Alexander & Co - Budget Information 2005

Budget Information 2005

17/03/2005

Introduction

With changes in the tax system now an ever-present feature, our up-to-date experience is available to ensure clients' tax liabilities are planned to be at a minimum.

Our 2005/06 Tax Rates and Allowances are for guidance only and professional advice should be obtained before acting on any information contained as no responsibility can be accepted for loss occasioned as a result of action taken or refrained from in consequence of the contents of these Tax Rates Information Centres.

Income Tax

Tax rates		Note	2005/06	2004/05
Starting rate band to			£2,090	£2,020
Tax rate			10%	10%
Basic rate band - next			£30,310	£29,380
Non-savings rate			22%	22%
Savings rate			20%	20%
UK dividend rate			10%	10%
Higher rate - taxable income over			£32,400	£31,400
Higher tax rate			40%	40%
UK dividend rate			32.5%	32.5%
Trusts
Tax rate			40%	40%
UK dividend rate			32.5%	32.5%
Allowances that reduce taxable income
Personal allowance (PA)	under 65	1	£4,895	£4,745
	65 to 74	1,3	£7,090	£6,830
	75 and over	1,3	£7,220	£6,950
	Blind person's allowance		£1,610	£1,560
Allowances that reduce tax
Married couple's allowance (MCA)
Tax reduction	71 to 74	1,2,3	£590.50	£572.50
	75 and over	1,2,3	£597.50	£579.50
The age-related allowances are progressively withdrawn if income exceeds			£19,500	£18,900
Minimum PA			£4,895	£4,745
Minimum MCA tax reduction			£228	£221
Tax Shelters
Enterprise Investment Scheme (EIS) up to			£200,000	£200,000
Venture Capital Trust (VCT) up to			£200,000	£200,000
Golden Handshake max.			£30,000	£30,000
Rent a Room - exempt on gross annual rent up to			£4,250	£4,250

Notes

Ages are as the end of the tax year. Ages for the MCA relate to the elder of husband or wife.
MCA is available only to those couples where at least one spouse was born before 6 April 1935.
The higher rates of personal allowances are reduced by £1 for each £2 of excess income over £19,500 (2004/05 £18,900) until the basic allowance is reached. Similar limits apply to the married couple's allowance: the loss of tax reduction is 10p for each £2 of excess income (only the husband's income is taken into account) until the minimum of £228 (2004/05 £221) is reached.

Capital Gains Tax

Capital gains tax rates and bands are as follows:
	2005/06	2004/05
Taxed as top slice of savings income
Annual exemption
- individual	£8,500	£8,200
- settlement(s) (spread over total number)	£4,250	£4,100
Transfers between husband and wife living together are exempt

Chattels exemption
(proceeds per item or set)	£6,000	£6,000

Taper Relief

For gains realised after 5 April 1998 by individuals or trustees, indexation allowance is frozen and the gain reduced by a tapering relief. The value of the taper relief depends on whether or not the asset is a business asset, and on the number of complete years the asset has been held after 5 April 1998 (with an additional "bonus" year for non-business assets held on 16 March 1998).

Non-Business Assets
No. of complete years held after 5 April 1998	% gain chargeable
1	100
2	100
3	95
4	90
5	85
6	80
7	75
8	70
9	65
10 or more	60

Business Assets
No of complete years held after 5 April 1998	Disposals After 5 April 2002
No of complete years held after 5 April 1998	% of gain chargeable
0	100
1	50
2 or more	25

Notes

Transfers between husband and wife living together are exempt.
Capital gains are regarded as the top slice of savings income. Rates of 10%, 20% and 40% will therefore apply to gains taxed on individuals, as appropriate. Gains taxed on trustees are usually taxed at the special trust rate of 40%.

