Financial Monitor (April 2009 - Budget Special)

We set out below various proposals outlined in the Chancellor’s Budget Speech on 22 April 2009 and subsequent Press Releases. This is not an exhaustive list of every item covered but includes those points we consider of importance to our clients. If you need any further information on any particular issue please contact our tax partner, Peter Newsam.

PERSONAL TAX

Tax rates and allowances

The rates and allowances for the tax year 2009/10 are as follows:-

	Bands of taxable income
Rate	2009/2010	2008/2009
10%	£2,440	£2,320
20%	£1 - £37,400	£1 - £34,800
40%	over £37,400	over £34,800

The 10% starting rate is for savings income only with a limit of £2,440 (£2,320 2008/09). If an individual’s taxable non-savings income is above this limit then the 10% will not be applicable.

Allowances	2009/2010	2008/2009
	£	£
Personal	6,475	6,035
Age allowance 65-74
Personal	9,490	9,030
Married couple’s	*6,865	*6,535
Income limit	22,800	21,800
Age allowance 75 and over
Personal	9,640	9,180
Married couple’s	*6,965	*6,625
Income limit	22,800	21,800
Blind person	1,890	1,800
*Limited to relief at 10% rate of tax only.

If the income limit is exceeded then the personal allowances for those aged over 65 are reduced by £1 for every £2 of income in excess of the income limit until the amount of personal allowance equates to that available to those under 65.

Additional 50% rate of tax

From 5 April 2010 there will be an additional higher rate of 50% for taxable income above £150,000. The trust rate will also rise to 50%. This replaces the 45% rate announced in the pre-Budget Report which was intended to be introduced from 5 April 2011.

Withdrawal of personal tax allowances

Those earning over £100,000 as adjusted for certain reliefs will see their personal allowances reduced to nil. The reduction will be at the rate of £1 for every £2 of earnings. This will apply for the tax year 2010/11 and subsequent years. This replaces the proposal to phase out half the allowance for incomes over £100,000 and the balance for incomes over £145,000 announced in the pre-Budget Report.

Company car tax benefit

The base figure of CO2 emissions on which the benefit is calculated will be 135g per kilometre of CO2 for 2009/10, 130g for 2010/11 and 125g for 2011/12. This will increase the annual taxable benefit for most company car users by 1% of the list price of the vehicle when new each year. In addition the £80,000 cap that currently applies when calculating the cash equivalent of the car benefit will be abolished from 6 April 2011.

Individual Savings Accounts

The ISA limit will be raised to £10,200, up to £5,100 of which can be saved in cash. The new limit will apply to those aged 50 and over from 6 October 2009 and from 6 April 2010 for those aged under 50. Those aged under 50 will retain the current £7,200 ISA limit of which £3,600 can be in cash until 5 April 2010.

Taxation of foreign dividends

Individuals in receipts of dividends from non-UK resident companies have been entitled to a 10% non-repayable tax credit as they have for UK dividends since April 2008 providing their shareholding in the company was less than 10%. That 10% limit has been withdrawn from Budget day. There is a requirement that the paying company be resident in a country with a double taxation agreement with the UK including a non-discrimination article.

Child Trust Fund

From April 2010 the Government will make payments of up to £200 per annum into child trust fund accounts for children in receipt of Disability Living Allowance.

Restriction of Tax Relief on Pensions

The Government intends to restrict the tax relief on pension contributions to basic rate for those with taxable income over £150,000 from 6 April 2011. Relief will be tapered so that for those earning over £180,000 relief will be at basic rate (currently 20%). To prevent those affected making large pension contributions in the tax years 2009/10 and 2010/11 in anticipation of this restriction, provisions will be introduced in the Finance Bill. These will apply a tax charge which will effectively reduce the tax relief on these additional contributions to the basic rate. Those affected will be individuals with taxable income over £150,000 who after 21 April 2009 change:

their normal pattern of regular pension contributions; or
their normal way in which pension benefits are accrued; and
their total pension contributions/benefits accrued exceed £20,000 per year.

COMPANY TAX

Rates of corporation tax

From 1 April 2009 the effective rates of corporation tax are as follows:

	Year ended	Year ended
	31 March 2010	31 March 2009
Profits in band	%	%

0 - £300,000	21	21
£300,001 - £1,500,000	29.75	29.75
Over £1,500,000	28	28

Future changes to corporation tax rates

The corporation tax rates for companies with profits below £300,000 will increase to 22% on 1 April 2010.

Taxation of Foreign Profits

Foreign dividends received after 30 June 2009 will be exempt from UK corporation tax irrespective of the size of the recipient company subject to anti-avoidance provisions.

BUSINESS TAX

Tax Relief for Business Expenditure on Cars

For expenditure incurred on cars for business use on or after 1 April 2009 for companies and 6 April 2009 for unincorporated businesses capital allowances will be available annually at either 10% or 20% on a written down value basis. The 10% rate will apply to cars with CO2 emissions above 160g/km and the 20% rate to cars with CO2 emissions of 160g/km or less. Expenditure incurred before the starting dates above will continue with the existing rules applying to cars costing over £12,000 where writing down allowances of 20% are available subject to a maximum of £3,000 per annum and a balancing allowance where the car is sold. The main disadvantage of the new rules is the loss of the balancing allowances on sale.

