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Budget 2011 – Local Authorities
The Chancellor of the Exchequer announced a variety of tax and spending measures designed to reduce the Government’s deficit and accelerate the Country’s economic recovery.
We have summarised below the key changes which could impact upon the Local Authority Sector.
The Chancellor announced that £100m is to be distributed to Local Authorities to help plug more than one million potholes. Whilst welcome this only goes some way to addressing what the AA estimated last year as a £400m hole in local authorities’ road maintenance budget. Given the weather experienced over the past winter the Government appears to have acknowledged that this funding gap will have increased significantly.
VAT
Public Bodies
Public sector bodies carry out statutory activities on which VAT is not chargeable, and on occasions these activities can be in competition with the private sector who would need to charge VAT.
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, then equal VAT treatment would apply.
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. We understand that the formal consultation document will be issued this summer.
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Employment Tax
Company car tax rates and Fuel benefit charge
Where employees and directors are provided with a company car, they are subject to the company car benefit charge. The value of this benefit is determined by multiplying the car’s list price by a set percentage, which is based on the car’s CO2 emissions.
Legislation will be introduced in Finance Bill 2011 to reduce the appropriate percentages by one per cent for all vehicles with carbon emissions between 95g and 220g with effect from April 2013. Zero emissions cars will remain at zero per cent and ultra low emissions cars with emissions up to 75g will remain at five per cent.
In addition where employees and directors provided with a company car also receive free fuel from their employers, they are subject to the fuel benefit charge. The value of the taxable benefit in relation to fuel is determined by multiplying a set figure (currently £18,000), by the appropriate percentage for the car, which is based on the car’s CO2 emissions. The level of the set figure or multiplier will be increased from £18,000 to £18,800 with effect from 6 April 2011.
Approved mileage allowance payment rates (AMAPs)
Where employees use their own cars for business mileage they can claim reimbursement from their employers through the approved mileage allowance payments rates. No tax or NIC is due on these reimbursements up to certain limits. There is currently a higher rate limit of 40p per mile for the first 10,000 miles of business use and 25p limit 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.
The higher rate of AMAPs will be increased to 45p per mile with effect from 6 April 2011. The rate will also apply to Mileage allowance relief (MAR).
Volunteer drivers may reclaim the actual cost of motoring expenses from the relevant voluntary organisation as long as they keep records to demonstrate that no taxable profit has been made, but, for administrative ease, they are allowed to use the AMAPs rates if preferred.
Abolition of exemption from benefit charge for late night taxis
The Government has announced that, subject to consultation, they intend to abolish tax relief on the cost of late night taxis for employees who work late, with effect from 6 April 2012. The rules currently stipulate that, subject to certain conditions, employees avoid paying income tax and national insurance on infrequent taxi journeys home taken by employees working after 9pm, where such journeys occur less than 60 times in a year.
Merging of tax and National Insurance Contributions (NIC)
The Government is to consult on merging the operation of income tax and NIC. These plans are expected to take years to implement.
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Social Housing
The Chancellor announced reforms to the “cumbersome planning system” and the funding of 21 new Enterprise Zones in a bid to increase the amount of land brought forward and boost the supply of affordable new homes. In addition a new £250 million shared equity scheme, “FirstBuy”, will be launched to support first-time buyers and the temporary changes to the Support for Mortgage Interest scheme will be extended to January 2013.
Several SDLT measures were announced which are likely to impact on social housing providers, particularly where they are involved in large-scale regeneration projects with private developers.
KPMG’s general commentary on the 2011 Budget Report can be found at the following link:
http://www.kpmg.co.uk/budget/
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Contacts
If you have any queries regarding any of the announcements in the 2011 Budget Report please contact one of the Public Sector Tax team below or your local KPMG contact.
Direct Tax
Sandra Cox sandra.cox@kpmg.co.uk 0161 246 4280
VAT
John Forth john.forth@kpmg.co.uk 0113 231 3633
Employment tax
Caroline Laffey caroline.laffey@kpmg.co.uk 0191 401 3849
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