Budget 2009 - What Darling Didnt Say
Yesterday was Budget 2009 and for Professional Contractors and Freelancers there was good news in the form of no news.
So there was no mention of Umbrella Companies ( and StaffingCompanies ) use of Overarching Contracts of Employment, TemporaryWorkplace Rules or ESC 16.
Income Shifting was mentioned and although nothing has changed, it appears the issue has not been forgotten.
A.69 At the 2008 Pre-Budget Report action on income shifting was deferred and,
consequently, no legislation will be brought forward in the Finance Bill. The Government will
keep this issue under review. (w)
There were a few announcements of more ways HMRC will tackle taxavoidance, so anyone using any of the "offshore schemes" would beadvised to think again about running their own business in the UK as alegitimate Limited Company.
One thing that did catch my eye on page 111 of the Full Budget Report is certainly something that we will be keeping an eye on:-
5.114 The Government remains committed to addressing false self-employment in the construction industry. The Government will consult with a view to future legislation to ensure that construction workers and those they work for are taxed appropriately. The Government will work with the construction industry to ensure that any legislation is effectively targeted and the industry retains a flexible labour supply.
It was good to see that Professional Contractors and Freelancers inthe knowledge based sector were not targeted this year, but itcertainly seems that HMRC have their eyes out on other sectors and itsworth keeping an eye on what action HMRC take on this.
So here is a round up of the main points in yesterday's budget:-
Budget Report April 2009
PERSONAL TAX CHANGES
Personal Allowances 2009-10
These remain as announced in the Pre-Budget report November 2008 and are:
From the 6 April 2009 the income tax personal and age related allowances are increased to:
Age under 65 - £6,475
Age 65 to 74 - £9,490
Age 75 and over - £9,640
The income limit for aged related allowances (over 65's) is increased to £22,900.
Blind person's allowance increased to £1,890.
Personal Allowances 2010-11
The basic personal allowance will be reduced for taxpayers who earn more than £100,000 per annum.
Where an individual's income is above £100,000 the basic personalallowance will be reduced by £1 for every £2 their income exceeds£100,000.
Income Tax Rates 2009-10
Starting savings rate 10%* - £0 to £2,440
Basic rate 20% - £0 to £37,400
Higher rate 40% - Over £37,400
* There is a 10p starting rate for savings only. If an individual’s nonsavings taxable income exceeds the starting rate limit, the 10pstarting rate for savings will not be available for savings income.
New 50% Income Tax Rates from 2010-11
From 6 April 2010 a new income tax rate of 50% will be applied to taxable income in excess of £150,000.
Effective Tax Rates On Dividends from 6th April 2009
For Gross Dividends earned in the 20% tax bracket the effective rateis 10% ( nor futher tax to pay as the 10% tax credit is stillapplicable)
For Gross Dividends earned in the 40% tax bracket the effective rate is 32.5% of the Gross Dividend.
Effective Tax Rates On Dividends from 6th April 2010
For Gross Dividends earned in the new 50% tax bracket the effective rate is 42.5% of the Gross Dividend.
Capital Gains Tax 2009-10
The annual exempt amount for individuals is £10,100 (and for most trustees £5,050)
Inheritance Tax 2009-10
The individual IHT allowance is increased to £325,000.
Pensioners Taxback Campaign
From autumn 2009 HM Revenue & Customs will be targeting pensionerswho receive the Pension Credit to help them reclaim tax they may havepaid in error from bank or building society interest they have received.
ISA's
2009-10
The ISA limit is increased to £10,200 (up to £5,100 can be saved in cash) restricted to people aged 50 or over.
2010-11
The limit is increased to the same level for all age groups.
Pensions - limiting tax relief at higher rates
From 6 April 2011 the Government intends to restrict tax relief forindividuals with an annual income of £150,000 or more. Relief will bewithdrawn gradually so that taxpayers earning over £180,000 willeffectively achieve a 20% tax deduction, the same as a basic rate taxpayer.
