2009 Budget News SummaryFriday, April 24th, 2009
Income tax and National Insurance contributions – April 2009
All of the changes to tax and NICs rates, allowances and thresholds that were announced in the Pre-Budget Report (PBR) to take effect from 6 April 2009 are confirmed without any change.
Income tax changes – April 2010
The changes announced in PBR to the personal allowance from April 2010 and to income tax rates from April 2011 have been amended, as follows. Both changes are now effective from April 2010.
- A new higher tax rate of 50% will apply to taxable income above £150,000. (The PBR proposal was for a new tax rate of 45% from April 2011.)
- The basic personal allowance will be gradually reduced to nil when “adjusted net income” exceeds £100,000. (The PBR proposal was a two-stage reduction from April 2010, a half of the personal allowance when earnings exceed £100,000 and the remainder when earnings exceed £140,000.) A taxpayer’s “adjusted net income” is the same measure of income that is used already to reduce the age-related personal allowances for taxpayers from age 65.
Statutory redundancy pay
There is to be a one-off increase in the weekly statutory redundancy pay ceiling from October 2009, from £350 to £380.
The following changes will be made to company car taxation from April 2011:
- The lower CO2 emissions threshold for the application of the “appropriate percentage” will be reduced by 5 g/km to 125 g/km. (The threshold for 2009/10 is 135 g/km, with a reduction to 130 g/km already announced for 2010/11.)
- The £80,000 cap that is applied to the list price of a company car in order to limit its cash equivalent will be abolished.
- The “appropriate percentage” applied to electrically-propelled cars registered from 1998 onwards will be reduced from 15% to 9%. (This is a simplification measure – the 9% already applies by means of a 6 percentage point reduction from the 15% charge.)
- The discounts that are applied to
- hybrid (electric and petrol) cars,
- bi-fuel (petrol and road fuel gas) cars,
- bio-ethanol cars, and
- Euro 4 compliant diesel cars, registered before 1 January 2006
will be abolished, with the effect that a car’s “appropriate percentage” will be derived solely from its CO2 emission rating.
- There will be no changes from April 2011 to the 10% charge applied to “qualifying low emissions” cars, i.e. cars with emissions ratings that do not exceed 120 g/km, irrespective of their fuel type.
The following changes will be made to company car taxation from April 2012:
- The 10% charge for “qualifying low emissions” cars will be abolished.
- The range of percentages currently used to calculate the tax on company cars (i.e. 15% to 35%) will be replaced by a range that starts at 10%.
- Consideration is being given to abolishing the 3% diesel supplement for diesel cars that meet the future Euro 6 emissions standards.
From 2011/12, the tax relief on pension contributions will be restricted to basic rate where an individual’s annual income is £150,000 or more. The relief will be tapered until it is 20% for those with incomes of £180,000. An appropriate method of limiting tax relief for defined benefits schemes and personal pension schemes will be the subject of a consultation exercise.
To prevent large sums being paid into pension funds in advance of April 2011 in order to obtain tax relief at 40%, transitional provisions apply immediately that limit full tax relief on the higher of £20,000 and the individual’s normal pattern of contributions. Those provisions will not affect those who have never earned in excess of £150,000 a year, or continue with their regular, at least quarterly, pattern of contributions or normal benefit accrual.
Tax avoidance schemes
HMRC is to publish details of selected avoidance schemes that are thought to be ineffective, in order to discourage potential users. HMRC will challenge these schemes when encountered.
Business Payment Support Service
Businesses are already able to agree to spread payments of VAT, PAYE tax, NICs and Corporation Tax if they have temporary financial difficulties. The scheme is being extended so that the amount of the payments can be adjusted to reflect anticipated future trading losses.
The government is to consult with a view to finding a long term solution to the issue of false self-employment status in the construction industry.
A number of proposals are highlighted in the Budget, including
- a consultation on the work of tax agents whose work falls below professional standards
- a requirement for more detailed business accounts for five years from those who deliberately evade tax of £5,000 or more
- publishing the names and details of serious tax defaulters on the HMRC’s website
Provision of living accommodation
The legislation governing the taxation of the provision of living accommodation will be amended to prevent the tax liabilities being reduced by means of upfront employee lease premiums, followed by small rental payments.
Review of PAYE
Although PAYE has been increasingly computerised, the fundamental process remains as it was when introduced in 1944. The Government is to review the underlying processes to see if they can be improved in order to reduce costs to employers and the public purse, while still providing a high quality PAYE service.
Implementation of consultation proposals
Following consultation exercises, the following measures are to be included in the 2009 Finance Bill:
- Introduction of voluntary managed payment plans (MPPs) that allow taxpayers to spread their income tax or corporation tax payments equally over a period straddling the normal due dates – from April 2011.
- Arrangements to allow HMRC to collect small debts it is owed by means of tax code changes – from April 2012.
- New powers that require third party companies and businesses to supply HMRC with contact details for people who are in debt to HMRC and with whom HMRC has lost contact.
- New penalty regimes that replace the current variety of penalties, with special arrangements for PAYE and Construction Industry taxation. The proposal to require additional information on form P35 has been dropped.
- A harmonised regime for the payment of interest on underpaid and overpaid tax, covering nearly all taxes, including PAYE.
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