Budget 2009
New top rate of income tax 50% from April next year. Restriction of tax relief for pension contributions. Raft of changes to business taxes.
22.04.2009
New top rate of income tax 50% from April next year. Restriction of tax relief for pension contributions. Raft of changes to business taxes.
Budget 2009... at a glance. Click on the headlines for more. Tax Rates 2009-10
Changes to personal tax and allowances
- New top rate of income tax to be introduced for those earning >£150,000. Personal allowance to be withdrawn for those with taxable income over £100k from 04/10. National insurance contributions to rise by 0.5% from 04/11. New draconian rules for pension contributions. Changes to car benefits >more
- New anti-avoidance measure: employer provided living accommodation >more
- Taxation of dividends from non-UK resident companies >more
- Distributions from off-shore funds - some provisions reinstated >more
- Changes to UK personal allowances and reliefs for non-residents >more
- IHT extension of agricultural property and woodlands relief to include property in EEA states >more
- ISAs - increased limits for the over 50s >more
- Venture capital schemes - changes to EIS >more
- Offshore funds: definition of an offshore fund is being amended >more
A raft of changes to business taxes
- Main rate of tax 28% unchanged. Small companies rate of 21% will continue from 1 April 2009 >more
- Taxation of foreign profits: exemption extended to small UK groups >more
- A number of changes are to be introduced to the provisions relating to double tax relief >more
- Further extenstion of the loss carry back provisions both for companies and unincorporated businesses announced >more
- Loan relationships: connected companies. Two previously announced changes were confirmed >more
- Temporary first year allowances for plant and machinery >more
- Capital allowances for environmentally beneficial technologies >more
- Existing restriction on lease rental payments for cars costing >£12k to be replaced >more
- Capital allowances on cars >more
- Legislation to be introduced from Budget Day to ensure rules applying in the sale of a lesser company operate correctly to provide relief for capital allowances >more
- Definition of preference shares is to be amended in connection with the provisions relating to group relief for losses, capital gains groups and certain anti-avoidance rules >more
- Groups: reallocation of chargeable gains >more
- Foreign denominated losses changes >more
- Agreements to forego tax reliefs for banks >more
- A number of changes are made to the North Sea fiscal regime from 22 April 2009 >more
- VAT: registration threshold increased to £68k and deregistraton threshold up to £66k from 05/09; rate to revert to 17.5% from 01/10; fuel scale charges to be reduced; VAT on participation fees for playing bingo and other games of chance to be removed; and as expected new rules to be introduced from 01/10. HMRC is to published guidance next month >more
Charities - gifts threshold increased
- Substantial donors - threshold of gifts increased to £150k in a period of six years. Annual limit of £25k remains unchanged >more
- Business payment support service to be extended >more
- Senior accounting officers of large companies are to become personally accountable for the effectiveness of their accounting systems for tax reporting purposes >more
- As ever, a range of provisions have been introduced to prevent tax avoidance arrangements >more
- A new penalty regime will be introduced for the submission of tax returns and the payment of tax liabilities >more
- Offshore disclosure and ‘outing’ of deliberate tax defaulters >more
- The compliance checks regime which currently applies to mainstream taxes is being extended >more
- Changes are being made to the deadlines for the reclaiming of income tax, capital gains tax and corporation tax from 04/10 >more
- Voluntary managed payment plans (MPPs) for individuals and companies will be introduced from April 2011 (at the earliest) >more
- HMRC aims to introduce a system of harmonisation in the rates of interest that are currently charged on late paid tax and on repayments across different types of tax >more
- Legislation will be introduced requiring HMRC to introduce a Charter by 31 December 2009 >more
The Chancellor presented his second budget against the most challenging economic backdrop since the Second World War. The comparisons he made with other economies and the intention to halve public sector net borrowing from £175 billion this year to £97 billion in 2013/14 did nothing to diminish the impact of the forecast deficit for the current tax year and the 80% of GDP that government debt is forecast to amount to by 2013/14.
The increase in the proposed new Additional Rate of Income Tax from 45% to 50% and the acceleration of its introduction by one year to 6 April 2010 will hit the headlines but will add relatively little to the public purse. The restriction of tax relief for pension contributions has been predicted for many years and Alistair Darling has started the process by eliminating higher rate relief for individuals with taxable income in excess of £150,000. It would be surprising if cash strapped Chancellors do not go further down this route in future Budgets.
