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News - 10 December 2009

THE PRE-BUDGET REPORT 2009 (9TH DECEMBER 2009)

The Chancellor, Alistair Darling introduced a pre-election pre-Budget Report to the Commons that would, he said, “build a strong economy and a fair society”. He went on to say that he wished to take steps to “support the economy, businesses and households” in order to provide a “platform for growth and opportunity”.

Before getting into the detail of his plans, Mr Darling conceded that the recession has had a deeper impact on the economy than he previously anticipated. The economy, he said, will contract by 4.75 per cent this year, not 3.5 per cent, returning to growth by the fourth quarter. But he stuck to his forecast for growth rates of between 1 per cent and 1.5 per cent for next year and of 3.5 per cent in 2011/12.

The government has committed itself to halving the budget deficit in four years. This will inevitably entail both spending cuts and tax rises, and Mr Darling duly addressed both, although much of the discomfort has been deferred.

The most eye-catching announcements were plans to raise NICs by 0.5 per cent in April 2011 – that’s in addition to the 0.5 per cent already pencilled in – and to impose a 1 per cent cap for two years on public sector pay rises also in 2011.

There are changes to income tax as well: the point at which taxpayers are charged the higher, 40 per cent rate of income tax is to be frozen in 2012/13 at its 2011/12 level, which means more people will be liable.

Bankers’ bonuses are to see a 50 per cent levy on any payment over £25,000, the money generated going to tackling youth unemployment.

The rate at which public spending grows is set to slow each year between 2011 and 2015, but Mr Darling did not detail exactly where the axe will fall since the comprehensive spending review will not now be held until after the general election. Frontline services, however, such as schools and the NHS, will be protected, he said.

Businesses that find themselves struggling to pay VAT, corporation tax, PAYE, income tax and NICs will still be able to make use of HMRC’s Business Payment Support Service. This means that firms facing temporary financial problems can negotiate spreading the payment of tax bills over a period of time they can afford.

The Enterprise Finance Guarantee is to get a further 12 months' lease of life and there are plans to establish a special growth capital fund for SMEs.

PERSONAL TAX

There will be no increase in the under 65 personal allowance for 2010/11 which will remain at the current £6,475. The basic rate limit will also be maintained at the current £37,400. Therefore an individual will continue to pay 40% tax when their total income exceeds £43,875.

The 10% starting rate for savings income band (frozen at £2,440) is only available where an individual's non savings income (broadly earnings, pensions, trading profits and property income) does not exceed the starting rate limit.

Changes for 2010/11

The government had previously announced that the personal allowance would be subject to an income limit of £100,000. An individual's personal allowance will be reduced by £1 for every £2 of adjusted net income above the income limit. Adjusted net income for these purposes is broadly all income after adjustment for pension payments, charitable giving and relief for losses.

A new rate of income tax of 50% will be introduced from 6 April 2010. This will apply to taxable income above £150,000.
Dividend income is currently taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. A new rate of 42.5% will be introduced for dividends which fall into the income band above £150,000.

NATIONAL INSURANCE CONTRIBUTIONS (NICS)

The NIC rates and limits are broadly frozen for 2010/11 at the 2009/10 figures. There are two exceptions to this in that the lower earnings limit, linked to the state retirement pension, will increase from £95 to £97 per week and there will be an increase in the NIC rate which applies to Volunteer Development Workers. All other rates will be held at the 2009/10 levels.

An increase in the rates of NIC is proposed from 6 April 2011. A further 1% will apply to the rates applicable to employers, employees and the self-employed. The main rate of Class 1 (employee) NIC will be 12% and the Class 4 rate will be 9%. The employer rate will increase to 13.8%. The additional rate of Class 1 and 4 contributions payable will be increased from the current 1% to 2%.

In order to protect those at the lower end of the earnings scale the government has announced that the primary threshold and lower profits limits will be increased by £570. Those paying the standard employee rate and earning below £20,000 will pay less NIC overall as a result of the change.

BUSINESS TAX

To the relief of smaller firms, the Chancellor has deferred the planned rise in the rate of small companies’ corporation tax. The 1 per cent rise from 21 to 22 per cent, has been held over for another year, remaining at 21 per cent in 2010/11.

The business rates relief scheme for empty properties, which was introduced in the 2008 pre-Budget Report, has been extended. Empty properties with rateable values up to £15,000 were exempt from business rates under the scheme in 2009/10. That relief has now been granted for an extra year. For 2010/11, empty properties with a rateable value below £18,000 will not be liable to business rates.

In a green tax measure, electric cars are to be exempt from company car tax for five years and there is to be a 100 per cent first year capital allowance for electric vans, both from April 2010.

As from 2012, there are to be changes to company car tax. The CO2 emission thresholds for CCT bands will be moved down by 5g CO2 per km, while the graduated table of CCT bands will include a new 10 per cent band for cars emitting up to 99g CO2 per km.

The fuel benefit charge multiplier will rise from £16,900 to £18,000 from April 2010.

To boost innovation, the government is to introduce a patent box as from April 2013, which is a reduced rate of corporation tax of 10% on companies having income from patents.

VAT

VAT returns to a standard rate of 17.5 per cent.

Changes to the flat rate VAT scheme have been announced in the pre-Budget Report. These were generally expected and necessary because the standard rate of VAT is to revert back to 17.5 per cent on 1 January 2010 after 13 months at 15 per cent.

The percentages were revised downwards on 1 December 2008 when the standard rate was reduced to 15 per cent. However, the changes from 1 January 2010 will not only reflect the reversion to the 17.5 per cent standard rate, but also take into account business patterns across the various sectors over the last year.

TAX CREDITS

From 6 April 2010 the Child element in Child Tax Credit will increase by £20 above earnings indexation to £2300 per year. An overall increase of £65.00 per year. The disabled elements of Child Tax Credit will increase by 1.5%. The elements of the Working Tax Credit (except the childcare element) will increase by 1.5%.

Maximum amounts for child care, family and baby element for Child Tax Credit, the income disregard, the first and second tax credit threshold and the withdrawal rates remain unchanged and the income threshold for those on child tax credit only rises to £16,190.

From 12 April 2010 Child Benefit rates and Guardians Allowance will increase by 1.5%.

For a full list of the rates and allowances please visit the HMRC website by copying and pasting the the link below on your browser:
http://www.hmrc.gov.uk/pbr2009/pn02.pdf
 

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