Fletcher Greenwood & Co, Chartered Accountants, Registered Auditors
11 Broad Street, Bradford, BD1 4QT - Tel 01274 729178 - Fax 01274 725470 - Email
The Firm, Services, Briefings, Budget Summaries, Tax Tools, Useful Links

Budget - 21st March 2000

Overview - Not £4, Not £5 but £50!

• The chancellor’s mock auction announcement of the winter fuel allowance really sums up the whole approach – very little dressed up as a lot – and more repeats than the BBC!
• A number of the announced changes were adjustments to previously announced and not yet implemented measures (the increase in the children’s tax credit – still a year away but nevertheless “increased”).
• Yet more changes were giving back taxes not yet taken, for example the changes in CGT and all the previous tax reductions were re-announced.
• Having failed in making a public enemy of the supermarkets attention has been shifted to the easier target of banks. Consultations are to be held on the involvement of the Post Office in the provision of the basic bank account (didn’t the Post Office to do this until someone sold it to the Alliance and Leicester?).

Income Tax

• For 2000/01 the basic personal allowance is £4,385. The first £1,520 of taxable income is taxable at the starting rate of 10% and the higher 40% rate begins at £28,401
• The personal allowances for pensioners have been increased by more than the indexed amount to £5,790 (aged 65-74) and £6,050 (75 and over), the income limit for age related allowances rises to £17,000.
• As previously announced from April 2000 the basic rate of tax will be reduced from 23% to 22%. At the same time the Married Couple’s allowance will be abolished except in the case where one of the couple is 65 or over on 6th April 2000.
• The 10%, 22% and 40% tax bands apply to all forms of income and taxable gains other than dividends where there are two bands at 10% and 32.5%
• From April 2001 a children’s tax credit of £442 will be introduced. This will be gradually withdrawn where one or both of the parents is a higher rate taxpayer.

Benefits in Kind

• The principal change is to bring all benefits in kind within the scope of Class 1A National Insurance, with the notable exception of benefits in relation to childcare provided by employers.
• Details have been announced of the revised car benefits scheme based on carbon emissions to be introduced from April 2002, a Ford Focus (emitting <165g/km) will attract the lowest rate of 15% and a Rolls Royce the highest rate of 35% - although the RR will benefit from the upper limit of £80,000 on cost.

Reliefs/Tax free savings

• Mortgage interest relief is discontinued from 6th April 2000.
• The earnings limit for personal pensions is increased to £91,800.
• The initial enhanced maximum annual ISA contribution of £7,000 has been extended for a further year.

National Insurance 

• When a “carbon tax” is introduced from April 2001 the employers’ rate will be reduced to 11.7%.
• The upper earnings limit for employees’ contributions is £535pw from April 2000 and £575pw from April 2001.
• From April 2000 a nil rate band for employees will be introduced between the current lower earnings limit and £76. From April 2001 this threshold will be aligned with the personal tax allowance.
• National Insurance for the self-employed will be reformed from April 2000. The class 2 contributions will be reduced to £2 per week and the class 4 contributions of 7% will be charged on earnings between the personal tax allowance and the upper earnings limit.

Incentive Schemes

• All employee share ownership plan – listed and unlisted companies will be able to give employees performance related shares up to £3,000 per year, or the opportunity to buy shares up to £1,500 a year out of gross salary, with the company able to give up to two free shares for each one they buy.
• Enterprise management incentive – allows small and medium-sized companies to give stock options to 15 key employees over shares worth up to £100,000 per employee
• Corporate Venturing tax relief – larger companies that take stakes of up to 30% in small higher-risk firms will get corporation tax relief at 20% provided they retain the shares for three years.
• The period for which Enterprise Investment Schemes (EIS) or Venture capital trusts (VCTs) have to be held to qualify for relief is reduced from 5 to 3 years and the relief is no longer put at risk if the company goes into receivership.