Please click on the links above to read our Budget summary of all the major tax changes announced by Mr Darling in his speech and many more included in the Budget Notes. If you would like to discuss any of the changes and how they will impact you, please contact your usual Scott-Moncrieff adviser or click here.
Budget 2009: Headlines >more
Income tax rates and allowances
The Chancellor has announced that, from 6 April 2010, a new top rate of income tax of 50% will be introduced for individuals with taxable income in excess of £150,000. The personal allowance (£6,475 for 2009/10) is also to be withdrawn for those taxpayers with taxable income over £100,000 from 6 April 2010. These measures represent a substantial shift from the increases detailed in the November 2008 Pre-Budget Report, when it was announced that the income tax rate for those with income above £150,000 would be increased to 45% from 6 April 2011, along with a 50% restriction to the personal allowance for individuals earning over £100,000.
National insurance contributions
From 6 April 2011, all rates of national insurance contributions payable by both employees and employers will increase by 0.5%. The point at which primary NI contributions become payable will also be aligned with the starting rate for income tax purposes.
Pensions
From midnight on 22 April 2009, draconian rules on the level of tax relief available on pension contributions will be introduced. They will affect individuals with annual earnings over £150,000 who contribute more than £20,000 to pension schemes if they have not been paying regular (defined as at least quarterly) premiums.
The new rules restrict higher rate tax relief on pension contributions for individuals:
- whose income is £150,000 or higher;
- who change their normal ongoing regular pension savings; and
- whose total pension savings exceed £20,000 per annum.
The rules introduce a special annual allowance, set at £20,000 for the 2009/10 and 2010/11 tax years, before the introduction of the main changes on 6 April 2011. Tax relief on contributions above this amount will be restricted to the basic rate of tax through the use of a special annual allowance charge equal to the difference between the highest rate of income tax and the basic rate i.e. currently 20%.
The special annual allowance charge will not apply if an individual’s normal regular ongoing pension contributions are over £20,000 provided they are not increased and were paid at least quarterly into an arrangement prior to 22 April 2009. Any increase will be subject to the special allowance charge.
The main changes from 6 April 2011 will set an upper limit on the amount of additional pension contributions upon which full tax relief at the highest rates of tax can be given which will depend on earnings. This will be applied on a sliding scale for individuals earning between £150,000 and £180,000 and will mean that anyone earning over £180,000 per annum will only receive 20% income tax relief on pension contributions. The earnings figure will be adjusted to include any contributions made by employers to pensions by way of salary sacrifice.
Professional advice is therefore essential.
MPs and civil servants who receive final salary benefits will not be affected by these changes providing the actual final salary scheme accrual rate, typically 1/60th of final salary for every year of service, does not change, which it very rarely, if ever, does.
Budget 2009: Headlines >more
Remittance basis
Following consultation on the changes introduced by Finance Act 2008 several minor amendments are to be included in Finance Bill 2009.
- Individuals with small amounts of foreign employment income: An individual employed in the UK is currently required to file a tax return if they also receive income from an overseas employment even if there is little or no tax to pay due to foreign tax credits. From 6 April 2008, this obligation will be removed where the individual’s overseas employment income is less than £10,000 and overseas bank interest is less than £100, all of which is subject to foreign tax.
- Application of the remittance basis without formal claim: Generally, an individual is required to make a formal claim on their tax return to use the remittance basis. No such claim is required where the individual has unremitted foreign income and gains in any tax year. The legislation is to be amended to make it clear that a claim is not required in these circumstances and to extend it to cover cases where the individual has total UK income and gains of no more than £100 which have been taxed in the UK, provided they make no remittances in that year. These extensions will have effect from 6 April 2008.
- Remittance basis and settlements legislation: Legislation is to be introduced to clarify aspects of the interaction between the new remittance basis and the existing settlements provisions.
- Exempt assets: There are some exemptions which allow an individual taxed on the remittance basis to bring property into the UK which has been purchased using overseas investment income without a UK tax charge. These are to be extended from 6 April 2008 to include property purchased with foreign employment income and foreign capital gains.
- Gift Aid donations: Where an individual pays the £30,000 remittance basis charge this will, from 6 April 2008, be regarded as tax available to frank Gift Aid payments.
- Not ordinarily resident employees: HMRC issued a Statement of Practice (SP1/09) on 18 March 2009 setting out how they treat transfers from an offshore account containing employment income relating to a specific employment and how the earnings should be apportioned between UK and non-UK duties. There is to be a period of consultation as to how this should be legislated in Finance Bill 2010.
