Home | Budget 2009: Tax Summary

Budget 2009: Tax Summary

23 April 2009

The Chancellor delivered the 2009 Budget on 22 April 2009. The following is a summary of the main points of interest.

PRIVATE CLIENT

Income tax

From 6 April 2010 there will be an additional higher rate of 50 per cent on taxable income above £150,000.
The basic personal allowance for income tax will be reduced by £1 for every £2 an individual's net income is above £100,000.
An additional level of tax on dividends will be implemented to coincide with the new 50 per cent rate of tax. Dividends that would otherwise be taxable at the 50 per cent rate will be taxable at a new 42.5 per cent dividend rate.
The dividend trust rate will be increased from 32.5 per cent to 42.5 per cent and the trust rate will be increased from 40 per cent to 50 per cent.
From 6 October 2009 the investment limit in individual savings accounts will rise from £7,200 to £10,200, of which £5,100 will be able to be saved in cash, for investors over 50. The changes will take effect for all investors in ISAs from 6 April 2010.

Pensions - From 6 April 2011 measures will be put in place to restrict to the basic rate of income tax, tax relief on pension contributions by people with taxable income of £150,000 or more. Legislation will also be introduced in the Finance Bill 2009 to prevent those who will be affected from seeking to forestall the changes by increasing their pension savings outside their normal pattern prior to the changes taking affect.

Interest relief on "close" companies - anti-avoidance - from 19 March 2009 interest payments made by individuals in relation to loans made to certain small businesses) close companies or partnerships) will not qualify for income tax relief against the individual's other income if the interest is paid as part of an arrangement that is certain to allow the investor to exit the arrangement with more money than was originally invested where that was the investor's main purpose in being party to the arrangement.

BUSINESS TAXES

Corporation tax - The main rate of corporation tax will remain at 28%. The small companies' rate will remain at 21%.

Capital Allowances

Implementation of temporary 40 per cent first year allowance - this allowance will be introduced from 1 April 2009 for corporation tax and 6 April 2009 for income tax and will only be available for expenditure on plant and machinery in the general pool of assets that exceeds the limit for the Annual Investment Allowance (i.e. above £50,000).
Modernising tax relief for business expenditure on cars - from the same dates as above qualifying expenditure on new cars purchased for business purposes will be allocated to one of two general plant and machinery pools depending on CO2 emissions. Those cars with a higher CO2 rate (over 160g/km) will attract writing down allowances of 10 per cent. Those with lower emissions will be added to the main rate pool and attract writing down allowances of 20 per cent per annum.
Extension of the enhanced Capital Allowances schemes for energy saving and environmentally beneficial technology - the 100 per cent first year allowances schemes for "green technology" will be extended to include uninterruptible power supplies and air to water heat pumps and close control air conditioning systems.

Changes to company car tax - legislation will be implemented in the Finance Bill 2009 to set the rates for company car tax for 2010-11 and subsequent years and abolish the £80,000 price cap used to determine the cash equivalent of the car benefit charge from 2011-12. The legislation will have effect from 6 April 2011.

Extension of trading loss carry back for business - from 22 April 2009 for company accounting periods ending between 24 November 2008 and 23 November 2010 and for tax years 2008 -2009 and 2009-2010 for unincorporated businesses the period of time businesses will be able to carry back losses for tax purposes will be extended from one year to three years, with losses being carried back against later years first. While the amount that can be carried back one year remains unlimited, a maximum of £50,000 will be available to carry back to each of the earlier two years.

Foreign Profits and Dividends

From 1 July 2009 -

Dividends and other distributions received by UK companies from foreign companies will largely be exempt from corporation tax and UK distributions will be exempt to the same extent
The Controlled Foreign Company holding company exemptions for superior and non local holding companies and the Acceptable Distribution Policy exemption will be removed
The Treasury Consents rules that require approval from HM Treasury before certain transactions are undertaken will be repealed and replaced by a post transaction reporting obligation.
From accounting periods commencing on or after 1 January 2010 finance expense payable by UK members of a group of companies will be subject to a cap equal to the consolidated gross finance expense of that group

Living accommodation provided by reason of employment - lease premiums - From 22 April 2009 leases of less than 10 years that are entered into or extended will have any lease premiums paid treated as if they are actually rent paid. The lease premium will be treated as spread out across the period of the lease and tax will be chargeable on the employer on that amount plus any rent paid less any made good by the employee. The employer will be subject to NIC.

Venture Capital Trusts (VCTs), Corporate Venturing Schemes (CVS) and Enterprise Investment Schemes (EIS)

From 22 April 2009 -

The maximum period of time within which money raised by the issue of shares under the EIS, CVS or VCTs has to be invested is extended to two years from the date of the issue of the shares or the commencement of a qualifying activity.
Restrictions on claiming income tax relief for the previous year on shares issued will be removed and the full amount subscribed (subject to the overriding limit of £500,000) will be allowed to be carried back.
The Government has removed the requirement that money raised from the issue of other shares of the same class issued at the same time as the qualifying EIS shares be used within the same time limits as applies to EIS shares.

