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December 2009 - Pre-Budget Report
National Insurance
From April 2011, the Chancellor announced that national insurance rates will increase by 1%, an increase of 0.5% on what had previously announced. As a result of this, the main rate of Class 1 and Class 4 will increase to 12% and 9% respectively, while the additional rates will both increase to 2%.
Class 1 secondary (i.e. Employers NI), Class 1A and Class 1B will increase to 13.8%
Corporation Tax
It was announced that the small companies' rate increase from 21% to 22% due to take effect from April 2010 will be deferred for a further year. The Chancellor also mentioned that the current business payment support arrangements will be extended indefinitely.
VAT
Although there were suggestions to the contrary, the chancellor announced the the increase to 17.5% from 1 January 2010 will remain.
There have also been several changes made to VAT legislation regarding services to and from other EEA member states. The rules are more straightforward than previously, however, the disclosure that each company may need to make is increased.
Companies who sell goods to other member states currently have to fill in EC Sales Lists on a calendar quarter basis. From 1 January 2010, companies will also have to file ESLs for services. It is still possible to submit these quarterly, but if the value of intra-community trade exceeds £70,000 in the current quarter, or any of the previous four quarters, the ESLs must be submitted monthly.
Pensions
The Chancellor announced various further restrictions on higher rate tax relief on pension contributions. These appear highly complicated and would effects individuals differently. Please contact us if you would like further information about these restrictions.
September 2009
National Minimum Wage Increase
From 1 October 2009 the national minimum wage
increased again:
| Aged 22 and over | £5.80 | (£5.73) |
| Aged 18 to 21 | £4.83 | (£4.77) |
| Aged 16 to 17 | £3.57 | (£3.53) |
The government is becoming concerned that large numbers of employers are not paying the relevant NMW. Our payroll software automatically verifies compliance with NMW rates, so we are in a position to assist you with your payroll and NMW checks.
ISA Limits
From 6 October 2009 those aged 50 or older will be able to increase the level of investments in ISAs to £10,200 from the existing £7,200. The cash investment levels rises from £3,600 to £5,100. The increased limit will be available to all from 6 April 2010
July 2009
Penalties For Late Submission of Self Assessment Tax Returns
Previously it has been possible to avoid the £100 late submission filing penalty if all the tax due by the relevant deadlines has been paid (or a refund was due).
From April 2010, a penalty of £100 will be imposed for late submission regardless of whether or not the tax due has been paid.
In addition, returns that are between 3 and 6 months late will suffer a daily penalty of £10 (to a maximum of £900). If the return is still outstanding 6 months after the deadline, a further penalty of 5% of the tax due will be imposed. This happens again if the tax return is 12 months late. After this a penalty of 70% can be imposed if HMRC believe that information is being withheld preventing them from determining your tax position. This can rise to 100% if the information is being concealed or withheld deliberately.
April 2009 - Budget
Corporation Tax
There has been no change to Corporation Tax rates which remain at 28% standard rate and 21% small company rate for profits up to £300,000. The small company rate is expected to increase to 22% from 1 April 2010.
Capital Allowance
The Annual Investment Allowance (AIA) giving 100% tax relief on the purchase of any capital equipment up to £50,000 from April 2008 continues but is enhanced by a temporary First Year Allowance (FYA) of 40% on any further expenditure beginning 1 April 2009 for companies and 6 April 2009 for other businesses.
Cars are not eligible for AIA but from April 2009 new rules will apply. Expenditure on cars with CO2 emissions exceeding 160g/km will be dealt with in a special rate pool and will attract a Writing Down Allowance (WDA) of just 10%. Cars emiting no more than 160g/km will be included in the main pool and will qualify for the normal 20% WDA. Cars purchased before April 2009 continue to be subject to the old 'expensive' car rules for a transitional period of 5 years. Motorcycles will no longer be treated as cars and so will qualify for AIA.
Company Losses
The loss carry back rules announced in the Pre-Budget Report have been improved by the extension of the loss making period for one to two years. For companies, losses which arise in corporation tax periods ending between 24 November 2008 and 23 November 2010 can now be carried back and offset against any profits from the preceding three years. For income tax, losses arising in 2008/09 and 2009/10 will benefit from the extended carry back rules. However the maximum amount that can be carried back for more the one year is restricted to £50,000 per loss making period. The £50,000 is an annual limit so short loss making periods will also be restricted.
