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The April 2009 Budget Statement received the Royal Assent on 20th July 2009 and became the Finance Act 2009. The original Budget statement ran to 126 sections plus 61 supplementary schedules. 434 pages in all. Much of it was foreshadowed by either the November 2008 pre Budget report or enacted as part of previous legation. As seems to be the fashion in recent times Chancellors have a habit of announcing changes which will not come into effect until some time in the future. Often years in advance. The Act can be found here ..... www.opsi.gov.uk/acts/acts2009/pdf/ukpga_20090010_en.pdf Further information about UK legislation can be found here ..... www.opsi.gov.uk/ According to the World Bank the U.K. is on on target to have the greateat amount of tax law in the world. At present only India exceeds the U.K. and this latest offering will do nothing to change the situation. Some of the main changes from this Bill are noted below. Readers are reminded not to take action based purely on the statements made within the pages of this website but to contact us for tailor-made advice to suit the specific circumstances. PERSONAL TAX Savings starting rate £2440, 10% > not applicable if taxable non-savings income is above this figure Basic rate band of £37,400, 20% Income over £37,400, 40% To confuse matters further some dividends will be taxed at other rates not in this list, for example 10% and 32.5%. However, due to the complexities of calculation, precise details are not set out here. More information is available in the "Taxes" page of this site. Contact us for more precise calculations suited to your situation. PERSONAL ALLOWANCES Age 65 to 74, £9490 Age 75 and over, £9640 Married couple's allowance, reduction in tax bill as follows: Age 75 and over, £696.50 Maximum income above which the age-related allowances and deductions are reduced, £22,900. Note particularly the new personal income tax rate of 50% which starts next tax year, form 6th April 2010. This applies to people earning over £150,000 (previously proposed to be 45%). See "Other proposals, future years" [below] for more infomation NATIONAL INSURANCE Class 1, employee, 11% on earnings between £5720 and £43888 PLUS 1% on earnings over £43888. Class 1, employer, not contracted out, 12.8% on earnings over £5720 per year. Class 2, £2.40 per week Class 3, voluntary, £12.05 per week Class 4, 8% on self-employment profits between £5175 and £43875 PLUS 1% on profits over £43875. COMPANY CARS The basic 2009/10 charge, for cars within the rating band of 121 g/km to 135 g/km, is 15%. For petrol cars this charge increases by 1% for each complete 5g/km in excess of 135 g/km. For diesel cars the charge increases at 3%. The total maximum charge, for all cars, is 35%. From 6th April 2009 a lower rate of 10% has been introduced for petrol cars with emissions at or below 120g/km (diesel cars 13%). COMPANY VANS CORPORATION TAX Small companies rate, 21% [increased from 20%]; full rate, 28% [decreased from 30%] Small companies rate lower limit, £300000 Small companies rate upper limit, £1500000 Between these limits a marginal rate, applies of 29.75% % [decreased from 32.5%]. Associated companies > when claiming the small companies' corporation tax rate companies will not be considered as "associated" just because their shareholders are members of the same business partnership UNLESS the Revenue determine that any "tax planning arrangements" have been made. CAPITAL ALLOWANCES Capital Allowances on cars have been reformed as promised in the Pre Budget report, with the final draft legislation published. In summary this allows cars emitting no more than 160g/km to be included in the main pool (but not to attract AIA) and cars emitting more than that to be included in the special rate pool. Restrictions on lease payments will apply to higher emitting cars and to shorter term hire periods in excess of 45 days. Motorcycles will no longer be treated as cars, and so will qualify for AIA. There are anti avoidance rules to prevent the rules being circumvented (including through the use of single asset leasing companies within groups). RELIEF FOR LOSSES FOREIGN INCOME OF COMPANIES FINANCIAL REGULATION OF COMPANIES The government has an intention to require the senior accounting officers in large companies to certify personally that the company's controls are adequate for the purpose of tax reporting. The penalties for failure to comply will be up to £5,000 levied on the officer personally. VALUE ADDED TAX : VAT Cash Accounting > Businesses with a turnover between £1.35M and £1.6M may opt to use “cash accounting” procedures. Agencies & temporary workers > Agencies supplying temporary workers benefited from a concession that they need only charge VAT on their own part of the charge to the end user. This concession was removed from April 2009. From that date agencies must apply VAT to the full amount of the charge to the end user. From 1st January 2010 the standard rate of VAT will revert from 15% to 17.5%.