Changes to car benefits
The Chancellor tore up the Government’s green credentials by announcing that the discount applicable to company cars using more environmentally friendly alternative fuel sources will be abolished from 2011. At present, qualifying low emission cars attract a lower percentage rate, when calculating the car benefit.
From 2011, the lowest percentage that will be used to calculate the car benefit increase to 15%. There will be little or no incentive for company car drivers to switch to environmentally friendly vehicles and therefore will not assist the Government in achieving its stated targets on CO2 emissions.
At the same time the £80,000 price cap used to determine the car benefit is abolished. This removes the current tax advantage that exists for drivers able to choose an expensive or higher polluting company car such as a Ferrari or Bentley.
Budget 2009: Headlines >more
Employer-provided living accommodation
An anti-avoidance measure comes into effect on 22 April 2009 to stop employees avoiding tax on accommodation provided by their employers, where the property is acquired through the payment of a lease premium. At present, when living accommodation is provided by an employer to an employee, the benefit is calculated by reference to either the rent paid for the property or the annual value, less any amount made good by the employee. This provision stops arrangements where an up-front payment was made by the employer as a lease premium, with the payment of a very small rent to avoid paying or reducing the tax on the benefit.
Taxation of dividends
Since 6 April 2008, individuals receiving dividends from non-UK resident companies have been entitled to a tax credit equal to one ninth of the distribution provided their shareholding is less than 10%.
From 22 April 2009, shareholders with 10% or more also qualify provided the source country has a double taxation agreement with the UK which includes a non-discrimination article.
Distributions from offshore funds
The provisions allowing tax credits on distributions from offshore funds that are companies are to be reinstated from 22 April 2009.
However, if the fund holds more than 60% of its assets in interest bearing form the distribution will be treated as a payment of interest with no tax credit. This does not affect the position of UK investors in funds that are transparent for income tax purposes who will continue to be taxed on their share of the underlying income according to the type received.
IHT extension of agricultural property and woodlands relief
From 22 April 2009, agricultural property and woodlands reliefs are extended to include property in EEA states. Property qualifying for this extended relief will also qualify for capital gains tax holdover relief.
Inheritance tax due or paid on or after 23 April 2003 on agricultural property in an EEA state at the time of the chargeable event will be eligible for relief. The earliest deadline for reclaiming tax will be 21 April 2010.
The time limit for claiming woodlands relief is normally two years from the date of death. Finance Bill 2009 will provide that the earliest deadline for reclaiming overpayments will also be 21 April 2010.
Budget 2009: Headlines >more
UK personal allowances and reliefs for non-residents
Under certain circumstances, a non-resident individual may qualify for personal allowances and reliefs. One such circumstance is being a Commonwealth citizen.
From 6 April 2010 this entitlement will be withdrawn where Commonwealth citizenship is the sole basis of the claim. An individual may, however, still be eligible on other grounds, for example under the terms of a relevant Double Tax Treaty.
ISAs
From 6 October 2009, individuals aged 50 and over will be able to increase their contributions to Individual Savings Accounts from the current £7,200 per annum to £10,200 per annum, of which £5,100 may be invested in a cash ISA. The increase to the annual allowance will be extended to all eligible ISA investors from 6 April 2010. So individuals aged 50 and over in 2009/10 will be able to invest up to £7,200 between now and 5 October 2009 or their birthday and an additional £3,000 after that date.
Venture capital schemes
A number of improvements are to be made to the Enterprise Investment Scheme:
- funds raised will have to be wholly employed within two years of the issue of the shares (or within two years of the commencement of a qualifying activity if later). Currently 80% of the funds have to be employed within twelve months and the balance within a further twelve months. These changes also apply to Corporate Venturing Schemes and Venture Capital Trusts;
- the link with money raised from the issue of non-EIS shares on the same day will be removed. Currently, such funds have to be invested in the same period set out above;
- there will be no restriction on the carry back to the previous year of the income tax relief arising to an investor. Currently, subject to a maximum of £50,000, one half of the relief arising on shares issued before 6 October in a tax year can be carried back to the previous year; and
- a capital gains tax anomaly is to be removed where an investor has claimed capital gains tax deferral relief against an investment in EIS shares. Currently, on what would otherwise be a qualifying share for share exchange, a tax liability is triggered not only on the deferred gain but also on the gain inherent in the EIS shares. In future, tax will arise only on the deferred gain at the date of the share for share exchange.
