The Finance Bill, to give effect to measures announced in the June Emergency Budget, was published on 1 July. This Finance Bill is one of the shortest of recent years. It deals with limited matters which the Government referred to as its ‘key priorities’.

Corporation Tax

As expected the main corporation tax rate for the financial year 2011 on profits (other than ring fence profits) will reduce to 27%. Interestingly, the remaining 1% annual stepped change to 24% by financial year 2014 has not yet been provided for (perhaps this will appear in the autumn Bill?)

Capital Gains Tax

These provisions will enact the change in rate from 18% to 28% for transactions on or after 23 June this year in addition to the increase in the lifetime limit for entrepreneurs’ relief from £2 to £5 million.

Broadly

• If income tax is chargeable at the higher rate or the dividend upper rate in respect of any part of an individuals income for a tax year the CGT rate is 28%
• If no income tax is chargeable at this rate the 28% will still apply if Step 3 income plus gains exceed the unused amount of the basic rate band but only on the excess over the basic rate band
• Gains availing of entrepreneur's relief in section 169N(3) will be treated as forming the lowest part of the amount on which an individual is subject to CGT
• Step 3 income will be defined as per the individual's net income less allowances deducted at Step 3 of the calculation in section 23 of ITA 2007
• Allowable losses may be deducted from gains in such a way as is most beneficial to the person

VAT

The change from 17.5% to 20% will be effective from 4 January 2011. Schedule 2 of the Bill also contains detailed ‘anti–forestalling provisions’ (avoidance measures), as promised, enabling a supplementary charge to VAT to arise on supplies spanning the date of the VAT change. The effect of this ‘supplementary charge’ will be to add a further 2.5% VAT charge to the 17.5% so that the effective total VAT rate is 20%.

These provisions are likely to affect VAT registered businesses unable to recover the VAT they incur and their suppliers, who enter into schemes or arrangements to avoid the effect of the increase in the standard rate of VAT to 20 per cent.

They are also likely to be targeted at the ordinary consumer (and thus the retailer) keen to ‘get in’ before the rate increase on 4 January but who don't actually receive the goods or services until after that date – take the example of someone buying a high ticket item such as a car at £30,000 before VAT – the extra 2.5% pushes the price up £750 and for properties deals where VAT is required to be charged the figures are much higher for those not able to reclaim the VAT either in full or partially.

Both Budget Note 44 and Schedule 2 of the Finance Bill outline these measures in detail.

Pensions

The Finance Bill provides HM Treasury with the “power to repeal the high income excess relief charge” introduced in the March Budget and which caused such concern among many practitioners including ourselves.

Note however that this legislation has not yet been repealed – this provision merely gives the Treasury the power to do so via statutory instrument. And whilst this further delay is not ideal it is likely that the Government has taken this approach to enable them to engage interested parties in the best design of any new regime and once consensus has been reached, react quickly, repeal this legislation and implement the new rules.

The Government has however imposed a window for repeal of this legislation within this provision – they must take the opportunity to repeal the relevant legislation in section 23 and Schedule 3 Finance Act 2010 by 31 December next.

Some other minor measures are also provided for and it is recommended that readers take the time to scan the draft Bill for any particular areas of concern.

At the time of going to print, the Bill received Royal Assent and became Finance (No. 2) Act 2010. The Bill is now an Act of Parliament and, overall, the final Act is not significantly different to the original bill.