Gordon Brown's latest budget included some sweeteners but also a few nasty surprises. Finance expert Paula Tallon examines the detail
Gordon Brown made one specific change affecting optometry - under current rules no tax charge arises on the provision of eye examinations and corrective spectacles for visual display units (VDU) use.
However, where the eye examination or spectacles were provided by means of a voucher, tax and national insurance is payable.
The measures which have been introduced by the chancellor ensure that there is no tax charge. However, an employer pays for a test and glasses whether it is directly to the provider, by reimbursing the cost to the employee, or by providing a voucher. This will reduce the administrative burden for companies in dealing with eye examinations.
When looking at the detail behind what the chancellor said last week there are important developments for companies in optics.
Let's take two fictional business owners - Isabel Independent and Mike Multiple - to illustrate what the Budget means for companies large and small.
For Isabel the u-turn on the 0 per cent corporation tax rate on profits of less than 10,000 announced in the pre-budget report in December 2005 was confirmed - for similar small companies with taxable profits of less than 300,000 the rate of tax will be 19 per cent, for companies with profits above 1.5m the full rate of 30 per cent will be payable. Marginal relief is given to smooth the transition from one rate to another.
As well as this, Isabel will have to start getting up to speed with changes to income tax self-assessment returns, if she hasn't already. Measures were announced to move the deadline for income tax self-assessment returns to September 30 where returns are on paper, or November 30 where the returns are filed online.
Currently, self-assessment tax returns must be filed by January 31 following the tax year.
It is intended that these changes will be effective from 2008 and will be introduced on a phased basis. By 2012 it is expected that all income tax self-assessment returns will be filed by these dates.
Also, computer-generated paper substitute returns currently used by accountants will no longer be accepted. For Isabel and many other small business owners the change in these filing deadlines will increase pressures to prepare the necessary information in time. This is particularly true for sole traders and partners who have to prepare accounts.
Computer alert
If Isabel is looking to improve her company's technology, Brown's announcements regarding current exemptions for computers and mobile phones came as a big surprise.
The exemptions for computers have been around since 1999 and the government have actively encouraged Home Computer Initiative (HCI) schemes which rely on this exemption.
Under current rules no taxable charge arises where an employee is provided with computer equipment with a value of up to 2,500. This is on the basis that there is no transfer of ownership in the property and the scheme is available to all employees. Without the exemption the employee would be subject to a benefit in kind on 20 per cent of the value of the assets, ie 500.
The removal of the exemption will affect a number of businesses who were considering the introduction of these schemes for their employees. HMRC has confirmed that where existing schemes are in place, a benefit in kind charge will not arise.
Mobile phones were also under attack and limits placed on the exemption. Under current legislation, employers can provide mobile phones with unlimited private use to their employees and members of their household. Members of the household include spouse, children, nannies etc.
This means that an employee can have multiple phones. However, for Isabel's firm the new measures which will be introduced from next month (April 6) will mean that only one tax-free mobile phone is available per employee.
VAT threshold
With regard to thresholds and rates, the VAT registration threshold has been increased to 61,000 from April 1 2006 and the de-registration threshold up to 59,000.
The turnover limit for using the annual accounting scheme has been increased to 1,350,000 per annum with effect from next month also.
The scale charges that tax fuel that is supplied for private use have been increased to take account of the rise in the price of fuel.
Turning to bigger companies, Mike Multiple and other large groups should take note of stamp duty reconstruction relief. Stamp duty is broadly restricted to the transfer of shares. Currently certain exemptions are available for companies carrying out reorganisations.
Due to the strict conditions of these reliefs a slight change in shareholdings could result in stamp duty becoming payable.
For Mike, the provisions announced confirm that relief will not be denied if the proportion of shares in the new entity has to change slightly for practical reasons. In addition, from Royal Assent the provisions will be available to reorganisations involving overseas companies.
Last but by no means least, Mike should take note of employment-related securities.
Tax avoidance
The attack on tax avoidance schemes using employment-related securities and options is continuing. Where an option is granted as part of a tax avoidance scheme, it will be taxed as though it was a convertible security.
This means that there will be an income tax charge on the grant of the option as well as on exercise.
The tax charge arising on the grant is calculated by taking the value of the option on the grant, ignoring any resting period and performance conditions - it is possible that the tax charge on the grant may be more than the value of the shares!
The employee is taxed again when the option is exercised, but as though he had converted one security into another. Where the underlying shares are readily convertible assets, tax and national insurance contributions will also be due.
A second provision strengthens the penalty regime on the operation of PAYE on employment related securities and options. Where retrospective legislation has been enacted, the employer must operate PAYE on the date that the retrospective legislation becomes law.
Also, the employer must collect tax from the employee within 90 days of the enactment of the legislation. Failure to do so could result in the employee facing further tax as the unpaid amounts are treated as employment income.
- Paula Tallon is director and head of direct tax at Chiltern plc
