Business Payment Support Service

Last year the Chancellor introduced a "time to pay" facility to help businesses with cash flow difficulties. The Budget included the announcement that this has helped 160,000 businesses defer payment of over £5 billion. The Chancellor said that he regarded the scheme as a success that should be extended for the whole of the next Parliament, although there were no specific proposals to do so in the Budget press releases.

Businesses which wish to defer liabilities of over £1m are now required to obtain an independent report to support their application.

Tax Tip

If you want to negotiate time to pay, do so before the due date.

Business rates

There will be a temporary increase in the level of small business rate relief so that eligible small businesses occupying properties with rateable values up to £6,000 will pay no business rates for one year from October 2010. In addition, small businesses with rateable values up to £12,000 will enjoy significant reductions.

The temporary increase in the threshold for Empty Property Relief will be extended for a further year and raised from £15,000 to £18,000.


Penalties for late filing and payment

The penalties for late filing of returns and late payment of tax are being reformed and made consistent across all the taxes. Proposals were included in the Budget for changes to a number of indirect taxes, including VAT. The changes will represent a significant reduction in the levels of penalty when compared to the current VAT "default surcharge" system, where a penalty of 15% can be levied for a day's delay if the trader has missed a number of deadlines. However, HM Revenue & Customs will require several years to change their systems to cope with the changes, so the harsh regime will continue for the time being.


Security for payment of PAYE

Employers are required to deduct PAYE and NIC from their workers' pay and hand it over to HM Revenue & Customs. Where a trader has been associated with businesses which have failed to comply with this obligation, HMRC want the power to demand a deposit of security as a condition of trading. A similar power currently exists in relation to VAT. There will be a consultation on the new power and it will not be implemented before 6 April 2011.


Charity taxation

A number of changes have been announced to the tax treatment of charities.

These includes:

• Tax reliefs available to UK charities to be extended to similar organisations in the rest of the EU, Norway and Iceland
  
  
• Aligning the treatment of UK resident and non-resident donors who make a Gift Aid declaration but have not paid enough tax to cover the credit claimed by the charity
  
  
• Setting a maximum number and minimum amount for the claims to Gift Aid that a charity can make during a tax year (although most charities are unlikely to be affected)
  

Bank Payroll Tax

The tax charge that was imposed on bankers' bonuses in the Pre-Budget Report was confirmed as a one-off measure that will only apply to bonuses paid up to 5 April 2010. Mr Darling announced that it has raised more than twice as much as had been forecast - £2bn.


Offshore evasion and avoidance

The Government has made several attempts in recent years to encourage people with undeclared income or gains held offshore to come forward and put their affairs in order. These have included two chances to make a full voluntary disclosure with a promise of only a 10% penalty, the second of which is just coming to an end. Now the Chancellor proposes to increase the penalties for failing to disclose offshore income and gains - the stick to follow the carrot. For periods commencing from 1 April 2011 onwards, it is proposed that a maximum penalty of 200% could apply to someone failing to disclose funds held in countries which have not agreed to exchange financial information with the UK authorities.

The Chancellor announced that three new countries have agreed to exchange such information with the UK: Dominica, Grenada and Belize.

Tax Trap

If you have money offshore, make sure that it has been properly disclosed.

Anti-avoidance measures

As usual, the Budget included a number of measures to close down tax avoidance schemes that the Government has become aware of recently. These included specific new rules about Share Incentive Plans and Company Share Option Plans.

There will also be a significant reform of the "transactions in securities" rules which HMRC can use to attack some planning ideas, for example schemes which try to turn income into capital gains.


VCT/EIS/EMI

Tax incentives for investment, such as the Venture Capital Trust scheme and the Enterprise Investment Scheme, or for rewarding employees, such as Enterprise Management Incentive share options, have in the past often required that the business is carried on in the UK. This is not in accordance with European law, so the rules are being relaxed to allow companies to qualify if they have a permanent establishment in the UK. There must still be a qualifying trade, but it does not have to be carried out wholly or mainly in this country. Other technical changes to the VCT and EIS rules will be made to comply with EU rules.


Settlor-interested trusts

Where settlors could benefit from a trust that they have set up, they are required to declare the trustees' income on their own tax return and pay tax under self assessment. They are entitled to set any tax already paid by the trustees against this liability.

Where this results in a repayment, the settlor will in future be required to hand this over to the trustees - a fiscal money-go-round.

Tax Trap

Settlor-interested trusts are now very complicated – are you affected?