Budget 2005



Summary                                                  Tax Tips for Individuals

Small Companies                                       Tax Tips for Businesses


Individuals                                                Third World





No major changes
Small limited companies still pay no tax on the first £10,000 of profits, but only if they don't pay any dividends.
Most allowances increased in line with inflation.
Tax incentives for research & development increased for medium sized companies.
Inheritance tax rates to be increased.
Stamp duty abolished for houses costing under £120,000.
Tax credits increased.

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Tax Tips for Individuals

1.      Make sure you claim the childrenís tax credit.

2.      Consider taking a salary increase instead of the company car, then using your own car for business and claiming mileage.

3.      If your employer is not paying you the full 40p per mile, then claim the difference on your tax return.

4.      If you donít like paperwork, then go to www.inlandrevenue.gov.uk and register to prepare your own tax return using the internet service or contact me for a tax return efiling service starting from £75 plus VAT.

5.    Encourage your employer to loan or sell you a computer or bicycle.

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Tax Tips for Businesses

1.      If you are not already benefiting from the low corporation tax rates, then consider forming your own limited company now. Trading through a limited company could save you over £3,000 per year. Small Businesses

2.      If you spend more than £25,000 a year on research and development, then make sure you or your accountant are claiming the research and development tax credit.

3.      If you donít like paperwork, then look into the VAT Flat Rate Scheme. The incentives have recently been increased, particularly for businesses in their first year of VAT registration. Further encouragements to join the VAT Flat Rate Scheme were mentioned in the budget speech.

4.  The benefit in kind rules are relaxed if you provide employees with computers or bicycles for their personal use. Budget 2005 relaxed the rules where a loaned bicycle or computer is subsequently sold to the employee.

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New Corporation Tax Rules

All dividends paid on or after 1 April 2004 must be paid out of profits on which corporation tax has been paid at 19%.

This will not affect companies with profits over £50,000, because they are already paying corporation tax at 19%.



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Research & Development Tax Credits

Since April 2000, small and medium sized companies spending over £25,000 on research & development (r&d) have been able to claim tax credits on most of their r&d expenditure. In some cases a tax refund of 24% of r&d spending can be obtained. Qualifying expenditure is salary costs, consumable stores and 65% of payments for sub-contracted r&d work.

This scheme has now been extended to large companies.


Limits for operating PAYE

The threshold for tax and National Insurance has been increased from £91 per week to £94 per week (or from £395 to £405 per month).


Incentives for E-filing PAYE Returns

Small business that file their 2004/05 PAYE returns electronically will be given a £250 incentive.

VAT Flat Rate Scheme

The scheme is available to businesses with taxable turnover of up to £150,000 per annum. The flat rates have been reduced and there is an extra 1% reduction on the rates for business in their first year of VAT registration. Under the scheme, a business completes its VAT Returns by taking turnover and multiplying by an agreed percentage and thatís it. Details of the flat rates for particular businesses can be found at www.hmce.gov.uk

No analysis of VAT on purchases is required.


Enhanced Capital Allowances for Energy Efficient Equipment

100% capital allowances are available for certain items of plant and machinery, including cars with fuel emissions of not more than 120gm/km CO2. The scheme is being expanded

See www.eca.gov.uk for details.


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Tax Rates and Allowances

The personal allowance is increased from £4,745 in 2004/05 to £4,895 for 2005/06. The 10% band is increased from £2,020 to £2,090. The starting point for the 40% band is increased from £31,400 to £32,400.


Gift Aid

From 2003/04 gift aid donations made up to the time that you file your tax return can be carried back into the previous tax year.

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In February 2004 it became a criminal offence for a UK citizen to bribe a foreign official.

From 1 April 2002 bribes are not tax deductible.


Drug Research Into Third World Diseases

Expenditure on research into TB, malaria, HIV and AIDS qualifies for an extra 50% deduction for corporation tax purposes. 

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Last modified: November 30, 2008