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Budget Analysis

10 March 1999
Budget Analysis

from www.fwi.co.uk

Farmers
Weekly and FWi

in association with

Grant Thornton

| Key points for Farmers – positive | Key points for Farmers – negative |
| Income Tax | Business Tax | Capital Gains Tax |
| Stamp Duty | Inheritance Tax |Other Points |

CHANCELLOR Gordon Brown used the words prudence and fairness in this years Budget. Perhaps he should have paid a bit more attention to practicality.

While many of the measures announced will be beneficial for UK farmers, they will also make an already complex tax system even more difficult to navigate.

The new measures announced, combined with all the new legislation, will result in a hectic and expensive year.

In addition to the introduction of the Working Time Directive, farmers will also need to adopt an additional rôle over the next 12 months with the introduction in October of tax credits for “working families”.

A decrease in income tax rates and a modest increase in the inheritance tax threshold will make this Budget superficially attractive to farmers. But increases in Stamp Duty on property sales, an annually increasing rate of landfill tax and increases in road fuel duties will be less welcome.

1999 could be an administrative nightmare for farmers, with the prospect of more European legislation on the horizon. For the sake of British farmers, and in line with the Governments commitment to enterprise, this is an issue which must be addressed now.

Tax Rates and Bands 1998/99
taxable income (£)
1999/2000
taxable income (£)
Lower rate (20%) 1 – 4300 (10%) 0 – 1500
Basic rate (23%)* 4301 – 27,100 1501 – 28,000
Higher Rate (40%) Over 27,100 Over 28,000
Allowances    
Personal Allowance 4195 4335
Married Couple Allowance 1900 1970
* From 6 April 2000, basic rate of income tax will be reduced from 23% to 22%

Key points for Farmers – Positive


  • New small companies rate of 10% on profits up to £50,000.
  • New 10% rate of income tax on first £1500 of income.
  • First-year allowance of 40% on plant and machinery to continue to July 2000.
  • Class 2 national insurance reduced to £2/week (previously £6.35/week).
  • Modest increase in inheritance tax threshold from £223,000 to £231,000 from April 6, 1999.
  • New research and development tax credit.

    Key points for Farmers – Negative


  • Increase in duty on road fuel. Diesel up 6.14p/litre, with petrol and green diesel up about 4p and nearly 5p/litre respectively.
  • Stamp duty increases. Up 0.5% to 2.5% for property sales above £250,000 and to 3.5% for those above £500,000.
  • Class 4 national insurance on self-employed increased to 7% on profits (previously 6%).
  • Landfill tax increased from £10/t/year to £15/t/year for at least another five years to 2004.

    Income Tax

    As was widely predicted, the Chancellor announced a lower income tax rate of 10%, fulfilling Labours manifesto commitment. It will apply to the first £1500 of income from April 6, 1999. The existing 20% band on the first £4300 will disappear.

    The personal allowance will increase to £4335. Married couples allowance will rise in line with inflation to £1970 at 10% in 1999-2000.

    The Chancellor also announced that the basic rate of income tax will be cut by 1% to 22% from April 2000.

    The married couples allowance is increased to £1970. It will be replaced with a childrens tax credit from April 2001, worth on average about £416 a year.

    Tax relief on mortgage interest remains unchanged at 10% on loans up to £30,000 for 1999/2000 but is abolished from April 2000.

    The earnings threshold for National Insurance will increase to £76 a week from April 2000, the first step in the Chancellors programme of aligning the NIC threshold with the single persons tax allowance.

    Business Tax

    A new 10% starting rate of corporation tax will take effect from April next year. This will apply to small businesses with companies making taxable profits up to £50,000 benefitting from the change.

    Cuts of 1% in the small companies rate (those with profits up to £300,000) and the main rate of corporation tax announced last year, come into effect on April 1 this year. These will stand at 20% and 30% respectively.

    The small companies rate is now 3% below the basic income tax rate, and 20% below the higher rate. This larger gap provides increased incentive for small businesses which keep profits in the business to incorporate.

    First year capital allowances on plant and machinery will continue at 40% until July 2000 as the Chancellor previously indicated.

    Capital Gains Tax

    There has been no change for individuals on the major reform to CGT announced in last years Budget. So retirement relief is still being phased out from April 1999 to April 2003.

