Tax Update (May 2009)
Budget 2009
The Chancellor of the Exchequer stood at the dispatch box and
delivered his budget statement on 22nd April amidst a
gloomy economic outlook. Alasdair Darling would appear to be able
to see light at the end of the tunnel with predictions of economic
growth for next year of 1.25% followed the year after with growth
of 3.5%.
The predictions were seen as "ludicrously optimistic" and
"fantasy forecasts" by the opposition although they would not
commit to reversing any of the actions taken by the Chancellor
should they get into power following the next general election.
Many of the changes were highlighted in the pre-budget statement
but many were additional actions due to the greater than expected
downturn over the last few months. Below are just a few of the more
important items from the 93 budget notes produced off the back of
the budget.
New Tax Rate and Reduction of Personal
Allowances
In the pre-budget statement the Chancellor announced that he was
introducing a new top rate of tax of 45% for those earning more
than £150,000 and since then has re-considered and has now
increased this to 50%. To tie in with the increased rate an
income-related reduction of your personal allowances comes into
force. The personal allowance will be reduced at the rate of £1 for
every £2 of income in excess of £100,000 meaning that a standard
taxpayer will have no personal allowance if you earn £112,950.
Living Accommodation Changes
Under normal circumstances where living accommodation is
provided to an employee there is a benefit in kind. The taxable
value of this benefit in kind is calculated based upon the greater
of the gross rating value or the rental payment made by the
employer, less rentals paid by the employee. It has become common
practice in recent years for properties of this nature to be
subject of a lease with a lease premium paid up front. As the lease
payments were not seen as rental the value of the lease may well be
in excess of the rating value which would be used in these
circumstances.
Where a lease is entered into which involves a lease premium,
this premium will be seen as a rental equivalent and therefore if
this exceeds the gross rating value the benefit in kind will be
based on the lease premium value.
Car Benefits Become More Expensive
From 6th April 2011 the benefit in kind on company
cars is to be simplified and as usual with HMRC simplifications
this means more tax. The basis of the calculation of the benefit is
the CO2 emissions for the individual car and the list
price when new. Electrically propelled cars received a reduction
from the 15% lower limit of 6% to 9%. This reduction is to be
replaced by a single 9% charge.
Diesel cars currently have a 3% loading on top of the standard
charge other than Euro IV cars. The loading will remain for normal
diesel cars and the Euro IV reduction of 3% will be removed meaning
that all diesel cars will now be charged at 3% above the standard
rates up to the 35% cap.
The current standard starting 130 g/km emission level will be
reduced to 125 g/km bringing more cars into the higher rates.
After years of encouraging environmentally friendly cars such as
electric/petrol hybrids, bi-fuel, road fuel gas and bioethanol
powered cars the Chancellor has seen fit to abolish the discounts
from the standard charges and the benefit on these cars will be
calculated as all other petrol cars.
An £80,000 cap exists when taking into account the list price of
a car so whilst the car may cost £100,000 it is restricted to the
£80,000 cap. This cap is to be removed and calculations will be
based on the list price for all cars. An employee with a £100,000
car and CO2 level warranting a 30% charge will pay £2,400 p.a. more
in tax and the business will have to pay more than £700 extra in
Class 1A NICs.
Corporation Tax Rates Retained
The Chancellor has seen fit to retain previously announced
corporation tax rates from 2010-11 tax year at 28% for the main
rate for businesses with taxable profits in excess of £1.5m (30% if
ring fenced) and 21% for small companies with taxable profits of
less than £300,000 (19% if ring fenced). Marginal relief for
businesses earning between these lower and upper amounts also
remains in place.
Temporary First-Year Allowance for Plant &
Machinery
Last year's budget introduced a new Annual Investment Allowance
where by businesses could claim the AIA in respect of expenditure
up to £50,000 on plant & machinery. The excess above this level
was transferred to the normal plant & machinery pool on which
writing down allowance of 20% could be claimed.
For the tax year 2009-10 only a first year allowance has been
introduced of 40%. Therefore for this tax year only the excess
above £50,000 you will be able to claim 40%. However, it is
debatable how much this is worth to a business that is making
losses.
Extension of Loss Carry Back
Business has always been able to carry back losses to the
previous accounting period to offset against profits and to reclaim
the tax. This remains in place and is unlimited. However, for
accounting periods ending in the period 24 November 2008 and 23
November 2010 and tax year 2008-09 and 2009-10 for unincorporated
business, you will be able to carry back losses 3 years. Other than
the previous year you will be able to carry back a maximum of
£50,000 to each of the 2 years prior to that remembering that you
must utilise the latest year first.
Publishing of Names of Deliberate Tax
Defaulters
HMRC have always had the right to publish the names of
individuals, businesses and companies that have committed a
criminal offence but the Finance Bill 2009 will introduce a right
to publish not only criminal offences but also hose found guilty
under civil proceedings.
This will apply to taxpayers who are penalised for deliberate
understatement of tax, overstating claims or losses, failing to
notify HMRC when required to do so and certain VAT and excise
wrongdoings. The loss to the Revenue must be £25,000 or more.
If you make a full unprompted or a full prompted disclosure you
will not be named.
More details and operative dates are yet to be publicised but it
is known that names will only be published for one year before
being removed.
VAT Threshold
The VAT turnover threshold for registration has been increased
to £68,000 with the deregistration limit increased to £66,000.
Miscellaneous
A car scrappage scheme is introduced from May 2009 until March
2010 where motorists can get £2,000 discount on new cars if they
trade in their older than 10 years cars. It is thought that £1,000
of this will come from government with the other £1,000 from the
car dealers. There is however a limitation on funds for this scheme
and therefore not all eligible individuals will be able to
benefit.
Fuel duty will rise in September putting 2p on a litre.
Duty on tobacco rose on budget day by 2% meaning that almost 70%
of the cost of a packet of cigarettes now goes to the Revenue.
Duty on alcohol also rose by 2% making a pint of beer 1p more, a
bottle of spirits 13p more and wine 4p more.