MARSHALL ROCHE

Quarterly Newsletter – Spring 2001

BUDGET COMMENT

Buoyed up by earlier ‘stealth taxes’ (eg £5bn pa. by taxing the growth on your pension fund), the Chancellor could well afford to have a ‘give-away’ pre-election Budget. However, with one eye on the opinion polls, he has clearly decided that the election is in the bag and opted instead for a ‘steady as she goes’ Budget. Better to keep some by for the next election.

One thing this Chancellor has done, which is both politically astute and has a stabilising effect on the economy, is to announce his changes well in advance. Much of this year’s press releases related to changes which take effect next year or beyond. Politically it gives the sense of a Government in control for many years to come (not to mention the opportunity to announce good news twice). Economically it enables businesses to plan ahead and the general feeling of long-term planning creates confidence in the economy.

Key rates and allowances		2001/2002	2000/01
Personal tax rates - lower / basic / higher		10% 22% 40%	10% 22% 40%
Basic rate / higher rate thresholds		£1,880 £29,400	£1,520 £28,400
Standard tax free allowance		£4,535	£4,350
Allowance for older single person (65 - 74) / (75 or over)		£5,990 £6,260	£5,790 £6,050
Older married couples (65 - 74) / (75 or over) – tax bill reduced by (NB – only if at least one partner was born before 6/4/35)		£536.50 £543.50	£518.50 £525.50
NIC threshold - (Employer / employee)		£87.00/wk for both	£84.00/wk £76.00/wk
NIC employees / employer’s rate (not contracted out)		10% 11.9%	10% 12.2%
NIC self-employed Class 2 - weekly contribution / earnings over		£2.00 £4,535 pa.	£2.00 £4,385 pa.
Inheritance Tax - total tax free allowance		£242,000	£234,000
Capital Gains Tax - annual tax free allowance		£7,500	£7,200
VAT registration threshold - turnover in last 12 months		£54,000 (wef. 1/4/01)	£52,000
Corporation tax:	Tax rates	10% 22.5% 20% 32.5% 30%
	On profits between -	£1 £10k £50k £300k £1.5m +
	and -	£10k £50k £300k £1.5m

STAKEHOLDER PENSIONS These are simply personal pensions like before, but have rules which restrict charges and ensure flexibility. By making it easier and cheaper to take out a pension, the Government hopes that eventually the number of people relying on the state for their pension will reduce. Employers take note If you employ 5 or more staff, you must have a stakeholder pension scheme available to your staff by October this year. You do not need to contribute (yet – but don’t be surprised if this shows up in a later Budget), but you have to make the arrangements to enable your staff to contribute via the payroll – ie. you must collect their contributions and pay them over. There are penalties for failing to comply. Contact us now for more information. Non-taxpayers can benefit Until now, you had to pay tax to benefit from taking out a pension. Now you get the tax-relief automatically - £78 invested attracts £22 from the Government and is therefore immediately worth £100 in your pension fund. This particularly benefits non-working spouses, who can now pay up to £300 per month into a stakeholder pension. If the only other income in retirement is their State pension, they will have spare tax allowances, so will not pay tax on the stakeholder pension when it’s paid back to them. STOCK MARKET TURBULENCE Fuelled by concerns over the economic situation in the USA, stock markets around the world took a tumble at the end of March. The situation was made worse by the large number of short-term investors who entered the market during the tech’ bubble – they tried to sell before prices went lower and, in doing so, pushed prices even further down. However, long-term investors see things very differently. They accept that the graph goes up and down and the time to sell is not when it’s down. It’s bad enough to see your investments go down in value, but to sell when they’re down, only to see prices go back up while you sit on your cash, is the worst possible scenario. Things will recover – even the 1987 crash recovered within two years and now only looks like a blip on the graph. Unless you are in it for a gamble, keep short term savings in the building society, not the stock market. As always, the rule is to invest in stock market based investments only if you are not going to need the funds for at least two years. However, long-term investors might like to take the advantage of buying in while the graph is at a low point… Call us for more details.

Thank you, John Birt, for IR35 Ever since the (then) Director General of the BBC, John Birt took the job through a limited company, the writing was on the wall for small service companies. Until then it was just another way of running a small business, but he highlighted the extent to which it was being used for tax avoidance. The ‘something must be done about it’ brigade took over and IR35 was the result. This was acknowledged by the Judge in summing up after the recent Judicial Review, when he referred to the former DG’s exploits. Only time will tell if the Inland Revenue learns to distinguish properly between true businesses and the John Birts of this world. If you run a limited company with a narrow client base, contact us now for further advice and a copy of our help-sheet. National Minimum Wage For workers aged 22 and over, this is set to rise from the current £3.70 per hour to £4.10 per hour from October 2001. Between 18 and 21 the rate is £3.20 per hour. A report is due out in May, which may further amend these rates. Key PAYE/NIC deadlines · 19 April: Interest starts on any unpaid deductions. · 19 May: P35, P14s and related forms due. £100/mth automatic penalty for returns arriving after 26 May. · 6 July: P11d’s due in – must give copy of this and P60 to staff. · 19 July: Class 1A NIC on company cars due.