    Annual exemption has been raised by inflation to £7100. Tax rates are to be aligned with those for savings income, charging gains at 20% or 40% depending on the level of incomes and gains.

    Stamp Duty

    Stamp duty rates are to be increased from Mar 16. The latest increases are from 2% to 2.5% on property sales over £250,000 and from 3% to 3.5% where the sum is more than £500,000. (Transfers up to £60,000 remain free of charge and, for deals between £60,000 and £250,000, the rate is 1%.) Even on a sale of 200 acres, the increase will add about £2000 to the purchase price.

    Inheritance Tax

    The zero rate band for inheritance tax will increase in line with inflation to £231,000, a rise of £8000. The rate of tax above this threshold remains at 40%. Potentially exempt transfers, business and agricultural property relief also stay the same. However, new provisions apply to gifts of land after March 9 1999, where an arrangement allows the donor to occupy the land to a “significant degree” without paying a full rent and the gift is made within seven years. This is intended to block schemes such as the Lady Ingram case which recently succeeded in the House of Lords.

    Other Points


  • Diesel Tax on red diesel goes up by 6% from 2.8p/litre to 3.03p/litre. This will push costs up by about 27p/ha, which on a 325ha arable farm amounts to £88 per annum.
  • VAT Threshold has been increased in line with inflation. From Apr 1, 1999 it has increased from £50,000 to £51,000 (£49,000 for deregistration).
  • Alcohol Duty on beer, wine and spirits is frozen.
  • Tobacco From today the duty on both cigarettes and cigars goes up by 17.5p for a packet of 20 cigarettes and 7.5p for five cigars.

    Reaction

    “Little for the farming community” is what the budget offers, according to the NFU.

    Proposals to increase fuel duty will hit the rural economy to the tune of an additional £13m. “Fuel taxes are already higher in Britain than in European countries,” said NFU deputy president Tony Pexton.

    But he welcomed the cut in corporation tax, the retention of increased capital allowances and the freeze on VAT and vehicle excise duties for most lorries.

    The rise in road fuel duty was dubbed as “inappropriate” by the Scottish NFU. “Farmers and crofters in more remote areas of Scotland have no alternative to the use of private vehicles,” said president Jim Walker.

    The SNFU also welcomed the Chancellors decision not to introduce input taxes. “Farmers already have every incentive to use them sparingly, because of their costs and their introduction would have further hit the competitiveness of our industry,” said Mr Walker.


  •  
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    Grant Thornton is a leading firm of accountants and financial advisers, with a specialist team dedicated to the agricultural industry. It aims to help farm owners and managers maximise their profits, operating via a network of 42 offices across the country. Tel: 01993 771121

      Read more on:
    • News

    Budget Analysis

    09 March 1999
    Budget Analysis

    from www.fwi.co.uk

    Farmers
Weekly and FWi

    in association with

    Grant Thornton

    | Key points for Farmers – positive | Key points for Farmers – negative |
    | Income Tax | Business Tax | Capital Gains Tax |
    | Stamp Duty | Inheritance Tax |Other Points |

    Tax Rates and Bands 1998/99
    taxable income (£)
    1999/2000
    taxable income (£)
    Lower rate (20%) 1 – 4300 (10%) 0 – 1500
    Basic rate (23%)* 4301 – 27,100 1501 – 28,000
    Higher Rate (40%) Over 27,100 Over 28,000
    Allowances    
    Personal Allowance 4195 4335
    Married Couple Allowance 1900 1970
    * From 6 April 2000, basic rate of income tax will be reduced from 23% to 22%

    Key points for Farmers – Positive


  • New small companies rate of 10% on profits up to £50,000.
  • New 10% rate of income tax on first £1500 of income.
  • First-year allowance of 40% on plant and machinery to continue to July 2000.
  • Class 2 national insurance reduced to £2/week (previously £6.35/week).
  • Modest increase in inheritance tax threshold from £223,000 to £231,000 from April 6, 1999.
  • New research and development tax credit.

    Key points for Farmers – Negative


  • Increase in duty on road fuel. Diesel up 6.14p/litre, with petrol and green diesel up about 4p and nearly 5p/litre respectively.
  • Stamp duty increases. Up 0.5% to 2.5% for property sales above £250,000 and to 3.5% for those above £500,000.
  • Class 4 national insurance on self-employed increased to 7% on profits (previously 6%).
  • Landfill tax increased from £10/t/year to £15/t/year for at least another five years to 2004.

