Pre Budget Report 2008
The Chancellor, Alastair Darling delivered the Pre Budget Report
on 24th November and unlike previous reports this was
more like a mini budget. Given the gloomy economic climate his
intention is to encourage people to go out and spend and help
rejuvenate the UK economy.
To aid this he has reduced the standard rate of VAT from 17.5%
to 15% as from 1st December 2008. Whilst this will not
impact on VAT registered businesses it will see a reduction in
costs for non-registered business. For the average taxpayer it will
provide you with approximately an extra £10 per month. This measure
will only operate until 31st December 2009 at which
point VAT reverts to 17.5%.
Even more benefit will be available from April 2009 in the form
of increased personal allowances. The increase to £6,475 will
result in an extra £7 per month for the average taxpayer. However,
for individuals that is about as far as the good news goes.
Although the Chancellor has seen fit in the past to put off
already announced increases in fuel duties he has bitten the bullet
and increases of 2p per litre on both diesel and petrol will come
into operation from 1st December 2008. This will mean an
extra cost of £3 per month for an average mileage driver.
Nor does Alastair Darling want you to enjoy your new found
wealth too much. From 1st December the duty on alcohol is increased
by 4% making a bottle of spirits 37p more, and 8% on beer, wine,
made-wine and cider making beer 5p a pint more and wine 20p a
bottle more. In addition cigarettes have gone up by 20p per packet
from 24th November 2008.
From April 2010 individuals earning more than £100,000 per annum
will have their personal allowance reduced by £1 for every £2 above
£100,000 up to a maximum of half the personal allowances so that
any one earning £112,075 will only have £3,017.50 personal
allowances to offset. Should they earn more than £140,000 their
personal allowance will further be reduced by £1 for every £2 up to
the maximum of their allowance.
In addition from April 2011 high earners with income of £150,000
or more will be subject to a new tax rate of 45%.
Changes also come into place in 2011 for National Insurance,
commonly seen these days as a 'backdoor' tax, with the main rate
Class 1 and Class 4 increasing by 0.5% to 11.5% and 8.5%
respectively. The Class 1 employer rate will also increase by 0.5%
to 13.3% including Class 1A and Class 1B contributions. The
additional rate will increase from 1% to 1.5%. This will mean that
employees will be no better off than they are now and employers
will be worse off to the tune of £107 per average wage
employee.
Small businesses should benefit from the delay in the
introduction of the 22% small company rate which has been deferred
until April 2010. However, given that many small businesses would
not be paying tax in relation to accounting periods ending on or
after April 2009 until 2010 it is unclear that this is a benefit at
a time when help is needed. What may be more beneficial is the
availability to carry back losses for 3 years rather than 1.
Although even this has restrictions in that only a maximum of
£50,000 can be utilised and the losses must result from accounts
ending between 24th November 2008 and 23rd
November 2009. For Income Tax returns it relates to losses in the
2008/09 return.
The Tax Advice Service and your Mentor consultant are
there to answer questions about the Pre Budget Report and work
through complex tax issues with you.