PROPERTY

Stamp Duty Land Tax ("SDLT")

Legislation will be implemented in the Finance Bill 2009 to -

Continue the temporary increase in the SDLT residential threshold to £175,000 until 31 December 2009.
Extend favourable SDLT treatment to purchasers under shared ownership schemes operated by profit making Registered Providers of Social Housing where the scheme is assisted by public subsidy.
Extend SDLT relief for purchases by Registered Social Landlords to profit making Registered Providers of Social Housing where the purchase is assisted by public subsidy.
Simplify the SDLT treatment of purchasers under the Rent to Shared Ownership (Rent to Homebuy) schemes.
The Government has also issued a consultation document considering changes to disclosure rules as they relate to SDLT and in particular residential property worth more than £1 million.

Landfill Tax Rate - Increase in standard rate - from 1 April 2010 the standard rate will be increased to £48 per tonne from the current £40 per tonne (as of 1 April 2009.)

VAT

Cross Border VAT

From 1 January 2010 across the EU -

The place of supply rules will be changed so that as far as possible for business to business supplies VAT is payable in the country the supply is consumed rather than where the supplier is located.
The time of supply rules will be changed so that where there is a single supply the time of supply will be considered to occur when the supply is completed or when it is paid for if earlier. If the supply is continuous the time of supply for VAT purposes will be considered to occur at the end of each billing or payment period.
Implementation of EC Sales Lists - There will be a requirement for UK businesses that supply services to business customers in other EU countries, where the place of supply is considered to be the customer's country, to complete EC Sales Lists (ESLs) for each quarter.
Cross Border VAT refund mechanism - UK businesses that incur VAT in other EU countries will be required to submit claims for overseas VAT electronically on a standardised form to HMRC rather than direct to the member state where the VAT is incurred for refund.

Measures having domestic effect

Reversion to standard 17.5 per cent rate of VAT - from 1 January 2010 the standard rate of VAT will return to 17.5 per cent.
Increased threshold for registration - from 1 May 2009 the threshold will rise from £67,000 to £68,000.
Increased threshold for deregistration - from 1 May 2009 the threshold for deregistration will be increased from £65,000 to £66,000.
Option to tax land & buildings - from 1 May 2009 there will be a further extension to the automatic permission conditions allowed by HMRC to allow more taxpayers to opt to tax their land without seeking permission from HMRC. However, HMRC are withdrawing two statutory concessions which may disadvantage taxpayers.

HMRC AND TAX ADMINISTRATION

Personal Tax Accountability of Senior Accounting Officers of Large Companies

Measures will be implemented in the Finance Bill 2009 so that -

Senior accounting officers of large companies will be required to take reasonable steps to establish and monitor accounting systems within their companies that are adequate for the purposes of tax reporting.
In addition, they will be required to certify annually that such systems are adequate for the purposes of tax reporting and specify the nature of any inadequacies and confirm that these inadequacies have been reported to the company's auditors.
The company will also be required to notify HMRC of the identity of the Senior Accounting Officer of the company.
Any failure to adhere to these requirements will be penalised by penalties chargeable both personally on the Senior Accounting Officer and the company.

Publishing the names of deliberate tax defaulters - taxpayers, (individuals, businesses and companies) who are penalised for deliberately understating tax due or overstating claims or losses that leads to a loss of tax of over £25,000 will have their names and details published by HMRC. The details will include their names and addresses, details of their trade, profession or sector, the amount of tax avoided and the period covered.

Voluntary Managed Payment Plans (MPPs) will be introduced which will allow taxpayers or companies to spread their income or corporation tax payments equally over a period straddling the normal due dates.

Reclaiming Income Tax, Capital Gains Tax and Corporation Tax Overpayments - legislation will be implemented in the Finance Bill 2009 to provide a means of reclaiming overpayments of tax where there is no other statutory route. It will replace any other non -statutory claims.

New powers of HMRC -

Legislation will be implemented in the Finance Bill 2009 to -

Allow HMRC to collect small debts that it is owed through Pay As You Earn (PAYE)
Provide a third party information power requiring companies and businesses to supply HMRC with contact details for people who are in debt to HMRC with whom HMRC has lost contact.
Introduce a penalty charge for carelessly or deliberately providing inaccurate information or a document that contains an inaccuracy.
Align and modernise record keeping requirements
Better align time limits for making tax assessments and claims.
Provide HMRC with new inspection and information powers including a modernised HMRC valuation power.

Offshore disclosure opportunity - The government has announced a new off shore disclosure opportunity that will run from autumn 2009 to March 2010. It is described as the final opportunity to allow account holders to make voluntary disclosures of unpaid tax.

Late Filing and Payment - The penalties for late filing of most types of tax return (excluding VAT) will be reformed from April 2010. Late PAYE returns will attract penalties, and the remission of £100 penalty for late filing under self-assessment will be abolished. PAYE liabilities will be subject to interest for late payment from April 2010.

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