A look back at Budget 2006

It was Budget number 10 for Gordon Brown back in March. As the dust settles on the announcements made, we set out a round up of some of the most important changes and proposals.

Get ready to file your tax return by September!

Following a review of HMRC’s online filing services, recommendations have been made to:

  • require businesses to file their VAT returns, company tax returns and PAYE in-year forms online in phases from April 2008
  • introduce new filing deadlines for income tax self assessment returns of 30 September for paper forms and 30 November for online returns from 2008
  • link the period that HMRC have to query a return to the date it is filed.
This kind of extension to online filing is a significant change and needs to be handled better by HMRC than the introduction of end of year online filing of PAYE returns.

Changes to small company tax rates

The starting rate of corporation tax of 0% and the non-corporate distribution regime were abolished from 1 April 2006.

Small companies will now pay tax at 19% on their profits up to £300,000.

This is a u-turn on starting rates for corporation tax. The government felt that the 0% rate encouraged too many individuals to incorporate to avoid paying tax. However, incorporation was something individuals were encouraged to do when the 0% rate was first announced!

An attack on interest in possession and accumulation and maintenance trusts

Lifetime transfers into accumulation and maintenance trusts or interest in possession trusts have always been exempt from inheritance tax (IHT) if the settlor lived for seven years following a transfer of assets to the trust. These trusts are also not subject to the periodic or exit charges suffered by other trusts.

Legislation has been proposed to make transfers into these types of trust immediately chargeable to IHT. Also, there is a transitional regime aimed at existing trusts.

This announcement has caused some concern, as the government had not previously consulted on the proposal. The change could raise millions in extra tax and further limits IHT planning opportunities.

Please contact us if you have any concerns regarding the changes to trusts.
This represents only a brief summary of the 2006 Budget. Please contact us if you would like to know more about how particular aspects affect you.