Capital Gains Tax 

• The annual exempt amount is increased to £7,200 for individuals and £3,600 for most trustees. 
• Taper relief for business assets from 1 April is now over 4 years - achieved by reducing the effective tax rate for a higher rate tax payer in the third year to 20% and 10% for the fourth and subsequent years.
• The definition of business assets has been revised and now comprises: all shareholdings in unquoted trading companies, all shareholdings held by employees in quoted trading companies, and shareholdings by non-employees in quoted trading companies in excess of 5%. Full-time employment is no longer a requirement
• Retirement relief continues to be phased out over a period of five years. The exempt and half-exempt amounts for 2000/01 are £150,000 and £450,000 respectively.
• Various rules are introduced to counter avoidance of CGT through the use of trusts

Corporation Tax 

• First year capital allowances for investment in plant and machinery at 40% for small and medium sized enterprises are made permanent. In addition for the three years from 1st April small enterprises investing in information and communications technology will receive 100% first year allowances
• Expenditure by small and medium sized companies on research and development (over £25,000) will, from April 2000, attract a 150% tax credit and where the company does not pay tax the resulting credit will be repayable.
• From 1st April 2000 the first £10,000 of profits will be taxed at 10% and profits between £10,000 and £50,000 will be subject to marginal relief. The taxation of service companies will be amended to avoid them benefiting from this change.

Charities

There are a number of (mostly previously announced) changes affecting charities:

• Gift aid to apply to all gifts without the previous £250 lower limit
• Abolition of the £1,200 upper limit for Payroll Giving
• A promotion of Payroll Giving and for three years a 10% supplement to amounts given funded by the government
• Relief from Income Tax for the market value of quoted shares and securities given to charities (in addition to existing CGT relief)
• An exemption from tax for the profits of small fund-raising trades run by charities
• VAT relief for bathrooms in day centres and donated goods sold to disabled people and those on low incomes
• An extension to the VAT zero-rating of advertisements bought by charities

Stamp Duty

• The rate of stamp duty on property sales above £250,000 is increased to 3% and for sales above £500,000 to 4%. This has effect from 28 March 2000 except for transfers made in pursuance of a contract made on or before 21 March 2000.
• Transfer documents in relation to intellectual property will no longer need to be stamped. Where any sale is partly intellectual property then an apportionment will be made.
• Short leases with annual rents of £5,000 (previously £500) or less will not attract duty.

Value Added Tax

• VAT rates on insulation materials are reduced to 5%.
• From 1 January 2001 VAT on women’s sanitary products is reduced to 5%
• The de minimis limit below, which VAT does not have to be accounted for when de-registering, is raised from £250 to £1,000.

Other Taxes

• Air Passenger Duties are reduced to £5 for economy flights within the EEA but increased to £40 for first and club class flight to destinations outside the EEA.
• The nil rate band for inheritance tax is increased by £3,000 to £234,000 from April 2000.
• The standard rate of Landfill tax increases from £10 to £11 per tonne from 1 April 2000. It will then increase by a further £1 per tonne in each of the next four years.
• The obsession with e’s continues with businesses and individuals being offered incentives to eFile and ePay their taxes – to the tune of £10 for an individual and a maximum of £150 for businesses

Welfare Reform

• The working family’s tax credit introduced in October is currently at £200pw and will increase to £214 from April 2001.
• Child benefit will increase to £15 from April 2000 for the first child and £10 (from April 2000) for the second child and (as yet) will continue to be untaxed.
•  The selection of tax credits (principally it seems a devise to redefine social spending as negative taxation) is to be extended to pensioners at some indeterminate future date.

Duties

• The duties on tobacco have been increased by the previously announced escalations above inflation. This increases the cost of a packet of 20 cigarettes by 25p – assuming of course they are duty paid which is becoming a rarity. 
• Road fuel duties are increased by approximately 2p per litre in line with inflation, the previously announced escalation above inflation having been abandoned in the face of oil price rises
• The lower rate of Vehicle Excise Duty will, from March 2001, apply to cars below 1,200cc. There are substantial changes to VED in relation to lorries.
• Duties on spirits are frozen; beer increases by 1p per pint and a bottle of wine by 4p.
• Betting Duties are to be reformed after consultation (although given that the horse has already bolted to Gibraltar it seems a little late to shut the stable door)

All items © 1996-2006 Fletcher Greenwood & Co.  Site last updated 07/11/2006 12:38
Registered to carry on audit work by the Institute of Chartered Accountants in England and Wales