Targeted legislation was introduced by the original Finance Bill 2009 effective from 25th November 2008 to counter schemes designed to avoid the effect of the change back 17.5%. A supplementary charge of 2.5%, payable on 1st January 2010, will be levied under certain specified circumstances. With effect from 31st March 2009 a supplementary charge will also be due where a pre-payment in excess of £100,000 is made for goods or services delivered after the VAT rate rise. This will not apply to any supply unaffected by the VAT rate increase where the arrangement is made as part of normal commercial practice. VAT Fuel Scale charges for taxing the private use of road fuel paid for a business are based on the CO2 emissions for each car used. The charges have been reduced to reflect recent changes in fuel prices. The new rates must be used for VAT return periods starting on or after 1st May 2009. Various other changes to the rules that determine where a supply takes place, tax point rules have been amended for determining the date, EC Sales Lists will need to be completed if a business supplies certain services to a business customer in Europe and a new electronic VAT refund procedure is being introduced from January to replace the current paper claim required for repayment of overseas VAT to a UK business. Correction of errors > REMINDER > after 1st July 2008 there is a significant change to the way errors are corrected. Errors under £10,000 (or 1% of the turnover declared in box 6 of the VAT Return, if greater, up to £50,000) may be corrected by including them in the VAT Return for the quarter in which the error was discovered. The need to make a separate notification of errors up to this limit is removed. Footnote >> Business Brief 15/09 >> although not actually part of the Finance Bill the government has announced the withdrawal of a significant protection route for VAT registered businesses that have relied upon HMRC advice in the past where that advice turns out to be incorrect. CAPITAL GAINS TAX INHERITANCE TAX TAXATION OF TRUSTS Now a reminder >> Trusts taxation has undergone major changes in recent years. Advanced legislation was introduced altering the way some key Trusts are taxed from 2008. In esence many "Life Interest" and "Accumulation & Maintenance" Trusts are now taxed as Discretionary Trusts. Transfers to these non-discretionery trusts will now become fully taxable and the beneficiary age is proposed to be compulsory at 18 not 25. It is now vital that everyone who has set up such a Trust undertakes a full and complete review of all action that may be required as a result of these proposals.It is believed the proposals will eliminate many of the fianancial planning advantages associated with these types of Trust. Conversely, they may open up other areas for fresh planning. There are two main Trust investment areas commonly used by life companies for IHT saving - the Loan Trust and "nil rate" Will Trust arrangements. These have been under review by life companies. Whilst the Loan Trust is unaffected the nil rate Trust is no longer effective as it once was and has been withdrawn by some life companies in its earlier form. This is because funds passing into a Loan Trust never leave the donor's/settlor's estate but, in the nil rate Trust, the Trustees hold powers to pass on Trust funds to children/grandchildren. The result is that this type of Trust will suffer a 20% initial tax charge and 5% periodic charges on funds every 10 years. NOTE... the wording of the legislation is still open to debate in some areas and we strongly recommend GREAT care is taken in all areas relating to tax planning particularly where Trusts are involved. STAMP DUTY LAND TAX The stamp duty holiday for residential properties valued up to £175,000 will be extended from 2nd September 2009 until midnight 31 December 2009. OTHER PROPOSALS, current year There are a number of changes to the remittance basis rules for non domiciled individuals which were introduced in Finance Act 2008. These include exemption from filing a Tax Return (from April 2008) for non domiciled individuals with up to £10,000 foreign employment income and £100 bank interest which has been taxed abroad. The annual ISA investment limit will be raised to £10,200, of which £5,100 can be saved in cash. For administration reasons these higher limits will be introduced for those aged 50 for the tax year 2009-10, with the first deposits being available from 6th October 2009. The higher limits will then apply to everyone else from 6th April 2010. Improvements have also been made to the EIS scheme, in particular, to extend the carry back rules by removing the limits which permit only half of the amount invested to be carried back, subject to an upper limit of £50,000. Offshore bonds, VCTs