09 December 2009

As expected, the 2009 PBR included measures aimed at the perceived bonus culture of the banks.  This is to take the form of a payroll tax (a 50% levy payable by the bank on bonuses above £25,000) rather than a windfall tax on bank profits or an income tax “surcharge” aimed at the recipient employee.

Whilst this measure may attract most headlines, of perhaps greater significance is the effective 1% rise in NIC to be introduced from 2011.  Is this the first indication of the tax rises needed to meet the fiscal deficit? 

The widely anticipated increase in the rate of VAT (other than to restore the 17.5% rate) did not materialise nor any changes to the previously announced income tax rates and thresholds: although further changes to pensions relief were announced together with further promises of consultation with respect to the regime post-2011. The rate of corporation tax remains unchanged although, helpfully, the announced increase in the small companies’ rate, from 21% to 22%, will again be deferred. The proposed Patent Box attracts attention but with an earliest implementation date of 2013 is perhaps of limited immediate interest.
 

The main changes announced are summarised below:

• This will be set at 50% payable by the Bank to the extent that the bonus exceeds £25,000
  
  
•  The Bank Payroll Tax will have effect from the time of the announcement on 9 December 2009 to 5 April 2010 for all discretionary and certain contractual bonus awards
  
  
• A Code of Practice on taxation for banks is to be introduced. The intention being to encourage the banks to follow the spirit as well as the letter of the law

• The main rate of corporation tax remains unchanged at 28%
  
  
• The small companies rate will remain at 21% for the financial year commencing 1 April 2010 and will not increase to 22% as previously announced
  
  
• The Government will introduce a Patent Box consisting of a reduced rate of corporation tax of 10% applying to income from patents with effect from April 2013. Consultation is to be undertaken with respect to the detailed design on the Patent Box which will apply to patents granted after the legislation is passed
  
  
• Amendments to the worldwide debt cap to be introduced in Finance Bill 2010 are to be given effect from 1 January 2010 when these measures became effective
  
  
• 100% first year allowances for electric vans are to be introduced from 1 April 2010 (corporation tax) or 6 April 2010 (income tax)
  
  
• The R&D rules are relaxed: the condition requiring any intellectual property deriving from the R&D to which the expenditure is attributable to be owned by the company making the claim will be abolished. The change will have effect for any expenditure incurred by an SME company on R&D in an accounting period ending on or after 9 December 2009
  
  
• Details of the proposed new Controlled Foreign Companies regime are to be published in the New Year
  
  
• The possibility of a move to an exemption for foreign branch profits is to be consulted on
  
  
• A consultation document detailing proposals to simplify the capital gains regime for groups of companies is to be published shortly
  

personal tax

• For the tax year 2010/11 all tax allowances, rates and thresholds remain unchanged
  
  
• For 2012/13 the higher rate threshold will be frozen at the 2011/12 amount
  
  
• The Furnished Holiday Letting rules will be withdrawn for 2010/11 (confirming the Budget 2009 announcements)
  
  
• A new tax free allowance for SHARED LIVES CARERS is to be introduced from 6 April 2010

employment tax and NIC
 

• For the tax year 2010/11 all NIC rates and thresholds remain unchanged
  
  
• For 2011/12 in addition to the 0.5% increase to rates already announced at PBR 2008 a further 0.5% increase to those rates, making a 1% increase in total, is to be introduced from 6 April 2011
  
  
• From 6 April 2011 the exemption for the benefit of free or subsidised meals will be restricted where an employee has an entitlement to employer provided free or subsidised meals in conjunction with salary sacrifice or flexible benefit arrangements
  
  
• From 6 April 2012 the graduated table of company car tax bands will be extended down to a new 10% band and all CO² emission thresholds moved down by 5g/km
  
  
• The employee car benefit charge is reduced to nil for electric cars for 5 years from 6 April 2010
  
  
• The basis for calculating the private fuel benefit received for a company car will be increased from £16,900 to £18,000 from 6 April 2010 (£500 to £550 for a company van)
  
  
• From 6 April 2010 the flat rate benefit of £3,000 for all vans is reduced to nil for electric vans for a 5 year period
  
  
• Revised guidance on taxable car benefits for employees in the motor trade has been published
  

pensions

• The pensions ant-forestalling provisions introduced from 6 April 2009 for those with income in excess of £150,000 is extended to those with incomes of £130,000 or over from 9 December 2009
  
  
• From April 2011, new rules will be introduced to further restrict tax relief for those with incomes over £150,000 including the value of employer pension contributions, but for those whose income is less than £130,000 the value of employer contributions will not be included in determining where their tax relief will be restricted
  

Venture capital schemes

• A new definition of a "small" enterprise is being proposed with respect to the Enterprise Investment Scheme (EIS) and venture Capital Trusts (VCTS)
  
   

inheritance tax

• The inheritance tax threshold (lifetime allowance) is frozen at the current level of £325,000
  
   

Value Added tax

• VAT will revert to 17.5% at midnight on 31 December as expected. Certain businesses such as pubs and nightclubs trading across the midnight deadline will be able to charge VAT at 15% until either when they close, or if earlier 6am
  
   
• The Flat Rate Scheme percentages are amended to reflect the rate change

 anti-avoidance measures

• HMRC is to consult on a package of deterrents to help tackle offshore tax evasion.  This includes a notification requirement for certain new offshore bank accounts and a new tough approach to penalties for offshore non-compliance
  
  
• HMRC is to consult on measures to strengthen and improve the disclosure of tax avoidance schemes rules.  These DOTAS rules are to be extended to certain tax avoidance schemes that concern high value residential property (above £1m) and all users of Stamp Duty Land Tax avoidance schemes must report the use of the scheme to HMRC
  
  
• As might be expected a plethora of other finely targeted measures were also announced which are unlikely to be of wide significance
   

If you have any questions please contact our Head of Tax Anne Gregory-Jones or your usual contact at haysmacintyre.