Cars used by unincorporated business which have an element of private use will be kept separate in single asset pools on which allowances can be claimed according to the CO2 emissions of the vehicle. It is not clear whether a balancing allowance will be available when such vehicles with private use are sold.

Cars that are leased are currently subject to a partial disallowance of leasing payments where the car has a list price above £12,000. The existing rules are being scrapped for cars acquired from April 2009 but will continue to apply to existing leases until the end of that particular agreement. The new rule for leased cars is that 15% of the lease rental payments are disallowed for tax purposes but only if the CO2 emissions of the vehicle exceed 160g/km.

Temporary Plant and Machinery First Year Capital Allowances

Those businesses spending more than £50,000 on plant and machinery before 1 April 2010 (companies) or 5 April 2010 (individuals and partnerships) will be able to claim a 40% first year allowance on the amount not covered by the Annual Investment Allowance of £50,000. This 40% first year allowance is instead of the 20% writing down allowance that could be claimed under the current rules. Long life assets, integral features, cars and assets for leasing will not qualify for the first year allowance.

Extension of Trading Loss Carry Back for Businesses

Currently businesses can carry back unlimited losses against income of the previous year in order to obtain a repayment of tax previously paid. Losses made by companies in the accounting periods ending between 24 November 2008 and 23 November 2010 and for 2008/09 and 2009/10 for unincorporated businesses can be carried back a further two years making three years in total. The first year carry back is for unlimited losses as currently applies but the extended carry back is limited to £50,000 for each of the company accounting years in the above period and to £50,000 for each of 2008/09 and 2009/10 for unincorporated businesses.

Landfill tax

The rate of landfill tax increased to £40 per tonne (previously £32 per tonne) on 1 April 2009 and will increase to £48 per tonne from 1 April 2010.

VALUE ADDED TAX

Registration limit

From 1 May 2009 the turnover limit for registration increases to £68,000 (currently £67,000) and the limit for deregistration increases to £66,000 (currently £65,000).

VAT Rate

The VAT rate of 15% will return to 17½% from 1 January 2010. There will be provisions to prevent businesses issuing invoices or receiving payment for goods or services in advance which are to be provided after 1 January 2010 in order to apply the lower 15% rate of VAT to the transaction. The provisions will only apply however when the customer cannot recover all the VAT on the supply and certain other conditions apply.

Fuel scale charge

The VAT fuel scale charge band has been amended. The quarterly charges range from £16.43 for cars with emissions below 120g to £57.52 for those with emissions of 235g or above.

The new charges need to be applied to the first VAT accounting period commencing on or after 1 May 2009.

CAPITAL GAINS TAX (INDIVIDUALS)

Annual allowance

The annual allowance is increased to £10,100 from 6 April 2009 (previously £9,600).

INHERITANCE TAX (IHT)

Nil rate band

The nil rate band is increased to £325,000 (previously £312,000) from 6 April 2009 but there have been no changes in the rate of tax nor the various annual exemptions. The nil rate band will be £350,000 in 2010/11.

Any unused nil rate band on the death of a spouse or civil partner can be carried forward and the proportion unused is available on the death of the surviving spouse or civil partner, calculated using the nil rate band in the year of second death. Consequently a widow or widower who dies in 2009/10 could have up to £650,000 to set against the estate irrespective of when their spouse or civil partner died.

NATIONAL INSURANCE CONTRIBUTIONS

Rates - employed

From 6 April 2009 employees will pay 11% on earnings between £110 and £844 per week and 1% on earnings over £844 per week. Employers will pay 12.8% on earnings over £110 per week.

Rates – self-employed

From 6 April 2009 Class 2 National Insurance Contributions will increase to £2.40 per week. Class 4 Contributions will be 8% on profits between £5,715 and £43,875 and 1% on profits over £43,875.

OTHER

Stamp Duty Land Tax

The temporary increase in the SDLT exemption threshold for residential property from £125,000 to £175,000 has been extended until 31 December 2009.

Publishing the names of Deliberate Tax Defaulters

Taxpayers who are penalised for deliberate tax defaults will have their names and addresses published if the tax lost exceeds £25,000. Those penalised for careless rather than deliberate errors will not have their names published. The names will be published quarterly on the HMRC website and will remain on the website for 12 months. Taxpayers will be informed prior to publication and will be able to make representations as to why their details should not be published. Those who make full unprompted disclosure or who make disclosures within a time limit specified by HMRC will be spared publication.

Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.

UHY Wingfield Slater
Wellington House, 39 Wellington Street, Sheffield S1 1XB
Tel: 0114 275 1544 Facsimile: 0114 275 1366 Email: info@uhy-wingfieldslater.com Web Site: www.uhy-wingfieldslater.com
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