The extension of the loss carry back provisions referred to above will apply from 6 April 2009 onwards. The other changes will apply to investments made/funds raised after 21 April 2009.
Offshore funds
Specific legislation applies to the tax treatment of investments in offshore funds. The definition of an offshore fund is being amended from the regulatory definition of a “collective investment scheme” to a characteristics-based definition. Certain exemptions apply to various fixed share and capital arrangements. Transitional provisions will ensure that investments in existing arrangements will be grandfathered.
Previously, certain offshore funds were transparent for capital gains tax purposes which meant the investor had to consider the disposal of the funds’ underlying assets rather than units in the fund itself. Investors will no longer be required to consider the underlying assets and will only need to report a disposal of units in the fund itself. Corporate investors are not yet included in these arrangements.
There will be the option of irrevocably electing into the new regime, which will be effective from 1 December 2009, and the new treatment can be applied retrospectively to 2003/2004.
Budget 2009: Headlines >more
Rates
The current main rate of corporation tax of 28% (30% in the case of the ring fence profits of oil companies) will continue from 1 April 2010.
As announced in the Pre-Budget Report in November 2008, the small companies rate of corporation tax of 21% (19% in the case of ring fence profits) will continue from 1 April 2009. It had previously been proposed to increase the rate to 22% from 1 April 2009.
Taxation of foreign profits
Dividends received by UK companies after 30 June 2009 will generally be exempt from UK corporation tax. The major changes compared with the announcement made at the time of the Pre-Budget Report are that:
- the exemption will apply to all UK groups (not just large and medium groups); and
- dividends received from UK companies will be taxed in the same way as dividends received from foreign companies.
Thus, whilst the exemption has been extended to small UK groups it is possible that intra-UK dividends will be liable to corporation tax. Accordingly, where possible, the payment of dividends by overseas subsidiaries should be deferred until after 30 June 2009 and dividends from UK subsidiaries which may be taxable should be paid before 1 July 2009.
As previously announced, there is to be a cap on the deductibility of interest payable by UK group companies. This will be calculated by reference to consolidated gross finance expense of the group and will apply to accounting periods beginning on or after 1 January 2010. International groups should therefore review their financial structure with a view to implementing changes prior to the start of the new regime.
In association with the foregoing changes, the Acceptable Distribution Policy exemption under the Controlled Foreign Companies regime is to be abolished for accounting periods starting after 30 June 2009 (subject to provision for accounting periods that straddle this date). In addition, two of the holding company exemptions will be abolished from 1 July 2011.
The Treasury Consent regime is also being substantially revised. Currently, advance approval is required for many transactions involving shares in non-UK subsidiaries or, in the case of transactions with residents of EU member states, details have to be reported to HMRC. From 1 July 2009 the regime will be replaced by a post-transaction reporting requirement for transactions with a value of £100 million or more. There will be a number of exclusions.
Finally, a retrospective amendment is to be made to the calculation of double taxation relief on dividends from 1 April 2008. The change will ensure that where a company’s accounting period straddles that date, and the associated reduction in the standard rate of corporation tax from 30% to 28%, the limit on the rate of double tax relief will be the effective rate payable for the period rather than 28%.
Double taxation relief avoidance
A number of changes are to be introduced to the provisions relating to double tax relief. These measures, which apply from 22 April 2009, and are in response to various tax avoidance schemes which have been implemented recently by companies and will:
- deny foreign tax relief on the payment of a manufactured overseas dividend in the case of certain complex arrangements involving repo agreements over foreign shareholdings;
- limit the foreign tax credit available to certain banks where arrangements have been made for income to be artificially diverted through a non-trading company, with a view to enabling a higher foreign tax credit to be claimed than would be the case if the income were treated as a trading receipt;
- deny or withdraw foreign tax relief where foreign tax has been repaid, irrespective of the identity of the recipient.
Budget 2009: Headlines >more
Trading loss carry back provisions
A further extension of the loss carry back provisions both for companies and unincorporated businesses was announced.
Generally, a loss incurred by a company in an accounting period can be offset against profits of the previous accounting period. In the Pre-Budget Report in November 2008, the Chancellor announced that these provisions would be extended to allow a company to carry back losses of up to £50,000 for a further two accounting periods. This extension, which was to apply to losses incurred in accounting periods ending in the twelve months to 23 November 2009, will now apply to losses incurred in accounting periods ending in the twenty-four months to 23 November 2010. Relief for losses incurred by unincorporated businesses for the tax years 2008-09 and 2009-10 are also extended.
