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Pre-budget report 2009

10 December 2009

The Chancellor delivered the 2009 Pre-Budget Report yesterday (9 December). The following is a summary of the main tax points of interest:

Private Client

National Insurance – All rates of national insurance will increase by 0.5% from April 2011, in addition to the 0.5% rise announced in the 2008 Pre-Budget Report. The threshold at which national insurance becomes payable will be increased by £570.

Income Tax - personal allowances and the higher rate threshold for 2010/11 will be frozen at 2009/10 levels. As previously announced a 50% tax rate will apply to income over £150,000 from 2010/11. The higher rate of income tax threshold will be frozen in 2012/13 at the 2011/12 level.

Restriction of Pension Tax Relief – the rules introduced in Budget 2009 have been tightened so that any pension benefit provided by an employer or third party will be taken into account in calculating whether a person’s income exceeds the £150,000 threshold. Also, the anti-forestalling measures have been extended to restrict irregular pension contributions over £20,000 (or £30,000 in some circumstances) for those whose income is £130,000 or over from 9 December 2009.

Inheritance Tax – the inheritance tax allowance will be frozen at £325,000 in the 2010/11 tax year. Legislation closing two inheritance tax avoidance schemes involving the transfer of property to a trust in which the transferor retains a future interest, and also where a person purchases an interest in a trust will be introduced.

Landline Duty – a duty of 50p per month for each telephone land-line will be introduced in the 2010/11 tax year.

Business Taxes

Bankers’ Tax – a 50% tax rate payable by banks and building societies on all bonuses of more than £25,000 per employee paid between 9 December 2009 and 5 April 2010 is being introduced. The tax paid will be non-deductible for corporation tax purposes. The tax is payable on 31 August 2010.

Small Companies’ Rate of Corporation Tax – the planned increase from 21% to 22% of the small companies’ rate of corporation tax has been postponed for the 2010/11 tax year.

Main rate of Corporation Tax – this remains at 28%.

Venture Capital and Enterprise Management Schemes – a new definition of “small” enterprise replacing the current gross assets and number of employees tests is being proposed. Draft legislation has been published incorporating previously announced changes, to ensure that the schemes comply with the State Aid rules.

Enterprise Management Incentive – the regime will be extended to apply to companies which have a UK permanent establishment in order to comply with State Aid rules.

Furnished Holiday Lettings – as previously announced the FHL rules will be withdrawn from 2010/11.

Capital Allowances – Finance Bill 2010 will contain legislation to stop certain tax-motivated plant and machinery capital allowance transactions.

Low-carbon transport – from April 2010, electric cars and vans will be exempt from Company Car Tax and the Van Benefit Charge for 5 years. Also, a 100% first-year allowance for electric vans will be introduced.

Fuel benefit charge – the fuel benefit charge multiplier will be increased from £16,900 to £18,000.

Patent Box – from April 2013, a reduced corporation tax rate of 10% will apply to income from patents granted after new legislation, which will be set out in Finance Bill 2011, is passed.

Property

Empty Property Rates Relief – the temporary threshold for empty property rates relief will increase to £18,000 and be extended to include the 2010/11 tax year.

Stamp Duty Land Tax – the zero-rate band will be reduced on 1 January 2010 from £175,000 to £150,000 for residential property in disadvantaged areas, and to £125,000 for other residential property.

Tax Avoidance Disclosure Regime – regulations will come into effect by 1 April 2010 to require the disclosure of certain schemes involving high-value (£1m or over) residential property. The users of all SDLT avoidance schemes must report the use of the scheme to HMRC.

VAT

VAT Rate – as previously announced the standard rate of VAT will revert to 17.5% on 1 January 2010, though any further increases have been deferred for the time being.

Flat Rate Scheme – the sector rates for the Flat Rate Scheme have been updated.

HMRC and Tax Administration

Offshore bank accounts – a new requirement to notify HMRC when opening an offshore bank account in certain high-risk jurisdictions where the account balance exceeds £25,000 will be introduced.

Bank’s Code of Practice - a Code of Practice on taxation for Banks has been published to encourage compliance with the spirit as well as the letter of the law.

Business Payment Support Service – HMRC will continue to offer this service to businesses facing temporary financial difficulties. 

Penalties Regime – the remaining taxes not under the new penalty regime introduced in Finance Act 2009 will be brought into this regime.

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Niall Murphy

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