and enterprise investment schemes seem to become more attractive. Pension schemes allowances 2009/10 have increased. The Annual Allowance is £245,000 and the Lifetime Allowance is £1,750,000. The Finance Bill 2009 changes penalties for late payment of tax and late filing of Returns for employers who pay over PAYE and NIC late during a tax year. For the first time employers will face a rising penalty determined by the number of late payments made. Interest on late paid tax will also be harmonised across the taxes. Basic state pension will increase by at least 2.5% A rise of £100 to over-80s households and £50 to over-60s households in 2009/10, via the Winter Fuel Payment. The Finance Bill 2009 will introduce a procedure that will allow taxpayers, individual or corporate, to spread their payments over time. The procedure will be known as Managed Payment Plans (MPP) but cannot be introduced until 2011. As it is voluntary taxpayers will be protected from normal interest and penalty charges. Other changes in the Finance Bill will allow HMRC to collect tax debts through the PAYE system from a future date to be determined. From the date of Royal Assent HMRC can require taxpayers to disclose the name and addresses of tax debtors. In addition the Finance Act will enable HMRC to publish the names and details of those taxpayers that are liable to a civil penalty following a loss of tax of more than £25,000. IHT agricultural property relief (APR) and woodlands relief will be extended to apply to property in the European Economic Area from 22 April 2009. Amongst other things this will therefore allow CGT holdover relief in respect of such property. The Revenue is to reform of the error or mistake provisions to provide statutory relief where tax has been overpaid. The change will allow the claimant to make a claim when tax has been overpaid, whether or not there has been a mistake, and to determine the amount of the claim. The rules on when and on what grounds a claim can be made will be set out in legislation. Powers in relation to tax debt will be extended to allow HMRC to seek information about a missing tax debtor and to require companies and businesses to provide contact details. This will take effect from Royal Assent. OTHER PROPOSALS, future years Also from April 2010 the income tax personal allowance will be reduced for those with incomes over £100,000. Such taxpayers will lose £1 of personal allowance for every £2 by which their income exceeds this limit. It was originally intended to withdraw allowances in two slices at £100,000 and £140,000 with the taxpayer losing half the allowances in each slice. This will now be a single adjustment to the allowances applying at £100,000. Some people earning between £100,000 and £112,950 will be paying 60% tax on their earnings over £100,000. With other changes this could, in some cases, increase to 61.5%. Dividends within the higher band will be taxed at 42.5%. This will apply to taxable income above £150,000 from April 2010 (not 2011 as announced in November 2008). Non resident taxpayers can claim UK personal allowances under certain circumstances. The right of Commonwealth citizens to claim personal allowances in the UK is to be withdrawn from April 2010 as it is not compliant with human rights legislation. Most claimants will be able to claim on other grounds. The limit for simplified "three line accounts" on personal self assessment Tax Returns will be increased to align with the VAT registration threshold from 2009/10 (2010 Returns) and this relationship will be maintained. The limit will apply to both trading income and rental businesses and to both individual and partnership Tax Returns. From April 2011, the government plans to restrict pension tax relief for people earning more than £150,000 a year. From that level of income, the value of pension tax relief will be tapered down until it is 20 per cent for those on incomes over £180,000, meaning the tax relief - currently at 40% - will be halved. The government announced it will consult on this measure "shortly". There are to be “anti forestalling” measures to prevent people with income over £150,000 from accelerating pension contributions in the run up to April 2011 in order to gain the benefit of tax relief at 40% or 50%. The rules will impose a "special annual allowance" and provide a tax charge on the scheme if it is exceeded. It will be restricted so that it affects only those making contributions in excess of £20,000 in a tax year but will also apply to contributions made by the employer and to enhancements of benefits in defined benefit schemes. From April 2010 the “rate applicable to trusts” (“RAT”) will rise significantly from 40% to 50%, with a dividend trust rate of 42.5%.
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