Corporation Tax

Corporation tax rates and bands are as follows:

Financial Year Commencing	1 April 2005	1 April 2004
Taxable profits
First £10,000	0%	0%
Next £40,000	23.75%	23.75%
Next £250,000	19%	19%
Next £1,200,000	32.75%	32.75%
On profits over £1,500,000	30%	30%
Non-corporate Distribution Rate	19%	19%

Main Capital Allowances

Main Capital Allowances
Motor Cars
On reducing balance (max. £3,000 p.a. per car)	25%
Plant and machinery
Small and medium size firms:
Allowance for the first year	40%
Writing down allowance on reducing balance	25%
Large firms:
Writing down allowance only on reducing balance	25%
Long Life Assets
Allowance for first year	6%
Writing down allowance for subsequent years on reducing balance	6%
Energy Saving Technology
All firms	100%
Electric and Low Emission Cars
Registered on or after 17 April 2002	100%
Buildings
Industrial buildings and qualifying hotels	4% of building cost p.a.
Commercial/Industrial buildings in an enterprise zone	100% of building cost
Agricultural buildings	4% of building cost p.a.
Research and Development	100%

Notes

1. Capital allowances allow the cost of capital assets to be written off against taxable profits. They replace the charge for depreciation in the business accounts, which is not allowable for tax relief.

2. A small firm is defined as a business that satisfies any two of the following conditions: (a) turnover £5,600,000 or less (b) assets £2,800,000 or less (c) not more than 50 employees.

3. A medium firm is defined as a business that satisfies any two of the following conditions: (a) turnover £22,800,000 or less (b) assets £11,400,000 or less (c) not more than 250 employees.

Value Added Tax

From	1 April 2005	1 April 2004
Standard rate	17.5%	17.5%
VAT fraction	7/47	7/47
Taxable Turnover Limits
Registration - last 12 months or next 30 days over	£60,000	£58,000
Deregistration - next 12 months under	£58,000	£56,000
Cash accounting scheme - up to	£660,000	£660,000
Optional flat rate scheme - up to	£150,000	£150,000
Annual accounting scheme - up to	£660,000	£660,000

Quarterly Return – Scale figure for private use of fuel
	From 1 May 2005
Petrol	scale charge	VAT due per car
Up to 1400cc	£246	£36.64
1401cc - 2000cc	£311	£46.32
Over 2000cc	£457	£68.06
Diesel
Up to 2000cc	£236	£35.15
Over 2000cc	£300	£44.68

Inheritance Tax

Transfers on or Within Seven Years Before Death
	2005/06	2004/05
Nil rate band to	£275,000	£263,000
Rate of tax on balance	40%	40%
Chargeable lifetime transfers	20%	20%

All lifetime transfers not covered by exemptions and made within seven years of death will be added back into the estate for the purpose of calculating the tax payable. This will then be reduced by taper relief.

Charge on Gifts Within 7 Years of Death
Years before death	0-3	3-4	4-5	5-6	6-7
Tax reduced by	0%	20%	40%	60%	80%

Main Reliefs
Business property:
- business or interest therein	100%
- qualifying shareholders in unquoted* companies	100%
- land, buildings, machinery, or plant used by transferor's controlled company or partnership	50%
Agricultural property	50% or 100%
*Unquoted companies include those listed on AIM

Main Exemptions

Most transfers between spouses.
The first £3,000 of lifetime transfers in any tax year (husband and wife each have own exemption) plus any unused balance from previous year.
Gifts of up to but not exceeding £250p.a to any number of persons.
Gifts in consideration of marriage to bride and/or groom of: up to £5,000 by a parent, up to £2,500 by a grandparent, or up to £1,000 by any other person.
Gifts made out of income that form part of normal expenditure and do not reduce the standard of living.
Gifts to charities, whether made during lifetime or on death.

Vehicle Benefits

Chargeable on employees earning £8,500 or over (including benefits), and directors.

Car Benefit

The tax you pay on your company car is governed by four factors:

the list price of the car, on the day before it was first registered, plus certain accessories,
the rate at which the car emits carbon dioxide (CO₂),
the fuel type
(for most types of car, this is all the information you need to work out the taxable benefit)
your highest rate of income tax.

