The Chancellor presented his second budget in the recent challenging economic climate; however, this budget appeared particularly unexciting for the low to middle earners. Most proposals were introduced in the pre budget report last November.
The increase in the proposed new additional rate of Income Tax from 45% to 50% and the acceleration of its introduction by one year to 6 April 2010 will hit the headlines but will add relatively little to the public purse. This budget was clearly aimed at the ‘Fat Cat’ city slickers but may well affect other high earners, such as GP’s and head teachers. The effect of the tapering of personal allowances means that the highest effective rate of tax could be 60% for those earning between £100,000 and £113,000 per year.
As usual alcohol, tobacco and fuel were subject to increases.
National Insurance
From 6 April 2011, all rates of national insurance contributions payable by both employees and employers will increase by 0.5%. The point at which primary NI contributions become payable will also be aligned with the starting rate for income tax purposes.
Pension contributions
From midnight on 22 April 2009, rules on the level of tax relief available on pension contributions will be introduced. This will affect individuals with annual earnings over £150,000 that contribute more than £20,000 to pension schemes if they have not been paying regular premiums. The main changes from 6 April 2011 will set an upper limit on the amount of additional pension contributions upon which full tax relief at the highest rates of tax can be given which will depend on earnings.
Changes to car benefits
The Chancellor went against the Government’s usual green credentials, announcing that the discount applicable to company cars using more environmentally friendly fuel sources will be abolished from 2011. At present, qualifying low emission cars attract a lower percentage rate, when calculating the car benefit. From 2011, the lowest percentage that will be used to calculate the car benefit will increase to 15%. There will be little or no incentive for company car drivers to switch to environmentally friendly vehicles and therefore will not assist the Government in achieving its stated targets on CO2 emissions.
Small companies tax rates
As announced in the Pre-Budget Report in November 2008, the small Companies rate of corporation tax of 21% will continue from 1 April 2009. It had previously been proposed to increase the rate to 22% from 1 April 2009.
Trading loss carry back provisions
A further extension of the loss carry back provisions both for companies and unincorporated businesses was granted. Generally, a loss incurred by a company in an accounting period can be offset against profits of the previous accounting period. In the Pre-Budget Report in November 2008, the Chancellor announced that these provisions would be extended to allow a company to carry back losses of up to £50,000 for a further two accounting periods. This extension will now apply to losses incurred in accounting periods ending in the twenty-four months to 23 November 2010. Relief for losses incurred by unincorporated businesses for the tax years 2008-09 and 2009-10 are also extended.
Businesses may need to consider changing their accounting date to maximise the benefit of the extended loss relief provisions.
Additional first-year allowances
The Chancellor has announced a further temporary measure to encourage businesses to invest in plant and machinery by increasing the rate of writing down allowance from 20% to 40% for one year from 1 April 2009. The new 40% rate will apply to expenditure on plant and machinery in excess of the £50,000 AIA entering the general pool. Expenditure on long-life assets and integral features which is allocated to the 10% special rate pool will not qualify.
Capital allowances on cars
Expenditure on new cars on or after 1 April 2009 will be allocated to the main rate pool or special rate pool, depending on the car’s CO2 emissions figure. Cars with CO2 emissions of between 110g/km and 160g/km will be allocated to the main rate pool and for 2009/10 will qualify for first year allowances at 40% and writing down allowances at 20%. Cars with higher emissions will be allocated to the special rate pool where the writing down allowance is 10%. The most efficient cars, those with emissions below 110g/km, qualify for a 100% first year allowance. Expensive cars acquired before 1 April 2009 will continue to be held in single asset pools for a five year transitional period, after which they will be transferred to the special rate pool. Cars costing over £12,000 acquired after 6 April 2009 will also continue to be in a single asset pool where there is non-business use.
Value added tax
VAT registration: The VAT registration threshold will increase from £67,000 to £68,000 from 1 May 2009. The VAT deregistration threshold will increase from £65,000 to £66,000 also from 1 May 2009.
Fuel scale charges: VAT fuel scale charge figures are to be reduced for VAT return periods beginning on or after 1 May 2009.
VAT standard rate: As expected, the standard rate of VAT will revert to 17.5% from 1 January 2010. Additional rules will be introduced to prevent VAT avoidance arising from the increase in the standard rate.
Jobs market
An additional £1.7bn is be put aside for Job Centres and the New Deal. The government intends to work with employers to create or support as many as 250,000 jobs. In particular there is a pledge to guarantee jobs or training for any individuals under the age of 25 who have been out of work for more than twelve months.
Written by Phil Hendy of Moore Stephens, Malmesbury. For further info check out the budget update on our website or email phil@msmalmesbury.com
April 27, 2009 @ 4:05 pm
That’s great Phil, This is all good to know and nicely summarised.