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Budget 2011 – Health
The Chancellor of the Exchequer today made his Budget speech, announcing a variety of tax and spending measures designed to reduce the Government deficit and accelerate the country’s economic recovery.
Commenting on today’s announcement, Alan Downey, KPMG’s head of public sector said:
“The Chancellor’s ambitious budget for growth needs to be coupled with an equally ambitious programme of public sector reform. Any plan for growth will only succeed if it also involves the transformation of our public services. Over the last decade UK public bodies have fallen well behind private companies in productivity. According to the Office for National Statistic productivity in the public sector declined by more than 3 percent between 1997 and 2007, while among service providers in the private sector, it improved by more than 20 percent during that period. This has placed a huge and unnecessary strain on the whole UK economy. It is therefore not enough to reduce public spending – a radical reform of our public sector must accompany the cuts.”
Key measures announced include:
- the main and additional rates of NICs will increase by one percent in 2011-12, with the threshold for employers’ NICs increased £136 per week
- From April 2012 the default indexation assumption for all direct taxes including income tax, NICs and capital gains tax will move from the RPI to the CPI. This has the potential to significantly increase the numbers caught by these taxes.
- The Government will consult in 2011 on the options, stages and timing of reforms to combine income tax and NICs.
- The Government will reduce the main rate of corporation tax from 28 percent to 26 percent from April 2011. The rate will then be reduced by a further one percent each of the following three years, to be 23percent by 2014.
- The Government will amend UK law to clarify the VAT treatment of public bodies when carrying out their statutory duties and when in competition with the private sector.
- The standard rate of corporation tax will decrease to 26 percent from 1 April 2011
- Legislation will be introduced in Finance Bill 2011 to increase the period over which assets can be given Short Life Asset (SLA) treatment and update the qualifying list of assets.
Announcements on the future developments for public services, and the NHS in particular, were, in comparison to previous Budgets, relatively thin on the ground.
We have summarised below key announcements affecting the Health sector arising from the Budget delivered on 23 March 2010.
KPMG's full commentary of the 2010 Budget can be found at the following link:
http://www.kpmg.co.uk/budget/
Indirect Tax – VAT
VAT registration and deregistration thresholds
With effect from 1 April 2011, the taxable turnover limit which determines whether a person has to be registered for VAT will be increased from £70,000 to £73,000.
With effect from 1 April 2011, the taxable turnover limit which determines whether a person may apply for deregistration will be increased from £68,000 to £71,000.
VAT treatment of public bodies
The Government is to amend UK law so that it more closely reflects EU VAT law in respect of the activities carried out by public sector bodies, where those activities are in competition with the private sector. Public sector bodies carry out statutory activities on which VAT is not chargeable. On occasions, these activities can be in competition with the private sector providers who are required to charge VAT on their supplies.
With effect from 2012, the UK VAT law is to be changed to more closely reflect EU law which states that where the public sector carries out the same kind of activities as the private sector, and the different VAT regimes would lead to a significant distortion of competition, equal VAT treatment would apply. With increased competition in the healthcare market between NHS and private sector providers, the implications of the legislation once released will need to be monitored closely.
Cost sharing exemption
The Government has said that it will continue to consult on the implementation of a VAT exemption for services shared by VAT exempt bodies, including charities. We understand that the formal consultation document will be issued this summer.
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People Taxes (NIC/PAYE)
Tax/NIC rates and thresholds for 2011-12
The personal allowance limits will increase from £6,475 to £7,475 (increase of £1,000) for individuals under the age of 65 in the 2011/12 tax year.
The basic rate band falls by £1,400 in 2011/12 (including the £1,000 increase in the personal allowance)
Employees NIC increases from 11 percent to 12 percent on weekly earnings between £139.01 and £817.
All earnings in excess of this will be subject to a further two percent NIC rate.
Employer’s NIC increases from 12.8 percent to 13.8 percent on weekly earnings above £136 per week.
Approved Mileage Allowance Payments rates from 2011-12
Where employees use their own cars for business mileage they can claim reimbursement from their employers through the approved mileage allowance payments rates (AMAPs) which is not regarded as a taxable benefit. The current higher rate of 40p per mile for the first 10,000 miles of business use, increases to 45p per mile with effect from 6 April 2011 and 25p per mile thereafter.
Where individuals are paid less than those amounts by their employer, they can claim mileage allowance relief (MAR) for the residual amount.
Fuel Benefit Charge 2011-12
Employees and directors who are provided with a company car and who also receive free fuel from their employers are subject to the fuel benefit charge. The cash equivalent of the taxable benefit is determined by multiplying a set figure (currently £18,000) will be increased to £18,800 with effect from 6 April 2011 by the appropriate percentage for the car, based on its CO2 emissions (grams per kilometre).
