Tax changes this year

April 2008 saw several tax changes come into effect, all of which had been pre-announced in some way. The following are some of the more significant changes that are relevant to arts organisations, their managers and employees.

Income Tax
There has been much media concern about the abolition of the 10% band and the reduction in the basic rate of income tax from 22% to 20% that took effect on 6 April. The Chancellor has now announced that to compensate for the abolition of the 10% band there will be an increase in the individual personal allowance by £600 to £6,035 for the current year, which will benefit all basic rate taxpayers under 65 years of age. The intention is to focus the benefits to low and middle income families. To ensure that higher rate tax payers do not also benefit from this change, the threshold at which higher rate tax starts to be paid will be lowered by £600. Employers and employees can therefore expect to see changes to PAYE tax codes in order to give effect to what some have referred to as a ‘mini-Budget’.

NI Contributions
The entry point for an employee to start paying NICs has risen by £5 per week to £105. But the point at which the rate drops from 11% to 1% has been raised by £100 to £770 per week. Unlike the income tax changes, this will affect higher earners rather than those at the lower end of the pay scale. Employers see their entry point rise by the same amount, so they save 64p per employee per week in their NICs. Statutory Sick Pay and Statutory Maternity Pay rates have been increased by inflation.

VAT
There are no great changes to VAT, but the compulsory registration limit has shifted upwards from £64,000 to £67,000. Unregistered businesses need to monitor the element of ‘taxable supplies’ in their turnover. If it has exceeded the threshold in the past 12 months (measured on a rolling basis – not the business’s own accounting year), or if there are reasonable grounds for believing that the value of taxable supplies in the next 30 days will exceed the limit, then registration is compulsory. Voluntary registration is possible, regardless of turnover, and it enables the business to recover VAT that it suffers. The quid pro quo is that VAT needs to be charged on goods and services supplied and the business enters the VAT penalty regime. Of course, printed programmes are outside the scope of VAT, and admission charges by certain bodies putting on ‘theatrical, musical or choreographic performances of a cultural nature’ are also exempt. Much more detail is in VAT notice 701/47 available on the Revenue’s website at www.hmrc.gov.uk.

Capital Gains Tax (CGT)
Until the start of the current tax year CGT was paid by individuals at a full rate of either 20% or 40% depending on their other income in the tax year. In reality some taxpayers only paid an effective rate of 10% CGT because ‘taper relief’ reduced their taxable gain in respect of business assets by up to 75%. Taper relief has now been abolished and a single rate of CGT of 18% now applies. A reduction of 22% in the top tax rate may sound like good news, but for those who have lost business asset taper relief it may not be quite so welcome. To try and remedy part of this, a 10% rate will apply to the first £1m lifetime gains made by a qualifying entrepreneur. There has however been an increase by £400 to £9,600 of the gains, after expenses that an individual can make in a tax year without suffering any CGT.