50 after basic rate tax relief. This represents a small but significant reduction in your pension fund. Higher rate tax payers can claim back a further 20% through self assessment, increased from the previous 18% but the gross pension premium is still reduced for the same initial investment.

It was pleasing to see the Chancellor act on the concerns of charities and add 2% relief to Gift Aid donations for a transitional period.

It was a shame that the same generosity was not extended to the millions of us trying to save for our retirement.

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Although most of the changes on capital allowances have been known about for several months, there are a couple of minor tweaks announced today.

• The 100% first year allowance on cars with very low CO2 emissions will continue for an additional five years, until 31 March 2013, but the qualifying emissions threshold will be reduced from 120g/km to 110g/km driven 
•  Small balances left on capital allowances pools will be able to be written off where the balance has been reduced to £1,000
  

In addition, there is confirmation of new rules to allow companies (not unincorporated businesses) to surrender losses in return for a cash repayment from HMRC. This will apply to losses created by claims to 100% first year allowances on certain energy-saving or environmentally-beneficial plant & machinery, It will not be available where those losses could be used in some other way, for example against other taxable income or surrendered as group relief.

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Companies thinking of offering EMI share options to employees will have three new factors to consider: 

•  the market value (at the date of grant) of the shares covered by the option is to increase to £120,000; 
• the company offering the option must have fewer than 250 employees; and
• new restrictions are being placed on the company’s activities.
  

The last of these is unlikely to affect most companies (as shipbuilding, coal and steel production tend not to be that prevalent in the SME market) but the first two are potentially of greater relevance.

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