Restricting pensions tax relief
The Government announced on 14 October 2010 that the annual allowance for tax relief on pension savings for individuals will be reduced from £255,000 to £50,000 from 2011-12, and the lifetime allowance will be reduced from £1.8m to £1.5m from 2012-13. Following consultation, the Government published additional draft legislation on 3 March 2011 containing provisions to enable individuals to meet high annual charges from their pension benefits. Individuals with charges above £2,000 will be able to elect for their liability to be met from their pension benefit. In these situations, the tax will be paid at the point the charge arises.
IR35
The Government has decided that it cannot put substantial tax revenue at risk and has therefore decided to retain IR35 and to achieve simplification by making improvements to the way in which it is administered.
IT and NICs reform
The Government will consult on the options, stages and timing of reforms to integrate the operation of income tax and National Insurance contributions (NICs). A consultation document will be published later this year.
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Corporation Tax
It is becoming increasingly common for NHS Trusts and Foundation Trusts to own subsidiary companies; the following announcements made in the Budget will be applicable to such companies and may therefore be of interest.
Rate of corporation tax
The standard rate of corporation tax will decrease to 26 percent from 1 April 2011 which is a further 1 percent reduction to the announcement at the June Budget 2010. There will be subsequent annual reductions in the standard rate of 1 per cent per annum to 23 percent by 1 April 2014. The small profits rate will be reduced to from 21 percent to 20 per cent from 1 April 2011 as previously announced.
Capital allowances
Legislation will be introduced in Finance Bill 2011 to increase the period over which assets can be given Short Life Asset (SLA) treatment. Currently the SLA provisions apply to assets which will be sold or scrapped within four years; this will be changed to a period of 8 years. The list of assets qualifying for energy-saving enhanced capital allowances will also be updated during summer 2011.
A consultation document will be published in May 2011 to consider the appropriate capital allowances treatment of expenditure used for FiT (Feed in Tariff) and RHI (Renewable Heat Incentive) generation businesses.
The Business Premises Renovation Allowances scheme will be extended for an additional five years from 2012 and a 100 percent business rate discount will be available to businesses that move into an Enterprise Zone. There may also be enhanced capital allowances for Enterprise Zones, although this is likely to be where there is a strong focus on high value manufacturing and so have limited scope.
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Charity tax changes
Most NHS Trusts and Foundation Trusts have related charities and as such the following announcements made in the Budget will be applicable to such companies and may therefore be of interest.
Tainted Charity Donations rules
The Tainted Charity Donations rules remain broadly as set out in the draft clauses published in December 2010. The rules will apply to donations made on or after 1 April 2011 and will apply to treat an otherwise relievable charitable donation as “tainted” where certain conditions are met.
There are three conditions each of which must be met before a donation is considered to be tainted and these can be summarised as follows:
- Condition A – there is a donation and arrangements which would not have been made or entered into independently of one another.
- Condition B – the main purpose, or one of the main purposes, of the arrangements is to obtain a financial advantage directly or indirectly from the charity for the donor (or any person connected with them at the relevant time).
- Condition C – the donor is not an excluded donor.
Following consultation on the draft clauses, the final legislation has been amended to ensure that the new rules will operate as intended and minimise the impact on charities. The period for which the transitional provisions apply has also been shortened so that the existing Substantial Donor legislation will be repealed in full from April 2013 instead of April 2015.
HMRC have also announced that they will continue to consult with the charity sector on the practical impact of the Tainted Charity Donation rules, and it is expected that HMRC guidance on the new rules will be issued in due course.
Gift Aid
The Chancellor announced a number of changes to the Gift Aid regime including:
- An increase in the overall limit for donor benefits in respect of donations of £1,001 or more. The overall cap will be increased to £2,500, subject to the existing 5 per cent limit, and will apply for donations made on or after 6 April 2011 for individuals, and for donations made in accounting periods ending after 1 April 2011 by corporate donors.
- A Gift Aid style repayment for charities in respect of small donations. The new repayment will be claimable from April 2013 without the need to obtain Gift Aid declarations on donations of £10 or less, subject to a cap of £5,000 per year per charity. Charities will need to meet certain conditions in order to qualify to claim this new repayment.
- The introduction in 2012/13 of a new online system for charities to register for and submit Gift Aid claims.
- Giving statutory effect (in Finance Bill 2012) to an existing Extra Statutory Concession under which HMRC currently make certain repayments of tax to charities outside of a tax return.
- The withdrawal of the SA Donate scheme for tax returns for 2011-12 onwards. This is on the basis that this is an underused scheme, vulnerable to fraud and is not cost effective for HMRC to administer.
Tax policy – abolition of tax reliefs
Following the report from the Office of Tax Simplification published on 3 March 2011, the Government is to abolish 43 tax reliefs. Whilst the list of reliefs to be abolished in Finance Bill 2011 does include reliefs for donors and charities, such as Millennium Gift Aid and transitional relief for charities on distributions, these reliefs are now redundant and their abolition will therefore have no impact. Further tax reliefs will be abolished after 2012 following a period of consultation.
Contacts
If you have any queries regarding any of the announcements in the 2011 Report please contact one of the Health Tax team below or your local KPMG contact.
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