    Income Tax

    As was widely predicted, the Chancellor announced a lower income tax rate of 10%, fulfilling Labours manifesto commitment. It will apply to the first £1500 of income from April 6, 1999. The existing 20% band on the first £4300 will disappear.

    The personal allowance will increase to £4335. Married couples allowance will rise in line with inflation to £1970 at 10% in 1999-2000.

    The Chancellor also announced that the basic rate of income tax will be cut by 1% to 22% from April 2000.

    The married couples allowance is increased to £1970. It will be replaced with a childrens tax credit from April 2001, worth on average about £416 a year.

    Tax relief on mortgage interest remains unchanged at 10% on loans up to £30,000 for 1999/2000 but is abolished from April 2000.

    The earnings threshold for National Insurance will increase to £76 a week from April 2000, the first step in the Chancellors programme of aligning the NIC threshold with the single persons tax allowance.

    Business Tax

    A new 10% starting rate of corporation tax will take effect from April next year. This will apply to small businesses with companies making taxable profits up to £50,000 benefitting from the change.

    Cuts of 1% in the small companies rate (those with profits up to £300,000) and the main rate of corporation tax announced last year, come into effect on April 1 this year. These will stand at 20% and 30% respectively.

    The small companies rate is now 3% below the basic income tax rate, and 20% below the higher rate. This larger gap provides increased incentive for small businesses which keep profits in the business to incorporate.

    First year capital allowances on plant and machinery will continue at 40% until July 2000 as the Chancellor previously indicated.

    Capital Gains Tax

    There has been no change for individuals on the major reform to CGT announced in last years Budget. So retirement relief is still being phased out from April 1999 to April 2003.

    Annual exemption has been raised by inflation to £7100. Tax rates are to be aligned with those for savings income, charging gains at 20% or 40% depending on the level of incomes and gains.

    Stamp Duty

    Stamp duty rates are to be increased from Mar 16. The latest increases are from 2% to 2.5% on property sales over £250,000 and from 3% to 3.5% where the sum is more than £500,000. (Transfers up to £60,000 remain free of charge and, for deals between £60,000 and £250,000, the rate is 1%.) Even on a sale of 200 acres, the increase will add about £2000 to the purchase price.

    Inheritance Tax

    The zero rate band for inheritance tax will increase in line with inflation to £231,000, a rise of £8000. The rate of tax above this threshold remains at 40%. Potentially exempt transfers, business and agricultural property relief also stay the same. However, new provisions apply to gifts of land after March 9 1999, where an arrangement allows the donor to occupy the land to a “significant degree” without paying a full rent and the gift is made within seven years. This is intended to block schemes such as the Lady Ingram case which recently succeeded in the House of Lords.

    Reaction

    “Little for the farming community” is what the budget offers, according to the NFU.

    Proposals to increase fuel duty will hit the rural economy to the tune of an additional £13m. “Fuel taxes are already higher in Britain than in European countries,” said NFU deputy president Tony Pexton.

    But he welcomed the cut in corporation tax, the retention of increased capital allowances and the freeze on VAT and vehicle excise duties for most lorries.

    The rise in road fuel duty was dubbed as “inappropriate” by the Scottish NFU. “Farmers and crofters in more remote areas of Scotland have no alternative to the use of private vehicles,” said president Jim Walker.

    The SNFU also welcomed the Chancellors decision not to introduce input taxes. “Farmers already have every incentive to use them sparingly, because of their costs and their introduction would have further hit the competitiveness of our industry,” said Mr Walker.


  •  

    OTHER SPONSORS ON FWi
    AGCO
    CYANAMID
    DOW
    HYDRO
    JACKSONS
    KEMIRA
    KVERNELAND
    McHALE
    NATWEST
    NOVARTIS
    P&O EVENTS
    PBI CAMBRIDGE
    RDP
    RUMENCO
    SCHERING PLOUGH
    STEFES
    VOLAC
    ZENECA

    Grant Thornton is a leading firm of accountants and financial advisers, with a specialist team dedicated to the agricultural industry. It aims to help farm owners and managers maximise their profits, operating via a network of 42 offices across the country. Tel: 01993 771121
      Read more on:
    • News
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