Businesses need to consider changing their accounting date to maximise the benefit of the extended loss relief provisions.
Loan relationships: connected companies
Two previously announced changes were confirmed.
Firstly, the legislation will be changed to ensure that a debt waiver is tax neutral for both the creditor and debtor companies. Historically, a debtor could be taxed on a waiver where the liability represented expenses for which it had claimed a trading deduction even though the creditor could not obtain relief. From 22 April 2009 the debtor will not be taxed on the release of such a debt and neither will the creditor be able to claim relief.
Secondly, the provisions relating to “late paid” interest are to be amended. Generally, relief for interest on loans which fall within the loan relationship provisions is given on an accruals basis. Historically, where the creditor company was not within the loan relationship rules (e.g. because it was non-UK tax resident) if the interest was paid more than 12 months after the end of the accounting period to which it related relief was given on a paid basis. These rules will be amended for accounting periods beginning on or after 1 April 2009 so that relief will generally be given on an accruals basis unless the creditor company is resident in a “non-qualifying territory” (broadly, a tax haven). An anti-avoidance provision will be introduced if this relaxation is abused. Similar rules relating to deeply discounted securities will also be changed.
Capital allowances: Temporary first-year allowances for plant and machinery
Significant changes were made to the capital allowances regime for plant and machinery from 1 April 2008 (6 April 2008 for income tax purposes), namely the introduction of an Annual Investment Allowance of £50,000 and the reduction of the rate of writing down allowances on general plant and machinery from 25% to 20%. The Chancellor has announced a further temporary measure to encourage businesses to invest in plant and machinery by increasing the rate of writing down allowance from 20% to 40% for one year from 1 April 2009 (6 April 2009 for income tax). The new 40% rate will apply to expenditure on plant and machinery in excess of the £50,000 AIA entering the general pool. Expenditure on long-life assets and integral features which is allocated to the 10% special rate pool will not qualify.
Capital allowances for environmentally beneficial technologies
Expenditure by businesses on plant and machinery listed under the Energy Technology Criteria List and the Water Technology Criteria List is eligible for 100% capital allowances. The range of technologies designated under the schemes has been extended to include uninterruptible power supplies, air to water heat pumps and close control air conditioning systems. The amended lists will be published later this year.
“Expensive” car lease restriction
The existing restriction on lease rental payments for cars costing more than £12,000 is to be replaced from 1 April 2009 (6 April 2009 for income tax purposes) with a flat rate disallowance of 15% of the rental charge where the car’s CO2 emissions exceed 160g/km. There is no restriction applying to cars with CO2 emissions below this level.
Budget 2009: Headlines >more
Capital allowances on cars
The Chancellor announced in the November 2008 Pre-Budget Report that the capital allowances treatment of cars would be reformed from 1 April 2009 (6 April 2009 for income tax purposes). Under provisions to be introduced in Finance Bill 2009, expenditure on new cars on or after 1 April 2009 (6 April 2009) will be allocated to the main rate pool or special rate pool, depending on the car’s CO2 emissions figure.
Cars with CO2 emissions of between 110g/km and 160g/km will be allocated to the main rate pool and for 2009/10 will qualify for first year allowances at 40% and writing down allowances at 20%. Cars with higher emissions will be allocated to the special rate pool where the writing down allowance is 10%. The most efficient cars, those with emissions below 110g/km, qualify for a 100% first year allowance.
Expensive cars acquired before 1 April 2009 will continue to be held in single asset pools for a five year transitional period, after which they will be transferred to the special rate pool. Cars costing over £12,000 acquired after 6 April 2009 will also continue to be in a single asset pool where there is non-business use. Anti-avoidance rules will apply to ensure that businesses do not obtain a tax advantage through manipulation of the commencement provisions or leasing rules or create artificial balancing allowances on cessation of the business.
Sale of lessor companies: anti-avoidance and fairness
Legislation is to be introduced from Budget Day to ensure the rules applying on the sale of a lessor company operate correctly to provide relief for capital allowances where the transaction involves a business owned by a consortium or by companies carrying on a leasing business in partnership. The period over which a loss arising from the relief may be surrendered to other group companies is to be extended.