From today, 22 April 2009, if the following conditions also apply:
1. Your income is over £150,000
2. You make additional contributions in excess of your existing ongoing contributions, and
3. Your total pension contributions in the year exceed £20,000 (including employer's contributions)
Then any higher rate tax advantage, on additional contributionsabove the £20,000 limit, will be subject to a special annual allowancetax charge that will recover tax relief given at above basic rate.
Excise Duty increases
Alcohol Duty
From midnight 22 April alcohol duty will rise by 2%, equivalent to:
1p on a pint of beer
13p on a 75cl bottle of spirits
4p on a 75cl bottle of wine
Tobacco Duty
After 6pm 22 April tobacco duty will rise by 2%, which will increase the cost of a packet of 20 cigarettes by 7p.
Fuel Increases
Duty increases will add 2 pence per litre to the cost of unleaded petrol and diesel from 1 September 2009.
Stamp Duty Land Tax
The present exemption from SDLT of residential properties up to£175,000 is to be extended to 31 December 2009. After this date theSDLT threshold will revert to £125,000 (£150,000 in disadvantagedareas).
BUSINESS TAX CHANGES
Furnished Holiday Lettings
Two radical changes to the taxation of income and gains arising on theletting of furnished holiday lets property have been published today.
1. Properties owned by UK tax payers situated in the EuropeanEconomic Area can now qualify. Previously only properties situated inthe UK qualified; and
2. From 6 April 2010 the Furnished Holiday Lettings rules are to be repealed!
Both of the changes have come about due to compliance issues with EEA legislation.
All client's who own and let properties within the EEA, includingthe UK, may benefit from a strategic review of their present propertytax planning due to these changes. It is vital that the narrow windowof opportunity occasioned by this change be fully exploited, and weonly have until 5 April 2010 to consider capital gains tax and incometax planning opportunities.
Business Payment Support Service (BPSS)
If you call the BPSS to ask for time to pay tax you may owe, pleasetake account of the following extension of the circumstances HMRC willnow consider.
If you are likely to make a trading loss in the current year, whenthese losses are determined you can generally claim for the loss to becarried back and set off against your previous year's profits.Obviously you would need to wait until the current years accounts arecompleted and a formal loss relief claim is made.
In recognition of this right to set off losses, BPSS advisers hownow been instructed to take reasonable estimates of these losses intoaccount when they agree to deferred payment of your previous year's tax.
If you need help estimating your tax losses in the current year we can help.
Further extension of carry back of loss relief
This further extension to loss relief's already available will enableboth incorporated and unincorporated to carry back current losses, thatwere previously restricted to set off against the preceding year'sprofits only, to the previous 3 years profits. The following bulletpoints summarise the main points:
- The relief is now available for two years. For limited companies,trading losses in an accounting period ending between 24 November 2008to 23 November 2010. For unincorporated business losses agreed for atrading period that forms the basis period for 2008-09 and 2009-10.
- HMRC will make repayments occasioned by claims for the new relief on or after Budget Day 2009.
- The amount of the loss that can be carried back one year is stillunlimited. Any carry back to the earlier two years will be limited to£50,000. The £50,000 limit is an annual limit.
- Losses will be applied to the latest of the three years first.
- As this is an extension to existing loss relief legislation, the current relief's are still available.
Corporation Tax Rates
The small companies rate from 1 April 2009 is unchanged at 21 %.
Temporary First Year Capital Allowances
Since 1 April 2008 (corporation tax) and 6 April 2008 (income tax)businesses that invest up to £50,000 on certain plant and equipment canwrite off the entire amount against their taxable profits.
Any excess expenditure, over the £50,000 limit, is added to the poolof unrelieved expenditure and has qualified for a writing downallowance of 20%.
Today the Chancellor has announced that to encourage investment hewill create a temporary first year allowance of 40% which will beapplied to the excess over the £50,000 limit.
The new 40% allowance will be available for just one year, from 1April 2009 (corporation tax) and 6 April 2009 (income tax) and willapply to assets which would be added to the main capital allowancespool except cars and assets used for leasing.
VAT Changes
As expected the standard rate of VAT will be increased to 17.5% on 1 January 2010.
With effect from 1st May 2009, the thresholds for registration andderegistration are increased to £68,000 and £66,000 respectively.
By Phil Richards