Alistair Darling's Pre-Budget report brought few surprises. The 'banker's bonus tax' had already been trailed for several days. Given the parlous state of the economy, this Pre-Budget report provided few of the give-aways which would be expected in a pre-election Budget; but to delay the pain, it did signal a number of tax increases or effective tax increases which won't take place until after the next Election.
The extra 0.5% increase in National Insurance (from 6 April 2011), on top of the 0.5% increase announced previously, was unexpected but not surprising given the need to raise revenues. This is an increase difficult to avoid and easy to collect which hits a great many workers and their employers. Those earning less than £20,000 will be unaffected due to an increase in the starting point - a lesson learned from the withdrawal of the 10% tax rate debacle? Small companies will benefit from the proposed increase in corporation tax being put off for another year. If you play Bingo and/or need a new boiler, there is something positive for you. But most of the other measures are unexciting or obscure - there's a lot of new anti-avoidance rules to curtail tax saving arrangements which many may not even have dreamed of, and a number of low carbon measures.
Income tax rates and thresholds
For the tax year 2010/11 all tax allowances and thresholds will be the same as for the current year, except for the changes announced in the 2009 Budget concerning the withdrawal of personal allowances at £1 for every £2 of income for those with income in excess of £100,000 and the new additional rate of 50% on taxable income over £150,000.
For the tax year 2012/13, the higher rate threshold (the point at which someone starts to pay higher rate tax) will be frozen at the 2011/12 amount. The personal allowance will be increased and the basic rate limit will be reduced by the same amount.
NICs rates and thresholds
For the tax year 2010/11, with just two small exceptions, all NICs rates and thresholds are unchanged from the current year 2009/10.
For the tax year 2011/12, in addition to the 0.5% increases to rates already announced at PBR 2008, the Chancellor has announced that there will be a further 0.5% increase to those rates, making a 1% increase in total from
6 April 2011. The primary threshold and lower profits limit will be increased by £570 to compensate the lowest earners.
This increase will impact only on those individuals with earnings over £20,000.
Capital Gains Tax (CGT)
Despite the many rumours circulating, no changes to CGT were announced, although this doesn’t preclude a change for 2010/11 which could be announced in next year’s Budget.
Inheritance Tax (IHT)
The IHT threshold will be frozen at the current level of £325,000 for chargeable transfers of value made on or after 6 April 2010 (it was to have been increased to £350,000).
Corporation tax
The rate of corporation tax for small companies will remain at 21% for 2010/11, after which it will increase to 22%.
Business payment support service
This service of offering businesses time to pay their taxes if they are in financial difficulties will continue.
Enterprise finance guarantee
An additional £500 million of lending will be available to small and medium enterprises through the extension of the enterprise finance guarantee and by creating a new capital growth fund.
Pensions
The special rules introduced in the 2009 Budget to prevent people from making large additional payments to their pensions before 6 April 2011, have been extended to those with income of £130,000 or over from 9 December 2009.
The restriction of higher rate relief being introduced from
6 April 2011 which the Government is consulting on, will affect individuals with a 'gross income' of £150,000 or over, who save in a registered pension scheme. 'Gross income' includes both the value of the individual’s pension contributions and any pension benefit funded by the employer on their behalf. It is also calculated before any deductions for charitable donations.
Consultation is on-going regarding how the restriction of higher rate tax relief for pension contributions will be implemented for high-income individuals.
Salary sacrifice workplace canteens
From 6 April 2011 the exemption for the benefit of free or subsidised meals will be restricted where an employee has an entitlement to these under salary sacrifice arrangements.
Company car tax
The ceiling for the 10% band for company cars will be reduced to CO2 emissions up to 99g/km from April 2012. The other existing thresholds in the banded table will be reduced by 5g/km.
From 6 April 2010:
- electric cars will be exempt from company car tax for five years
- electric vans will also be exempt from the flat rate benefit of £3,000 on all vans for five years
- the figure used as a basis for calculating the benefit of private fuel on a company car, is to increase from £16,900 to £18,000
- for vans the fuel benefit is increasing from £500 to £550.
Furnished holiday lettings
As announced in the 2009 Budget, the tax treatment of furnished holiday lettings will be withdrawn from
6 April 2010. The income from lettings of this type will be taxed according to the rules applying to other property lettings. Any losses from the business will only be available for offset against other property letting income in the year or carried forward to use against future profits from property letting.
VAT back to 17.5%
The temporary reduction in VAT will end on
31 December 2009. The rates under the flat rate scheme will also be amended to reflect the end of this reduction.
Fortunately there was no announcement to increase the rate beyond 17.5% as had been predicted by some commentators.
‘Patent box’ corporation tax rate
There is to be a new corporation tax rate of 10% for income from patents from 6 April 2013.
Capital allowances
Subject to confirmation being received regarding state aid rules, a 100% first year allowance will be made available for new electric vans acquired on or after 1 April 2010 (companies) or 6 April 2010 (individuals/ partnerships).
The temporary 40% first year allowance for plant expenditure over the annual investment allowance will end on 5 April 2010 for unincorporated businesses and
31 March 2010 for companies.
R & D changes
A small or medium sized company (SME) will no longer be required to own the intellectual property deriving from the
R & D to make a valid R & D claim. This will take effect for transactions in accounting periods ended on or after
9 December 2009.
Empty property rates relief
From 5 April 2010 empty commercial properties with rateable values up to £18,000 will be exempt from business rates. The exemption should benefit an estimated 70% of empty properties.
Stamp duty land tax
Until 31 December 2009, there is a temporary relief from SDLT on residential properties where the value does not exceed £175,000. From 1 January, except in disadvantaged area, SDLT will be at 1% for properties valued at £125,000 to £175,000. Those in disadvantaged areas do not suffer SDLT until the value exceeds £150,000.
Enterprise Investment Scheme (EIS)/Venture Capital Trusts (VCT) and Enterprise Management Incentives (EMI)
Changes to qualifying companies for EIS/ VCT/ EMI have been published but are pending EU state aid approval. These are:
- companies need to only have a permanent establishment in the UK to be a qualifying company for EIS/ VCT/ EMI
- enterprises in difficulties are excluded
- VCTs may be listed on any regulated European market
- VCTs have to increase equity stake in qualifying holdings.
There is a new definition of small enterprise. Related enterprises have to be aggregated when applying the employee and balance sheet total tests. In addition, EIS companies may not trade in partnership.
Bank payroll tax
A temporary tax of 50% will be charged on bonuses above £25,000 awarded to bank employees between
10 December 2009 and 5 April 2010. This tax will be charged on the banks as employers and will be in addition to the income tax charged on the employees. This new tax will not be deductible in calculating the taxable profits of the banks.
Tax Avoidance Schemes – Stamp Duty Land Tax (SDLT)
Regulations will be introduced to extend the Disclosure of Tax Avoidance Schemes (DOTAS) to require the disclosure of certain SDLT avoidance schemes that concern residential property with a value of at least £1 million.
Users of all SDLT schemes, for both commercial and residential property, will be required to make a report where the schemes concern:
- residential property with a value of at least £1 million or
- non-residential property with a value of at least £5 million.
These regulations will take effect from no later than
1 April 2010.
Tax evasion
Further measures are being introduced to counteract tax evasion. The government considers that these will protect revenues of around £5 billion per year.
If you would like further advice on any of the above, please contact your usual contact partner or alternatively the partner listed above in the Contact us section.