Group relief: preference shares
As announced on 18 December 2008, the definition of preference shares is to be amended in connection with the provisions relating to group relief for losses, capital gains groups and certain anti-avoidance rules. The change is aimed at groups of companies where some subsidiaries are funded in part by preference shares issued to external investors, e.g. regulated financial institutions that issue preference shares that qualify as Tier 1 regulatory capital. It is intended to ensure that the existence of the preference shares does not break the group relationship.
Currently, the holders of “fixed-rate” preference shares are excluded from being “equity holders”. For accounting periods which started on or after 1 January 2008, the legislation will be amended to refer to “relevant preference shares”. These will include preference shares where the dividends are linked to a variable published market interest rate or a rate linked to an index of consumer prices, as well as dividends at a fixed rate. Preference shares where the dividends may not be paid in certain circumstances (for example, because the company is in severe financial difficulties) may also be relevant preference shares. An election can be made to retain the existing treatment of shares issued before 18 December 2008.
Groups: Reallocation of chargeable gains
Finance Bill 2009 is to include legislation amending the operation of the intra-group reallocation of chargeable gain provisions originally introduced in April 2000. These provisions enable members of a chargeable gains group to make a joint election reallocating a chargeable gain or allowable loss arising on the disposal of an asset from one group company to another. Whilst the rules introduced in 2000 are extremely useful to groups, they only apply on the disposal of an asset to a third party, and are therefore ineffective in giving relief where a capital loss arises as a result, for example, of a negligible value claim. From 1 April 2009, the intra-group reallocation of chargeable gain provisions are to be revised to enable companies to elect to transfer actual and deemed gains or losses.
Budget 2009: Headlines >more
Foreign denominated losses
As announced on 18 December 2008, where a company which has a functional currency other than sterling incurs a loss which is carried forward or back to another period, the exchange rate used to convert the loss into sterling will be the same rate as that used to convert the profits of the other period. Currently, the profit or loss of each period has to be computed in sterling using the exchange rate for that period. Accordingly, the value of the losses will vary from one period to another in line with changes in the exchange rate. This change removes this variation.
In addition, where a company changes its functional currency, losses carried backwards or forwards across the change in the functional currency will be converted at the spot exchange rate for the date of change.
These amendments will take effect for accounting periods ending on or after 29 December 2007 unless an election is made to defer the commencement date.
Agreements to forego tax reliefs
Legislation is to be introduced from Budget Day to prevent banks and other financial institutions that have received support from HM Treasury under the Asset Protection Scheme (or similar programmes operated by other Government departments) obtaining tax relief on, for example, trading losses in future accounting periods. The provisions will ensure that where a company has received taxpayer support through one of the Government programmes, the tax rules do not override the company’s undertaking to forgo reliefs or allowances under the scheme arrangements.
North Sea fiscal regime
A number of changes are made to the North Sea fiscal regime from 22 April 2009. These include:
- allowing companies to obtain corporation tax and petroleum revenue tax relief in respect of decommissioning costs on North Sea assets which have been put to use for a purpose other than the production of oil and gas. Previously, tax relief was only available on decommissioning costs following the cessation of the use of the asset for oil and gas production;
- the charge to corporation tax on chargeable gains arising on the swap of UK or UK continental shelf assets is to be removed on transactions taking place on or after 22 April 2009;
- where ring fence assets are disposed of on or after 22 April 2009 and the proceeds reinvested in other ring fence assets, no chargeable gain will arise. This replaces the previous regime which enabled a gain to be held over for a maximum period of 10 years; and
- various measures are to be introduced to simplify and reduce the compliance burden under the petroleum revenue tax regime.
A new “field allowance” is to be introduced for oil and gas companies operating in the UK or on the UK continental shelf. The new allowance will apply to small, ultra heavy fields and ultra high pressure/temperature fields. The allowances are spread over a number of years depending on the profitability of the company, and once fully spent the company will be liable to the full North Sea rate of corporation tax.
Restrictions are to be introduced restricting the time at which a company may claim capital allowances in respect of decommissioning expenditure. From Budget Day, capital allowances may only be claimed on expenditure incurred and paid out in compliance with an approved Department of Energy and Climate Change abandonment programme. This measure is designed to prevent companies entering into arrangements with other members of the group to artificially accelerate the timing of claims to capital allowances to a period well in advance of the actual decommissioning process.
VAT registration: The VAT registration threshold will increase from £67,000 to £68,000 from 1 May 2009. The VAT deregistration threshold will increase from £65,000 to £66,000 also from 1 May 2009.
Fuel scale charges: VAT fuel scale charge figures are to be reduced for VAT return periods beginning on or after 1 May 2009.
