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Pre Budget Report - 9 December 2009.
Following the economic turbulence of the last 12 months, and the increased tax rates which were consolidated during the Spring 2009, the focus now turns to the implementation of the tax rises. Public spending was also considered, together with the role of the public services. As the last PBR before the next General Election, it was expected that the Chancellor would deliver his speech with this in mind.
1. Economy
- According to HM Treasury, the UK economy shrank by 4.75% by the end of 2009, 1.25% than estimated by the Chancellor in the Spring 2009 Budget;
- The Chancellor still predicts that growth will begin in early 2010 (1% to 1.5%);
- The Treasury predicts that growth will hit 3.5% after 2010;
- In the meantime, public borrowing will have to increase further than the original estimates from the Spring 2009 Budget to £178billion by the end of 2009, with reductions to £176 billion in 2010 and £140 billion in 2011. The Chancellor predicts this will fall to £96 billion by 2013;
- Public sector pay rises and pension contributions to be capped
2. Personal Tax and National Insurance Contributions
- The Spring Budget 2009 was consolidated in relation to taxpayers with income in excess of £100,000;
- The new tax rate of 50% will apply to those with income in excess of £150,000 from 6 April 2010.
- Tax on dividends will increase to a maximum rate of 42.5% from 6 April 2010;
- National insurance contributions will increase for employees and employers from April 2011 by 0.5%. This increase will apply to employees earning over £20,000 per annum.
- The Spring Budget 2009 brought in changes to pension contributions from 6 April 2011. The new measures mean that tax relief on pension contributions is to be restricted to 20% for individuals with an annual income in excess of £150,000.
- These measures have been extended to include those with income over £130,000. Any individual with less than £130,000 of income will not be affected by the rules.
- The Inheritance Tax threshold will remain unchanged (£325,000 transferable between spouses).
3. ‘Super’tax on bank bonuses
- Banks which pay bonuses to staff rather than using profits to re-capitalise will face a 50% tax levy;
- The levy will be applied to bonuses paid in excess of £25,000;
- The banks will be liable for the tax, not the employees receiving the bonuses between before 6 April 2010. The tax will be payable by 31 August 2010;
- Employees receiving the bonuses will pay income tax and NIC’s as normal
4. Corporation and Business Tax
- Corporation tax rates remain unchanged from the current year at 21% for small companies and 28% as the main rate of tax;
- The small companies rate tax increase to 22% has been deferred for another year;
- Businesses and companies may apply a 40% First Year Allowance to capital expenditure incurred in excess of the £50,000 Annual Investment Allowance for one complete year from 6 April 2009 (1 April 2009 for companies).
- The changes made in the Pre Budget Report to loss relief have been extended to last for a further year. The relief means that businesses can carry back trading losses against profits of earlier periods;
- The rules surrounding Research and Development (R&D) tax credits have been relaxed. For companies making R&D expenditure in accounting periods ending after 9 December 2009, the rule which requires for the Intellectual Property ownership to vest in the company will be abolished.
- The Business Payment Support Service will continue to aid businesses who are struggling to pay their tax for ‘as long as necessary’.
- The fuel benefit level for employees with company cars will increase from £16,800 to £18,000 in April 2010.
5. VAT and Stamp Duty Land Tax
- The Chancellor confirmed that the rate of VAT will return to 17.5% from 1 January 2010, despite appeals from the retail sector to leave the rate at 15%. Measures will be brought in to prevent schemes which aim to apply the temporary rate of 15% after 31 December 2009;
- Rules regarding the place of supplies of goods and services will change from 1 January 2010, in relation to cross border trade. Business will be expected to complete quarterly EC Sales Lists, and VAT refunds for cross border supplies will be made electronically;
- The increased Stamp Duty Land Tax (SDLT) holiday will end for certain properties from 1 January 2010.
6. Anti-avoidance measures
- HM Revenue & Customs are looking at ways to ‘break down the tax gap’;
- Measures will include looking at ‘artificial tax avoidance’ and minimising errors made by taxpayers and agents;
- New offshore disclosure opportunity and measures to recoup taxes from offshore centres.
7. Remaining the same
- Capital Gains Tax remains static at 18%, despite speculation that it would increase in line with higher income tax and national insurance rates;
- Principal Private Residence Relief is still available, despite the bad press surrounding MP’s second homes;
- Bands for the tax rates will remain unchanged, due to no inflation during the year;
The following was provided to Inspired Recruitment by Sedulo Accountants. For Further information or any other tax related issues contact...
Kirsty MacDonald at Sedulo:
Email: kirsty@sedulo.co.uk
Tel: 01625 859 090
www.sedulo.co.uk
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