News
December 2009
Tax Update
This article is written prior to the Chancellor's 2009 pre-Budget Report, in which Alistair Darling is expected to tackle the combined problems of reduced tax revenues and increased government borrowing.
An increase in existing taxes and increased enforcement of existing tax rules can be expected as well as the creation of new taxes.
We already know that:
- the standard rate of VAT will revert to its old level of 17.5 per cent from 1 January 2010;
- from April 2010, higher earners, earning £150,000 or more will incur an income tax rate of 50%;
- from April 2010, such higher earners will only receive basic rate tax relief at 20% on their pension contributions;
- personal allowances are being withdrawn for those with income of more than £100,000;
- national insurance contributions for both employers and employees are set to increase by 0.5% in April 2011.
There is much speculation over other measures that may have been announced in the PBR or could be in the 2010 budget. With 2010 being an election year, a change of government could see radical changes.
The issues of Residence and Domicile may come under further scrutiny for individuals as they seek to avoid the higher rates of income tax.
The discrepancy in income tax and capital gains tax rates of 50% compared to 18% or 10% give taxpayers an opportunity for legitimate planning, until such time as the government chooses to legislate against such a discrepancy.
The recession has given employers the opportunity to consider other methods of rewarding and incentivising employees and it is still worthwhile considering such measures. For instance share option schemes can provide tax benefits to both employers and employees and given the lower valuation of a business coming out of recession, now may be a good opportunity to consider such measures.
From an individual's point of view the exercising of share options prior to the increase in tax rates and the potential growth in value post recession may be worth contemplation before April 2010.
In respect of corporation tax, 2009 has seen the introduction of the exemption for foreign dividend income, to encourage parent companies to remain in the UK. However, the revised controlled foreign company rules remain a concern, whilst the new debt cap rules commencing 1 January 2010 may increase the cost of running a UK company financed by group loans.
So we reach the end of another calendar year and first decade of the new millennium with expectation of interesting times in the UK tax world.