VAT standard rate: As expected, the standard rate of VAT will revert to 17.5% from 1 January 2010. Anti- forestalling rules will be introduced to prevent VAT avoidance arising from the increase in the standard rate.
Option to tax: Supplies of land or buildings are normally VAT exempt, except where an option to tax has been made. New simplified procedures for opting to tax will take effect from 1 May 2009.
Gaming: VAT on participation fees for playing bingo and other games of chance will be removed from 27 April 2009.
EU VAT package: As expected, it was announced that a package of measures will take effect on 1 January 2010 which will introduce:
- new rules for determining where and when services are deemed to be supplied;
- a requirement for businesses to submit quarterly declarations of ‘reverse charge’ services supplied to customers in other EU Member States; and
- an electronic refund procedure for VAT incurred in other EU Member States.
HM Revenue & Customs is expected to publish detailed guidance in May 2009 > More on this: VAT News
Substantial donors
If a charity enters into a specified transaction with a substantial donor (or someone connected to them) a tax charge arises to the charity. This would include the sale or letting of property or the provision of other services between the parties.
The threshold of gifts which a person may make before being regarded as a substantial donor is increased to £150,000 in a period of six years (previously £100,000). The annual limit of £25,000 remains unchanged.
Budget 2009: Headlines >more
Business Payment Support Service
The Business Payment Support Service, which was introduced following the 2008 Pre-Budget Report to assist businesses having difficulty paying their corporation tax, income tax, VAT, PAYE and NIC bills, is to be extended to allow an anticipated loss in the current accounting period to be taken into account in agreeing the amount of time a business is permitted to pay the previous period’s income and corporation tax liabilities (but not its liabilities to VAT, PAYE or NIC).
This change is a response to lobbying by businesses for the business payment support service to be more flexible and recognise the difficulties faced by businesses which have previously been profitable (and may therefore have significant tax liabilities) but who expect to be loss-making in the current period.
This measure takes effect from Budget Day. Once the accounting period has ended, it will be open to the business to make a claim for losses arising to be carried back and offset against the previous year’s profits (or three years’ profits, for those businesses with losses of less than £50,000 for accounting periods ending in the 12 months to 23 November 2010).
Personal tax accountability of senior accounting officers of large companies
Senior accounting officers of large companies are to become personally accountable for the effectiveness of their accounting systems for tax reporting purposes.
Legislation will be introduced in Finance Bill 2009 to require:
- senior accounting officers of such companies to establish and monitor accounting systems within their companies that are adequate for the purposes of accurate tax reporting;
- senior accounting officers of such companies to certify annually that the accounting systems in operation are adequate for the purposes of accurate tax reporting or to specify the nature of any inadequacies and confirm that those inadequacies have been notified to their auditors; and
- such companies to notify HM Revenue & Customs of the identity of the senior accounting officer.
These new obligations will be supported by penalties chargeable on the senior accounting officer personally and on the company for a careless or deliberate failure and for the giving of a carelessly or deliberately incorrect certificate or notification. They will apply only to returns due to be made for accounting reference periods beginning on or after the date that Finance Bill 2009 receives Royal Assent. Transitional arrangements may be considered.
Anti-avoidance
As ever, provisions have been introduced to prevent certain tax avoidance arrangements, including:
- arrangements to claim income tax loss relief from offshore life assurance policies;
- schemes to create artificial employment losses;
- corporation tax avoidance schemes which rely on intra group convertible bonds and derivative contracts;
- tightening the definitions of sale and leaseback to prevent avoidance on the refinancing of existing assets;
- prevention of certain foreign exchange schemes for companies that hold investments in foreign operations;
- establishing that the sale of an income stream without disposal of the underlying asset is taxed as income other than in certain excluded circumstances;
- ensuring that amounts received by companies which are economically equivalent to interest are taxed as interest receipts;
- the denial of interest relief where individuals have loaned funds to partnerships or close companies where there is no investment risk and the main purpose is to secure that result;
- establishing the specific treatment of exchange gains or losses on the hedging of a rights issue in a foreign currency;
- the reversal of the tax position of manufactured interest following a recent High Court decision.
Budget 2009: Headlines >more
HMRC penalties
A new penalty regime will be introduced for the submission of tax returns and the payment of tax liabilities for income tax, corporation tax, PAYE, NIC, CIS, SDLT/SDRT, inheritance tax, pension schemes and petroleum revenue tax.