Self Assessment Tax Returns
For 2009/10 returns, the limit allowing small businesses with turnover of less than £15,000 to disclose only three figures of income, expenditure and net profit on their SA returns, rather than the normal more detailed disclosure, will be increased to align with the VAT registration threshold (£68,000 from 1 May 2009) and this threshold relationship will be maintained in future years. The limit will apply to both trading income and rental businesses and to both individual and partnership returns.
Income Tax
From April 2010 the higher rate of income tax applicable to taxable income above £150,000 will be 50% rather than the 45% previously announced in the Pre-Budget Report. Dividends within this band of income will be taxed at 42.5%
From April 2010 individuals with 'adjusted net income' of £100,000 will lose £1 of personal allowance for every £2 of their income that exceeds this limit. The adjusted net income is calculated in the same way as for the restriction of allowances applying to taxpayers over 65, which deducts losses, grossed up pension contributions and gift aid payments from gross income.
The rate of tax relief on pension contributions will be restricted from 6 April 2011 for those with income of £150,000 or more. The relief will be restricted to basic rate, which is normally given at source. There will be anti forestalling measures to prevent those with income currently in excess of £150,000 from accelerating their pension contributions into the period between now and April 2011, to gain benefit of tax relief at 40% and 50%.
Furnished Holiday Lettings
From 6 April 2010 the furnished holiday letting (FHL) rules will be repealed because HMRC have operated them in a way that was potentially non-compliant with European Law. These measures currently give FHL landlords trading status for most tax purposes provided they satisfy certain conditions such as availability to let and minimum letting periods each year, Until the FHL rules are repealed in 2010 HMRC will extend them to include foreign furnished holiday accommodation elsewhere within the European Economic Area but not outside it. This could give rise to the possibility of retrospective claims for any unrelieved losses on foreign holiday lets.
Once the rules are repealed it will mean that any losses can only be offset against other rental profits within the year or in the future, the 10% wear and tear allowance will be replaced with capital allowance claims, profits will not be pensionable and CGT reliefs such as rollover, holdover and entrepreneurs relief will no longer be available.
March 2009
- Tax Credits
Nine out of ten families with children get tax credits, but you don't need to have children to qualify. You may also qualify if you are working and earning low pay.
How much do you get?
The amount of tax credits you get depends on things like:
- How many children you have living with you
- Whether you work - and how many hours you work
- If you pay for childcare
- If you or any child living with you has a disability
- If you're aged 50 plus and are coming off benefits
Your payments also depend on your income. The lower your income, the more tax credit you can get.
Example 1: Mr and Mrs Khan both work full-time. Between them, they earn about £25,000 a year. They have three children and they get £55 a week in tax credits. If their income was higher, and they earned about £50,000 a year, they'd get about £10 a week instead.
Example 2: Jon Barry is aged 30, not married and lives alone. He works full-time and earns £10,000 a year. He gets about £12 a week in tax credits.
(Source: HM Revenue & Customs website)
In the current climate of falling incomes you may now qualify when you previously did not. To find out if you qualify why not use HM Revenue & Customs online questionnaire, just click here to be redirected to this questionnaire.
Everyone hears in the press about the vast number of overpaid tax credits, however little or no publicity has been given to the significant number of people who have underpaid tax credits.
Tax credits are provisionally based on the previous years income. The final entitlement will then be calculated on your actual income for the year and any differences calculated. However, if the difference is below £25,000 then no adjustment will be made!
If your income is expected to drop in the current year, it is important you alert the Revenue as you could be getting more tax credits. Unless your next year profits rise by more than £25,000, your tax credits for two years could be increased.
Another way to maximise your tax credits is to put a lump sum into a pension scheme. However, this does depend upon your income levels as family tax credits do not vary with income between £26,368 and £50,000.
Example 1: A family with income of £60,000 decides to put a lump sum of £8,000 into a pension scheme (£10,000 gross), the family income is reduced to £50,000 and they receive an extra £545 of family tax credits.
Example 2: A family with income below £26,368 decided to do the same. Their tax credits increase by £3,700 or 37%.
With the 2 year effect and the 20% basic rate tax relief on the pension contribution, this could mean a 94% tax deduction (20% + 37% + 37%) for a pension contribution.
