News
April 2009
The Budget Announcement
22 April 2009
Alistair Darling has delivered his Budget Report against a background of recession and with little in the way of good news for UK businesses and individuals in the short-to-medium term. The positive impact of the new capital allowance provisions will be limited by the inevitable cut in capital expenditure by SMEs. However, the extension of the loss carry-back rules will provide light relief, and there are some opportunities for tax planning as a result:
Summary of key changes
- As announced in the Pre-Budget Report, the proposed increase in the small companies’ rate of Corporation Tax from 21% to 22% has been postponed until 1 April 2010.
- The main rate of Corporation Tax remains at 28%.
- A temporary first-year capital allowance of 40% can now be claimed on certain plant and machinery expenditure.
- We now have confirmation that, from July 2009, UK companies will be exempt from Corporation Tax on most foreign dividends received. This will benefit groups operating in countries where local tax is lower than the UK rate. Thus withholding tax becomes a real cost.
- The period for which a business can carry-back trading losses has been temporarily extended by two years. Businesses can now carry-back losses of a maximum of £50,000 per year against profits arising in the two years preceding the previous year. As before, unlimited losses can be carried-back against profits of the preceding year. Importantly, this cannot be used to offset VAT and PAYE liabilities.
- The release of trade debt between connected parties is no longer taxable for the borrowing company.
- HMRC has emphasised its commitment to helping businesses who are experiencing cash flow difficulties. However, they will only provide “breathing space” to companies that are “viable businesses” and with a “genuine need”. HMRC will not accept being the only creditor of the business.
- Mr Darling announced various attempts to address a number of tax avoidance arrangements and introduced a more robust approach to compliance. Increased penalties will be charged in respect of under-declaration of taxes, and also for lack of cooperation in the course of HMRC enquiries.
- A new emissions-based approach to capital allowance tax relief replaces the existing regime for business cars. This will take place from 1 April 2009 for Corporation Tax and 6 April 2009 for Income Tax.
- These changes also impact on the expensive car leasing disallowance. Expenditure on cars with emissions of 160g CO2 per km or less will be added to the general pool and attract 20% allowance per year. Cars with emissions above 160g CO2 per km will attract annual writing-down allowances of 10% and will be included in the special-rate pool.
- From April 2011 the level of taxable benefit arising on company cars is to be revised, which will lead to an increase in the level of taxable benefit. There will also be the scrapping of the £80,000 upper limit for the calculation of the benefit in kind.
- The reduction from 17.5% to 15% is confirmed and will end on 31 December 2009. However, new legislation has been put in place to allow future temporary increases in the standard rate, leading many to predict that VAT will increase in 2010. The maximum rate possible is 25%. Be warned!
- The VAT registration threshold has been increased to £68,000, and the deregistration threshold increased to £66,000, with effect from 1 May 2009.
- Companies supplying services to other EU member states will be required to complete EC Sales Lists with effect from 1 January 2010. This requirement is already in place for the supply of goods. This is an additional administrative burden.
- There will be some changes to accounting for cross-border supplies within Europe. From 1 January 2010, VAT is usually to be accounted for in the country where the customer is. However, VAT on services related directly to land will continue to be accounted for in the country where the land is situated.
- Businesses will have an additional three months to reclaim input VAT suffered in other EU member states.
- HMRC plans to grant automatic permission to businesses that want to opt to tax land having previously made exempt supplies from that land. We await full details from HMRC.
The following changes are to be introduced in April 2010:
- An additional income tax rate of 50% will apply to people earning in excess of £150,000
- The income tax personal allowance will be phased out for those with incomes over £100,000. The personal allowance will be reduced by £1 for every £2 above the £100,000 threshold.
- From April 2011 personal pension contribution relief will be restricted for those earning over £150,000. This restriction will be tapered to 20% for those earning more than £180,000.
- Measures have been introduced to prevent the abnormal acceleration of personal contributions paid from today.
Income tax – personal and age-related allowances 2009-2010 |
|
|
£ |
Personal allowance (age under 65) |
6,475 |
Personal allowance (age 65-74) |
9,490 |
Personal allowance (age 75 and over) |
9,640 |
Married couple’s allowance (aged less than 75 and born before 6 April 1935) |
6,865 |
Married couple’s allowance (age 75 and over) |
6,965 |
Married couple’s allowance (minimum amount) |
2,670 |
Age allowances income limit |
22,900 |
Blind person’s allowance |
1,890 |
The proposed change from April 2011 of a 0.5% increase in the employer, employee and self-employed rates of national insurance contributions (both main and additional rates) will still take place.
The overall annual investment limit for ISAs rises to £10,200, of which £5,100 can be saved in cash. These limits will be available to over 50s from October 2009, and to everyone from 6 April 2010.
