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BUDGET COMMENT
Delayed
by the sad death of the Chancellor’s baby, the Budget was a little late this
year. However, unlike his
predecessors, the Chancellor likes to pave the way for his changes by various
means, including press briefings and even an interview on the subject in the run
up to the Budget.
So,
the National Insurance rise was no surprise.
Having allowed speculation that it could be 10% on all earnings over £30,000pa,
many actually breathed a sigh of relief to hear the figure of 1%, from April
2003. However, this figure applies
to all earnings over £4,615pa, so everyone will be hit, including low earners.
The one ray of light
for small businesses is the 0% tax rate for small limited companies – time to
consider ‘going limited’ if you have not done so already – see over for
more details.
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Key
rates and allowances
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2002/2003
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2001/2002
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Personal tax rates - lower / basic / higher
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10%
22% 40%
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10%
22% 40%
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Basic rate / higher rate thresholds
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£1,920
£29,900
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£1,880
£29,400
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Standard tax free allowance
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£4,615
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£4,535
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Allowance for older single person (65 - 74) / (75 or over)
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£6,100
£6,370
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£5,990
£6,260
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Older married couples (65 - 74) / (75 or over) –
tax reduced by -
(NB
– only if at least one partner was born before 6/4/35)
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£546.50
£553.50
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£536.50
£543.50
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NIC threshold -
(Employer / employee)
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£89.00/wk
for both
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£87.00/wk
for both
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NIC employees / employer’s rate (not contracted out)
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10%
11.8%
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10%
11.9%
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NIC self-employed Class 2 - weekly contribution / earnings over
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£2.00
£4,025 pa.
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£2.00
£3,955 pa.
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Inheritance Tax - total tax free allowance
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£250,000
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£242,000
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Capital Gains Tax - annual tax free allowance
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£7,700
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£7,500
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VAT registration threshold - turnover in last 12 months
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£55,000
(wef. 1/4/02)
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£54,000
(wef. 1/4/01)
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Corporation tax:
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Tax rates
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0% 23.75%
19% 32.75%
30%
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On profits
between -
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£1
£10k
£50k £300k
£1.5m +
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and -
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£10k
£50k
£300k £1.5m
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‘Go Limited’ and pay
0% tax!
Sounds too good to
be true? Not this time – we
have it in black and white from the Chancellor that the first £10,000 of
profits on a small limited company will pay no tax at all.
The effect of this
is that sole traders with total profits of around £20,000pa could
virtually wipe out their tax bill by ‘going limited’ and at the very
least save several thousands of pounds in tax and NIC.
Everyone gets £4,615 tax free, so this amount is taken as a salary.
(If the trader’s spouse does not work, they can also be made a director
and take a salary of £4,615 tax free).
Most of what is left falls into the 0% tax band.
The result – an income of up to £19,230 pa. totally free of tax and
NIC.
Using your car for work
As the tax on
company cars goes through the roof, most people are finding it better to
own the car themselves and charge their employer for business mileage. The allowances for this have changed – less attractive
for bigger engined cars, but more money for those on high mileages with
engines below 2,000cc.
The new rules are
simple – 40p per mile for the first 10,000 miles and 25p per mile
thereafter.
For business use of
a motor cycle the rate is 24p for every mile.
For a bicycle it is 20p per mile – even over 10,000 miles a year
(but only business miles…).
Minimum wage
The Chancellor
announced that the National Minimum Wage will rise in October 2002, to £4.20
for most workers and £3.60 per hour for 18 to 21 year olds.
Good news for Real Ale
drinkers…
The Chancellor cut
the equivalent of 14p a pint from the duty on the output of
‘micro-breweries’, ie those producing less than 3,000 barrels a year. However, how much of this will reach the consumer and how
much will be mopped up by the brewery and the pub chains, who can say…
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Construction
industry tax
Good
news for small limited company employers in the Construction Industry –
as from 6 April 2002, the tax on CIS vouchers received from customers can
be used to ‘pay’ tax due on PAYE and CIS subcontractors. This will reduce the cash-flow problems which have arisen
from the current rules.
However,
this concession only applies to limited companies – not to partnerships
and sole traders. (Yet another incentive to ‘go limited’).
PAYE end of year forms
If
you have employees or subcontractors from whom you deduct tax, you must
submit your end of your P35 (CIS36 for subcontractors) by 24 May 2002 at
the very latest to avoid a penalty.
If
you would like our assistance with the forms, please contact us.
The
penalty is at the rate of £100 per month the form is late, so it can very
quickly become a serious situation.
Company
car and fuel
Fuel
provided for private use in company cars will be taxed on the basis of CO2
emissions as from 6 April 2003. The
charge will be the same as for the use of the car, meaning that someone
with free fuel in their company car will pay exactly twice what they would
pay without free fuel.
Capital Gains Tax reduction
The
acceleration of Taper Relief for business assets means that the top rate
of CGT on, for example, the sale of a business, is effectively 10% .
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Note:
The content of this newsletter is necessarily of a general nature and no
liability can be accepted for any action or inaction on the part of any person
without first consulting us.
Marshall Roche is a firm authorised by
the Financial Services Authority to conduct investment business
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