The government will consult in June 2011 on the detail of three specific proposals for reform of the remittance basis of taxation applying to non-domiciled individuals, with the aim of implementing the reforms from April 2012. The government confirmed that there would be no other substantive changes to these rules for the remainder of this Parliament.

The proposed reforms aim to:

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 3.7: Review of non-domicile taxation.)

Legislation will be introduced in Finance Bill 2011 to reduce the main rate of corporation tax (CT) to 26% for the financial year commencing 1 April 2011 and then to 25% for the year commencing 1 April 2012. The main rate applies to companies and groups whose annual profits exceed £1.5 million. These changes represent an additional 1% reduction on top of the four annual reductions announced in the June Budget 2010 (see Legal update, June 2010 Budget: key business tax announcements: Corporation tax rates reduced from 2011-12), which will take the main rate of CT to 24% for the year beginning April 2013 and 23% for the year beginning April 2014. The CT rate for companies with ring-fenced profits from oil extraction in the UK and UK continental shelf (ring-fenced profits) will remain at 30%.

As announced in the June 2010 Budget (see Legal update, June 2010 Budget: key business tax announcements: Corporation tax rates reduced from 2011-12), Finance Bill 2011 will also contain legislation reducing the small companies rate of CT to 20% (from 21%) for the year commencing 1 April 2011. This will apply to companies and groups whose annual profits do not exceed £300,000.

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates para 1.9: Corporation tax rate and Annex B: Business and financial services and Tax Information and Impact Note.)

As announced in the June 2010 Budget, the 2011-12 personal allowance for under-65s will be increased by £1,000 to £7,475. At the same time, the basic rate limit will be reduced by £2,400 to £35,000. As a result, the higher rate threshold will be £42,475 (compared to £43,875 in 2010-11) and more people will pay income tax at the higher rate from 6 April 2011.

In the 2011 Budget, the Chancellor announced that the personal allowance for under-65s would be increased again in 2012-13, by £630 to £8,105. However, at the same time the basic rate limit will be reduced by only £630 (to £34,370), so in 2012-13 the higher rate threshold will be unchanged and the increase in the personal allowance will benefit basic rate taxpayers and those higher rate taxpayers who enjoy the personal allowance (that is those with income of up to £116,210 in that year).

(See Budget report, para 1.127 and para 2.29 and Tax Information and Impact Note. For a table of the main rates and allowances for 2011-12, see 2011 Budget - HMRC Overview of Tax Legislation and Rates, Annex B.)

For the tax year 2011-12, the capital gains tax annual exempt amount will increase to £10,600, in line with changes in the retail prices index for the 12 months to September 2010. As required by current legislation, the new exempt amount will be introduced by Treasury order.

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 1.8: Capital Gains Tax annual exempt amount, page 2.)

The government has published the final text of its protocol on announcements outside the Budget.

A number of changes have been made to the draft protocol that was published for consultation on 9 December 2010 (see, PLC Tax, Legal update, Tax policy making: response to consultation and draft framework and protocol).

The changes:

It is noted in the joint HMRC and HM Treasury report on tackling tax avoidance that where draft clauses for anti-avoidance measures are published for consultation, the protocol is not intended to prevent changes from taking effect from the date the draft clauses are published.

Some previous anti-avoidance measures have been introduced to the employment-related securities tax legislation with retrospective effect from 2 December 2004. This was the date specified by the previous government from which employment income anti-avoidance measures might take retrospective effect (see Paymaster General's statement on Finance Bill 2005 measures regarding anti-avoidance legislation in relation to employment taxes). Given the pledge in the protocol that "retrospective changes that take effect from a date earlier than the announcement will be wholly exceptional", it now seems unlikely that future anti-avoidance measures will be given retrospective effect back to 2 December 2004 in reliance on this earlier ministerial statement.

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 1.8: Capital Gains Tax annual exempt amount, , para 3.60: Tax Policy Making (draft protocol on announcements outside fiscal events), page 30 and 2011 Budget - HM Treasury, Tackling tax avoidance, page 17: Protocol on unscheduled announcement of changes to tax law.)

The government has announced that it will consult on a proposed merger of income tax and National Insurance contributions (NICs).

