Ellis & Co Chartered Accountants Chester

Pre-Budget Summary Dec 09

Pre-Budget Report December 2009

The Chancellor's speech held few surprises and included the expected windfall tax on bank bonuses. Spending cuts and tax increases were announced to fund the recent bail out of the banking sector and reflate the economy. A summary of the expected changes to tax, National Insurance and VAT follows.

Please call Robert Ellis or Peter Way-Rider on 01244 343504 if you would like more information.

Tax changes announced 9 December 2009

Bank Payroll Tax

This tax will only affect bonuses paid directly, or via an intermediary, that exceed £25,000. The report describes the various banking institutions that will be included. All of our High Street banks and Building Societies are going to be affected as are asset managers, hedge funds, private equity and other similar businesses. The various terms published in the Pre-Budget Report are set out below:

• Rate of tax to be applied 50%
• Legislation will include anti-avoidance provisions
• Will apply to all discretionary and contractual bonus awards from 9 December 2009 to 5 April 2010. There will be an exception for contractual bonus entitlements where the payer has no discretion as to the amount of the bonus because of a contractual obligation existing at the time of the Chancellor's announcement.
• Bonus is defined as including cash, benefits or loans.
• The Bank Payroll Tax will be payable on 31 August 2010.

The Pre-Budget Report also states that Bank Payroll Tax will not be taken into account when calculating the bank's profit or loss for corporation tax or income tax purposes.

Research and Development Relief

Presently, to qualify for Research & Development relief, intellectual property associated with an Research & Development claim has to be owned by the company making the claim. This restriction is to be abolished for accounting periods ending on or after 9 December 2009.

National Insurance

Increases from 6 April 2010

The Lower Earnings Limit will increase by £2 a week to £97 per week.

The special Class 2 rate for Volunteer Development Workers will increase by 10p to £4.85 per week.

All other NIC rates are unchanged.

Increases from 6 April 2011

The main rates of NIC will be increased by an additional 0.5% over and above the rate increases announced in the Pre Budget Report 2008. The increased rates will be:

Class 1 and Class 4 main rate NICs, 12% and 9% respectively

Class 1 employer rate 13.8%

The additional rate of Class 1 and Class 4 NICs, 2%.

Pensions - Restricting tax relief for high income earners

This will affect individuals with incomes of £130,000 or over who, on or after 9 December 2009, change:

• their normal pattern of regular pension contributions; or
• the normal way in which their pension benefits are accrued;

and whose total pension contributions/benefits accrued exceed the special annual allowance of £20,000 a year (or in some circumstances £30,000).

Please call if you would like us to quantify the effects of this change should you be affected.

Inheritance Tax nil rate band freeze

The promised increase in the nil rate band in 2010-11 to £350,000 has been withdrawn.

It will remain at current levels, £325,000.

Legislation is also to be introduced to cover the avoidance of Inheritance Tax using certain trust arrangements involving property. This will only affect transactions entered into after 9 December 2009.

Furnished Holiday Let property

From 6 April 2010 for individuals and 1 April 2010 for companies, the expected withdrawal of the special tax rules, as announced in Budget 2009, for Furnished Holiday Let property is confirmed.

From these dates earnings from these properties will be treated the same as other property businesses.

If you own property presently benefiting from the favourable Furnished Holiday Let rules there is a short window of opportunity to take advantage of the existing rules. Well worth a visit to discuss your options with us, if you have not already done so.

No car tax for electric vehicles

From 6 April 2010 the company car tax charge for company car users who drive a car propelled solely by electricity will be reduced to 0%.
A similar reduction to 0% will apply to drivers of electric vans.

The measure for cars and vans is introduced for 5 years and may well lead to an increase in interest in electric company cars as tax free perks.

100% Allowance for electric vans

If you purchase a new electric van after 6 April 2010 (income tax payers), 1 April 2010 (corporation tax payers), you will be able to claim a 100% capital allowance.

The vehicle must be unused, not second hand.

The allowance is subject to the Government confirming that the facility is allowable State Aid.

VAT flat rate scheme changes

The flat rate scheme percentages are to be revised from 1 January 2010 to reflect the reinstatement of the 17.5% VAT rate on 1 January 2010.

Please note the rates will not return to those used prior to the December 2008 change to 15% VAT. A new table of rates should be available soon on HMRC's web site which will take into account the rate change and other data about VAT liabilities in each sector.