You can find your taxable percentage for 2005/06 using the following table:

CO₂ in g/km	Taxable %		CO₂ in g/km	Taxable %		CO₂ in g/km	Taxable %
CO₂ in g/km	Petrol	Diesel	CO₂ in g/km	Petrol	Diesel	CO₂ in g/km	Petrol	Diesel
Less than 145	15%	18%	175 to 179	22%	25%	210 to 214	29%	32%
145 to 149	16%	19%	180 to 184	23%	26%	215 to 219	30%	33%
150 to 154	17%	20%	185 to 189	24%	27%	220 to 224	31%	34%
155 to 159	18%	21%	190 to 194	25%	28%	225 to 229	32%	35%
160 to 164	19%	22%	195 to 199	26%	29%	230 to 234	33%	35%
165 to 169	20%	23%	200 to 204	27%	30%	235 to 239	34%	35%
170 to 174	21%	24%	205 to 209	28%	31%	240 and over	35%	35%

How to find out how much CO₂ your company car emits – see:

the car’s V5 registration document
your dealer
the data pages of car magazines (current models)

the Vehicle Certification Agency – http://www.vca.gov.uk/
the website of the Society of Motor Manufacturers and Traders - www.smmt.co.uk/co2/co2search.cfm

Reliable emissions data is not widely available for cars registered before 1 January 1998. For them, the following taxable percentages apply, regardless of fuel type:

Engine capacity	Taxable %
Up to 1400cc	15%
1401 - 2000cc	22%
Over 2000cc	32%

Van Benefit

	Van under 4 years old	Van 4 years old, or over
Benefit per vehicle	£500	£350

Company vans

From 6 April 2005 there will be no taxable benefit where employees have to take their company vans home and are not allowed any other private use. Otherwise, the taxable benefit for the private use of a company van and fuel, if supplied, is £500 or £350 (vans less or more than four years old) per annum, until 5 April 2007.

With effect from 6 April 2007 the taxable benefit for the unrestricted use of company vans will be £3,000 (with no reduction for older vans) plus a further £500 of taxable benefit if fuel is provided by the employer for private travel.

The maximum tax payable on the use of a company van will therefore increase from April 2007 from £200 to £1,400 p.a., and the employer's Class1A NIC payable will increase from £64 to £448 p.a.

Car fuel benefits

If the employee pays for the full cost of all fuel for private journeys (usually including home to work) there will be no car fuel benefit. In all other cases the full tax charge will be due.

The taxable car fuel benefit is, for 2005/06, is calculated by multiplying £14,400 by the same percentage as applies (or would apply) for the car benefit.

Example: A company car driver has a car which, on the day before it was first registered, had a list price of £18,000. It runs on petrol, and emits 182 g/km of CO₂.

If we assume the driver pays tax at 40%, the annual tax bill on the car is: £18,000 x 23% x 40% = £1,656

If the employer provides any fuel used for private journeys and is not re-imbursed for the cost, the 2005/06 tax bill for the fuel is: £14,400 x 23% x 40% = £1,324.80.

Mileage Allowances

For Employees Using Their Own Transport
The approved maximum tax and national insurance free mileage allowances for employees using their own transport for business are as follows:
Flat Rate	First 10,000 Miles	Miles over 10,000
Car	40p	25p
Motorcycle	24p	24p
Bicycle	20p	20p
Income Tax and NICs are due when allowances exceed these rates. Employees can claim tax relief on any shortfall. Rates of up to 5p per mile, per passenger, are also tax and NIC free when paid for the carriage of fellow employees on the same business trip.

Fuel-Only Mileage Rates
Inland Revenue advisory mileage rates for employee private mileage reimbursement or employer reimbursement of business mileage are:
	Petrol	Diesel	LPG
Up to 1400cc	10p	9p	7p
1401cc - 2000cc	12p	9p	8p
Over 2000cc	14p	12p	10p
Income tax and NICs may be due on higher rates and tax relief may be due on lower rates.

National Insurance Contributions

Class 1 (not contracted out)	Employer	Employee
Lower earnings limit		£82
Payable on weekly earnings
£94.01 - £630	12.8%	11%
Over £630	12.8%	1%
Men 65 and over and women 60 and over	as above	Nil

Class 1A (on relevant benefits)	12.8%	Nil

Class 1B (on PAYE settlement arrangement)	12.8%

Class 2 (Self employed)	£2.10 per week
Limit of net earnings for exception	£4,345 per annum

Class 3 (Voluntary)	£7.35 per week

Class 4 (* Self employed on profits)
£4,895 to £32,760	8%
Excess over £32,760	1%
*Exemption applies if state retirement age was reached by 6 April 2005.

