The 2011 UK Budget was, as anticipated, broadly neutral. Click here for a comprehensive analysis of the measures announced
The main headlines from the UK Budget 2011 which impact on the Channel Islands are as follows:
VAT - low value consignments relief
After much speculation the relief which allows goods below a certain value (e.g. CDs, DVDs, cosmetics, etc.) to enter the UK without incurring VAT has been reduced from £18 to £15 with effect from 1 November 2011. The UK Government will also be discussing with the European Commission the scope of the relief with a view to eliminating perceived 'abuses'. If they cannot produce a "workable" solution they will revisit this in next year's budget, potentially reducing the threshold further.
Remittance basis charge
For non-domiciled individuals the Government has announced a consultation on a package of changes. This includes increasing the £30,000 annual charge to £50,000 from year 12 onwards; removing from the charge to tax any remittances of income and gains for the purposes of commercial investment; and a simplification of the existing rules to reduce the administrative burden. The Chancellor has committed that there will be no further changes to the taxation of non-doms in the current Parliament.
Residence of individuals
A consultation on bringing in a statutory residence test for individuals with effect from April 2012 was announced. We hope this will provide some much needed clarity in this complex area.
50% income tax rate
There will be no immediate change to the controversial 50% income tax rate. However, the Chancellor reconfirmed that the rate was a "temporary measure" but said that now is not the time to remove it. He has requested HM Revenue & Customs to look at how much tax revenues are raised by this rate. This continued uncertainty could lead to further emigration of high earners.
The disguised remuneration provisions introduced in last year's Budget, aimed at combatting the use of employee benefit trusts or other similar arrangements to avoid UK tax have been simplified following a consultation process.
Tackling tax avoidance
The Government's commitment to scrutiny on perceived tax avoidance and evasion is ongoing. HM Treasury and HM Revenue & Customs released a paper today "Tackling tax avoidance" which sets out their new strategic approach.
Controlled foreign companies
This Government has further committed to reforming the overly complex CFC rules, noting that the end result should reflect a more territorial based approach.
Corporate tax rate
From April 2011, the UK corporation tax rate will be reduced by 2% (not 1% as was originally provided in the previous Budget) with further incremental decreases of 1% per year for the subsequent three years. This will bring ultimately the headline corporate tax rate to 23% by 2014.
If you would like any further information or clarification on any of the measures announced, please do not hesitate to contact a member of our Budget working party who details appear alongside.