The table below shows the various element of tax credits:
|
Element |
2008/09 | 2007/08 |
| Family | £545 | £545 |
| Baby addition | £545 | £545 |
| Child (per child) | £2,085 | £1,845 |
| Disabled child (per child) | £2,540 | £2,240 |
| Enhanced disabled child | £1,020 | £980 |
| First income threshold | £15,575 | £14,495 |
| Withdrawal rate | 39% | 37% |
| Second income threshold | £50,000 | £50,000 |
| Withdrawal rate | 6.67% | 6.67% |
| Maximum working tax credit | £1,800 | £1,730 |
- Annual Investment Allowance (AIA)
AIA started on 6 April 2008 (1 April for companies) giving 100% tax relief on the cost of equipment or commercial vehicles purchased for use in a business up to a total of £50,000 in each financial year. At the same time the annual writing down allowance on general pools and expenditure in excess of the £50,000 was reduced from 25% to 20% per year.
For periods straddling 6 April 2008 (1 April for companies) a hybrid allowance will be used on a time apportioned pro-rata basis. Your AIA in this period will also be restricted on the same basis.
Acquiring equipment or commercial vehicles on hire purchase still allows 100% relief against taxable profit to be claimed on the financed base costs of assets up to £50,000 per year.
The reduction in profit that arises from this relief may have a very significant effect on available individual tax credits. The large reduction in taxable profits will mean you can receive higher tax credits. Although the AIA only applies for 1 year, due to the averaging methods used in calculating tax credits, you may receive higher credits for up to 2 years. This can potentially fund the majority of the purchase.
Example 1: Miss X needs to purchase a van for her business and currently has steady profits of £27,000. She receives tax credits. The new van would cost £18,000 and is eligible for the AIA so Miss X would received 100% as a deduction to her annual profit (her revised profit being £9,000).
As her tax credits award for the year was originally based on a profit of £27,000, she will now be owed a lump sum award of around £7,000. Providing her next years profits do not exceed £34,000 (£9,000 + £25,000), she will receive an additional £7,000 tax credits next year.
Final Result: Miss X will receive £3,600 of tax relief and £1,440 NI relief on the purchase of the van using the AIA. In additional she will receive 2 x £7,000 of increased tax credits, leaving a total benefit of £19,040.
(Source: Tips & Advice Tax, a fortnightly newsletter covering business and personal tax. For subscription info. call 01233 653500)
An additional relief was also announced enabling the writing off, in full, the balance of small capital allowance plant pools in the year when they fall below £1,000.
- Business Payment Support - Revisited
Many companies have taken advantage of the Governments facility to defer the payment of tax by individuals and companies which are suffering cash flow problems as a result of 'the credit crunch'. It has been estimated that HMRC, to date, have deferred £130 million of tax payments.
There is however a point of caution. You must contact the HMRC helpline before the due date for any tax payments you wish to defer and agree a payment strategy. If you do not contact the helpline, HMRC may still pursue your tax payments though debt collection agencies if necessary.
January 2009
- Flat Rate VAT
The reduction of the standard rate of VAT from 17.5% to 15% from 1 December 2008 has generally been administered well. However, if you use the VAT flat rate scheme, your VAT flat rate percentage will have changed. You should check the HMRC flat rate table (www.hmrc.gov.uk/vat/account-flat.htm) for your new rate.
- HMRC Interest Rates on Overdue and Overpaid Tax
HMRC have been changing their interest rates frequently over the past few months as a result of the Bank of England base rate changes. Legislation has been put in place allowing HMRC to change their interest rates more rapidly. Most interest rate changes should now apply within 13 days of the Bank of England base rate changes, where this could previously have taken a month.
Interest is calculated from the original due date at the
various rates on a daily basis, but at present no interest at
all will arise for the period after 27 January 2009 on
repayment of overpaid tax. The table below shows
interest rate changes over the last 12 months.
| From | % on Overdue Tax | % on Overpaid Tax |
| 06/01/2008 | 7.50 | 3.00 |
| 06/11/2008 | 6.50 | 2.25 |
| 06/12/2008 | 5.50 | 1.50 |
| 06/01/2009 | 4.50 | 0.75 |
| 27/01/2009 | 3.50 | 0.00 |
December 2008
- Small Business Rate Relief Scheme
The FSB has urged the Prime Minister to introduce two measures as part of his economic revival package.
The FSB proposal identified the fact that many businesses are unaware of the SBRRS (Small Business Rate Relief Scheme) which aims to reduce rate bills for all small companies whose rateable value is under £15,000 by as much as 50%. The FSB is asking the government to ensure this relief is automatically applied. A recent survey carried out by the FSB showed that in Essex alone, £48.4million of rate relief went unclaimed.
In addition, the FSB wants the Prime Minister to use his existing powers in the Rating Act 2007 to introduce the same measures for entrepreneurs with empty commercial properties.
If you believe you are entitled to this relief, please let your local council know.
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