Note

For those earning between £82 per week and £630 per week, employers receive a rebate of 1.0% on contracted out money purchase schemes or 3.5% on contracted out final salary schemes, and employees, a rebate of 1.6% for either scheme.

Key Dates and Deadlines

Income Tax (including Class 4 NIC)
31 July 2005	2004/05 second payment on account
31 January 2006	2004/05 balancing payment, and 2005/06 first payment on account
31 July 2006	2005/06 second payment on account
31 January 2007	2005/06 balancing payment, and 2006/07 first payment on account
Capital Gains Tax
31 January 2006	2004/05 Capital Gains Tax
31 January 2007	2005/06 Capital Gains Tax
Corporation Tax
9 months and one day after the end of the accounting period
Inheritance Tax
6 months after the end of the month of death or chargeable transfer.
For chargeable lifetime transfers between 6 April and 30 September, due date is 30 April in the following year.
Latest Filing/Issuing Deadlines -2004/05 PAYE Returns
19 May 2005	P14, P35, P38, and P38A and CIS36
31 May 2005	Issue P60s to employees
6 July 2005	P9D, P11D and P11Db - also issue copies to employees
2004/05 Class 1A National Insurance on Relevant Benefits
19 July 2005	Payment due
2005 Tax Return
31 January 2006	Last filing date

Pension Premiums

	2005/06
	% Limit of net relevant earnings
Age at 6 April 2005	Personal Pensions	Retirement Annuities
35 or under	17.5	17.5
36-45	20	17.5
46-50	25	17.5
51-55	30	20
56-60	35	22.5
61-74	40	27.5
Subject to maximum earnings	£105,600	No limit
Stakeholder - qualifying individuals can contribute up to £3,600 gross (£2,808 net) in 2005/06.

Notes

The contribution limits for personal pensions are calculated as a percentage of net relevant earnings with an earnings cap of £105,600.
The contribution limits for retirement annuities are calculated as a percentage of net relevant earnings with no earnings cap.
Where both types of policy are held, special rules apply.
Premiums on personal pension and stakeholder pension policies are payable net of basic rate tax relief at source. Higher rate relief, where available, is obtained via a claim on the self assessment tax return.
Personal pension premium earnings caps for earlier years are:

1989/90	£60,000
1990/91	£64,800
1991/92	£71,400
1992/93	£75,000
1993/94	£75,000
1994/95	£76,800
1995/96	£78,600
1996/97	£82,200
1997/98	£84,000
1998/99	£87,600
1999/00	£90,600
2000/01	£91,800
2001/02	£95,400
2002/03	£97,200
2003/04	£99,000
2004/05	£102,000

Additional Voluntary Contributions for members of occupational pension schemes (Free standing AVCs and AVCs) allow members of occupational schemes to provide for greater financial security in retirement.
Total contributions to the occupational scheme and any free-standing scheme may be up to 15% of current-year remuneration, subject to the same cap on earnings as at (5) above.

Charitable Giving

Gift Aid

Individuals are able to claim higher rate relief on cash gifts and payments to charities under gift aid. Basic rate tax is treated as having been deducted, so you must pay enough tax for the year to cover the tax witheld from your Gift Aid payment.
Special tax reliefs apply to gifts to charities of certain types of shares and securities, or land and buildings.
Self-assessment now allows individuals to divert some or all of any tax repayment due to them for the year to a charity of their choosing, and to opt for this to be treated as a Gift Aid payment, both via entries on the tax return.
Individuals also now have the option to make a claim for a charitable donation made in one tax year to be treated as if it had been made in the previous tax year, so long as the claim is made by inclusion on the Tax Return for the later year. So long as the later year's Return is filed in time, this would mean that a payment could rank for higher rate tax relief for the earlier year, even if the donor is liable at basic rate, only, in the tax year in which the payment is made.