There are two regimes for late filing of a return (whether or not tax has been paid on time) and late payment of a liability.
A £100 penalty will automatically apply if a return is filed after the due date. In addition £10 per day penalties will be charged if the return remains outstanding for three months (for a maximum of 90 days). An additional 5% of the tax due will be charged on each occasion if the return is outstanding after 6 and 12 months. Finally, as a last resort, HMRC can charge a 100% penalty if the return is outstanding for more than 12 months and the taxpayer has deliberately concealed information.
So far as late payment of tax is concerned, 5% surcharges on unpaid tax will be applied one, six and twelve months after the due date.
The monthly penalties for CIS returns have been increased and a statutory basis introduced for to penalties for late payment of PAYE and NIC by employers, with a rising penalty loading depending on the number of defaults over a 12 month period.
Penalties will not be charged where a time to pay arrangement has been agreed with HMRC.
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Offshore disclosure and ‘outing’ of deliberate tax defaulters
A new disclosure opportunity (NDO) has been announced by HMRC for the holders of offshore accounts or other income if they have unpaid tax on this income. Under this arrangement which will run until March 2010 the holders of these accounts will be able to voluntarily disclose the income and settle any tax due. To encourage disclosure, HMRC will be issuing notices to certain offshore financial institutions to require them to provide information about these accounts.
At the same time, the Government is seeking to introduce legislation that will enable HMRC to publish the names and addresses, tax not paid and period covered where taxpayers (individuals, businesses and companies) are penalised for deliberately understating tax due or overstating claims or losses of more than £25,000.
At present, only the names of those convicted of tax evasion are published but civil cases remain largely confidential. This provision is intended to ensure consistency in the Government’s approach to “Name and Shame”.
Where a taxpayer makes an unprompted disclosure within required time limits such as the NDO mentioned above, they will not be affected by this change.
HMRC powers – compliance checks
The compliance checks regime which currently applies to mainstream taxes is being extended to environmental taxes, IPT, SDLT, SDRT, IHT and petroleum revenue tax. These include the power to visit business premises and to inspect records, assets and premises and the right of appeal against any penalty. The record keeping requirements for these taxes will also be adjusted where necessary in line with the mainstream taxes. These changes are expected to be introduced from 1 April 2010.
Currently time limits for claims vary between taxes and it is expected that these will be aligned from 1 April 2011. This will introduce a standard framework across all taxes.
Reclaiming tax
Changes are being made to the deadlines for the reclaiming of income tax, capital gains tax and corporation tax from 1 April 2010.
Currently the time limit for making such claims is between five years ten months and six years. This limit is being reduced to four years. In addition the grounds for which such a claim can be made will be updated.
Payments, repayments and debts
Voluntary managed payment plans (MPPs) for individuals and companies will be introduced from April 2011 (at the earliest). These will allow taxpayers to make regular tax payments to HMRC straddling the normal due date.
Legislation will also be introduced to allow HMRC to collect certain small debts through the PAYE system from 2012. This is yet to be clarified.
Of more concern is the introduction of an additional power to require companies and businesses to provide contact details to HMRC of taxpayers who are in arrears. The power will have effect from Royal Assent this year.
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Interest harmonisation
HMRC aims to introduce a system of harmonisation in the rates of interest that are currently charged on late paid tax and on repayments across different types of tax. HMRC inherited different regimes following the amalgamation of the former Inland Revenue and HM Customs & Excise. Although the basis of charging and calculating interest on repayments of income tax, corporation tax, VAT, PAYE, Class 4 National Insurance, CIS deductions and various other excise and stamp duties will be aligned, and based on the Bank of England base rate, there will still be a difference in the rates charged for late paid tax and repayments as there is now.
HMRC Charter
Legislation will be introduced requiring HMRC to introduce a Charter by 31 December 2009 setting out the standards of behaviour and values which HMRC will be required to meet. HMRC will be required to report annually on how they are meeting standards in the Charter.
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We believe the information in this commentary on Budget 2009 to be correct at the time of publication, but cannot accept any responsibility for any loss occasioned to any person as a result of action or refraining from action as a result of any item herein. The provisions announced in the Budget may be subject to amendment during the passage of the Finance Bill 2009 through Parliament. This commentary on Budget 2009 is provided for information purposes only and does not constitute any form of financial or investment advice. Past performance is no guarantee of future investment returns and you should be aware that the value of your investments can go down as well as up.
© Scott-Moncrieff 22 April 2009.