The Chancellor explained in his budget statement that the operation of two separate systems created unnecessary costs and complexity for employers and HMRC. He did not propose to alter the contributory principle of the NICs system or to extend NICs to those over the state pension age or to other types of income currently not subject to NICs.

The consultation document will be published later this year and the Chancellor anticipates that any merger would take several years to complete. The OTS recommended in March 2011 that the government consider merging the income tax and NICs regimes in its interim report on the simplification of the tax treatment of small businesses (see PLC Tax, Legal update, Small business tax review: OTS interim report: Merging income tax and NICs).

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 3.5: Income tax and NICs reform, page 19.)

The government has announced that it will consult on the introduction of a statutory definition of residence, as it considers the current rules determining tax residence for individuals are unclear and complicated. The government will issue a consultation document in June 2011 and intends to implement the provision from April 2012.

For information on the current rules on residence and for links to further information on the UK tax implications of the concepts of residence, ordinary residence and domicile, see PLC Private Client, Practice note, Residence and ordinary residence: definitions for UK tax purposes .

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 3.8: Statutory residence test, page 20.)

The government has announced that it will implement proposals originally announced in the 2009 Pre-Budget Report to extend the regime for disclosure of direct tax avoidance schemes (DOTAS) to arrangements which seek to avoid income tax and NICs on employment income (see Legal update, Disclosure of tax avoidance schemes: HMRC announce timetable for new employment income and income-to-capital hallmarks). It will consult on proposals to add a new "hallmark" to the existing DOTAS rules to cover avoidance schemes relating to employment income in summer 2011, and the changes will be implemented during the 2011/12 tax year.

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 2.34: Disclosure of tax avoidance schemes, page 18.)

The government has responded to OTS' proposals for reforming IR35. Unsurprisingly, the proposal to suspend IR35 with the intention of abolishing it has been rejected. Instead, the government will retain IR35 but seek to achieve simplification by:

The OTS considered this option a viable short term measure provided the government committed to the integration of income tax and NICs. The government has announced a consultation on this issue.

For a summary of the OTS' IR35 proposals, see Legal update, Small business tax review: OTS interim report: IR35 and for an explanation of IR35, see PLC Tax, Practice note, IR35.

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 3.66: Response to OTS review of IR35, page 31.)

In his budget statement, the Chancellor said he regarded the additional (50%) rate of income tax as temporary, as it would harm the economy if permanent. However, it could not be repealed while those on lower incomes were being asked to make sacrifices.

He announced that HMRC would analyse how much revenue the additional rate actually raised, based on returns for the first year of its application (2010-11). Presumably he hoped to please those who want the additional rate reduced or repealed, and to convey a serious intention to repeal it, without making concrete proposals to do so. The point does not appear to be mentioned elsewhere in the 2011 Budget documents.

(See 2011 Budget - HM Treasury, Budget Statement.)

The government has announced that it will issue a consultation in the autumn of 2011 to consider improvements to the administration and transparency of the personal tax system for individuals. To assist individuals in calculating their income tax and NICs liabilities, HMRC will also develop online and downloadable tax and NICs calculators by April 2012.

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 3.65: Tax transparency for individuals, page 31.)

From 6 April 2011, higher rate or additional rate taxpayers who are new joiners to certain employer-supported childcare schemes will have the value of income tax and NICs relief on these benefits limited to the relief available for basic rate taxpayers. The affected types of employer-supported childcare are schemes:

Existing scheme participants and new joiners who are basic rate taxpayers (and tax relief for workplace nurseries) will not be affected. This change has been expected since December 2009 and the 2011 Budget introduces only a minor technical change to the proposals. For more information, see PLC Tax, Legal updates, April 2011 changes to employer-supported childcare and Guidance on changes to employer-supported childcare.

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 2.9: Employer-supported childcare: changes to tax reliefs, page 13 and Tax Information and Impact Note.)

The government has announced that it will shortly publish the final version of its Tax Consultation Framework together with a summary of responses to the consultation on the draft framework. For details of the consultation, see PLC Tax, Legal update, Tax policy making: response to consultation and draft framework and protocol.

(See 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 3.64: Tax consultation framework, page 31.)