Give As You Earn

Employees may authorise participating employers to deduct donations from their gross salary for forwarding to their nominated charities.
Employees receive tax relief in full on their donations.
Employers with fewer than 500 staff, who set up a Payroll Giving scheme between April 2004 and December 2006 will be entitled to receive a grant to offset the costs of setting up the scheme. The Home Office programme, which will be administered and promoted by the Institute of Fundraising and Business in the Community, will;
- give employers a cash incentive of up to £500 and
- match the first £10 donated by each employee, every month, for a period of six months.

ISAs and PEPs

Individual Savings Accounts (ISAs)
Overall investment limit	£7,000
Including cash maximum of	£3,000

Notes

From 6 April 2005 new 'stakeholder' cash and medium term products can be held in your ISA, and you will still be able to hold an insurance policy in your ISA, but the separate 'Mini insurance ISA component' will end and instead, depending on the type of insurance policy you hold, your policy will now qualify for the;
- Mini ISA cash component - (limit remains at £3,000)
- Mini ISA stocks and shares component (limit increased to £4,000)
- Maxi ISA - with a limit of £7,000, but no more than £3,000 in cash.
Investments in ISAs are free of income tax and capital gains.
Those aged 16-17 can invest up to £3,000 only, either in the cash element of a maxi-ISA or in a cash mini cash ISA.
ISAs allow you to take your money out at any time without losing tax relief and furthermore you are not required to declare income and capital gains from ISA savings.

Personal Equity Plans (PEPs)

Although PEPs are no longer available, sums already invested continue to score for tax breaks.

Selected Rates

		Weekly Benefit
		2005/06	2004/05
Basic Retirement Pension
Single person		£82.05	£79.60
Married couple		£131.20	£127.25
Child Benefit
First eligible child		£17.00	£16.50
Each subsequent child		£11.40	£11.05
Statutory Sick Pay (SSP)
Average weekly earnings £82 or over (2004/05 £79)		£68.20	£66.15
Statutory Maternity Pay (SMP)
90% of average weekly pay		First 6 weeks
Maximum £106.00. Minimum 90% average weekly pay		Next 20 weeks
Mimimum rate		£73.80	£71.10
Adoption Pay (SAP)		26 weeks
Paternity Pay (SPP)		1 week or fortnight
Both SAP and SPP
90% of average weekly pay		Max £106.00 Min £73.80	Max £102.00 Min £71.10
Example rates:
Jobseekers Allowance
Single person		£56.20	£55.65
Married couple		£88.15	£87.30
National Minimum Wage
From 1 October 2005	Over 21	£5.05 p.h.
	18 - 21	£4.25 p.h.
	16 and 17	£3.00 p.h.
From 1 October 2004	Over 21	£4.85 p.h.
	18 - 21	£4.10 p.h.
	16 and 17	£3.00 p.h.

Stamp Taxes

The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5 per cent.

Stamp Duty Land Tax

Transfers of property are subject to stamp duty land tax at the following rates:

Consideration paid	Land in disadvantaged areas		Other land in the UK
	Residential	Non-residential	Residential	Non-residential
Up to £120,000	0%	0%	0%	0%
£120,001 to £150,000	0%	0%	1%	0%
£150,001 to £250,000	1%	1%	1%	1%
£250,001 to £500,000	3%	3%	3%	3%
Over £500,000	4%	4%	4%	4%

Partnerships

Stamp duty continues to apply to transfers of partnership interests, but the amount payable will not exceed the amount that would have been payable on the value of any shares or secutities included in the transfer.

From 23 July 2004, stamp duty land tax applies to the transfer of an interest in land into or out of a partnership or the transfer of an interest in a partnership (where the partnership property includes an interest in land).

New Leases

Duty is charged according to the net present value of all the rental payments over the term of the lease (NPV), with a single rate of 1% on residential NPV's over £60,000 and on non-residential NPV's over £150,000.

VAT is excluded from treatment as consideration provided the landlord has not opted to charge VAT by the time the lease is granted.

Lease premiums

Duty on premiums is the same as for transfers of land (except that the zero rate does not apply where rent of over £600 annually is also payable).

Back to News Headlines