2006 BUDGET REPORT SUMMARY

• Personal tax

• Employment issues

• Corporate & Business Tax

• Capital taxes and Trusts

• VAT, Excise & other duties

• Anti-Avoidance Measures

• Miscellaneous

Employment Issues

National Insurance Contributions (NICs)

There is no change in the rates of NIC.

Action point: Although employees’ NICs only become payable once earnings exceed £97 per week in 2006/07, it is still the case that earnings between £84 and £97 per week protect an entitlement to basic state retirement benefits without incurring a liability to NICs. Consider whether you are making full use of this rule. A PAYE scheme would be needed to establish the employees’ entitlement to benefits.

Company car tax

Currently a company car is taxed according to the level of CO2 emissions. The benefit on fuel provided for private use is also related to the same scale.

• The starting point for the scale was reduced to 140 grams per kilometre in 2005/06 and will remain unchanged until at least 5 April 2008. It will be reduced to 135 grams per kilometre for 2008/09.

• The government intends to introduce, from 2008/09, a new 10% rate for company cars with CO2 emissions of 120 grams per kilometre or less.

• The fuel benefit calculation remains unchanged for 2006/07 at £14,400.

• The waiver of the 3% supplement for Euro IV diesel cars ceases from 6 April 2006 for cars registered on or after 1 January 2006.

Comment: Drivers who are provided with fuel for private use need to check if this really is a benefit.

Childcare costs

In April 2005 the government introduced a number of changes to provide up to £50 per week tax and NIC relief for employees who received certain types of childcare from their employers. This employer-supported childcare includes vouchers and other forms of approved childcare contracted for by the employer. The government intends to increase the limit to £55 per week from 6 April 2006.

The government has also announced capital grants, available to small and medium sized employers over the next two years, to help them establish workplace nurseries.

Exemptions for computers and mobile phones

Currently computers and mobile phones loaned to employees by their employer may be exempt from tax under certain circumstances, even if there is substantial private use of them.

The exemption for computers made available for private use will be withdrawn. Also the number of mobile phones that an employer can lend to an employee and their household tax free will be limited to one. Both of these changes take effect from 6 April 2006.

Comment: A number of tax and NIC-saving schemes have grown up over recent years which involved lending computers or mobile phones to employees. There was generally no tax or NIC charge year on year and subsequently the equipment would be sold to the employee for a much reduced value. Clearly the government wish to stop this tax planning opportunity.

Eye tests and glasses

From 6 April 2006 no tax charge will arise where an employer provides an eye test or corrective glasses for an employee. This applies whether the employer pays for this direct, reimburses the employee or provides a voucher to cover the cost.

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The Budget proposals may be subject to amendment in the Finance Act. You are therefore advised to contact us before taking any action as a result of the contents of this summary.