November 2008

November 2008 Pre-Budget Report

VAT

As expected, the Chancellor announced in the pre budget report the first ever reduction in the standard rate of VAT.  As a measure to ‘kick-start’ the economy the effect will be immediate and take effect as of 1 December 2008.  From this date you should be charging VAT of 15% on all standard rated sales.

It is also worth checking that all suppliers are charging you the correct rate of VAT from this date.  The rate will be in effect until at least 31 December 2009.

If you are using any third party software providers to prepare your own sales invoices and/or VAT returns, you may need to contact their relevant support lines to assist you in making any necessary changes.

Although the reduction in VAT claimed most of the headlines, changes to the business tax regime are worth mentioning.

Business Payment Support

While HMRC have often been willing to negotiate for overdue VAT and PAYE payments businesses have historically found it difficult to agree payment schedules for overdue Corporation Tax.

To assist cash flow within small businesses the Chancellor announced that HMRC will be more willing to set up ‘payment strategies’ for companies struggling to meet their Corporation Tax payments.  HMRC have announced the existence of a business support line (telephone number 0845 302 1435) which is now open.  It is still the taxpayer’s responsibility to approach HMRC if they are struggling to meet any tax deadlines.

Small Companies Corporation Tax Rate

It had been announced in previous budgets that the small company corporation tax rate was due to rise by an extra 1% from 1 April 2009 to 22%.  However, this has been put on hold for a year and is now expected from 1 April 2010.

Trading Losses

For one year, businesses with year ends later than 24th November 2008, trading losses can now be carried back against profits for the previous three years rather than the usual one year.  Losses are applied against the later years first.  This is a rather important point as it currently allows small businesses to obtain relief at higher rates (21% then 20% then 19%) and large companies at lower rates. (28% then 30%).

One potential downside is that the losses carried back in excess of one year are restricted to a maximum of £50,000.

Company Cars

There have also been changes in the treatment of company cars with emissions in excess of 160g/km.  Capital allowances have been reduced and changes have been made to the treatment of lease payments on these vehicles with regard to the disallowable element.

If you think you may be affected by this, please contact us and we will be happy to help.

Income Shifting

The Chancellor once again has decided to place the notorious income shifting legislation on hold until further notice.

Personal Tax

The Chancellor decided to continue with the ‘inflated’ personal allowance for another year.

From April 2010 the personal allowance will be restricted.  Taxpayers will lose £1 of personal allowance for every £2 earned in excess on £100,000 to a maximum restriction of half their personal allowance.  Any earnings over £140,000 will continue to reduce the personal allowance by the same rate with no restriction.  These changes result in an effective 60% marginal tax band for individuals.

From April 2011 there will be an additional higher rate tax band of 45% for taxable incomeover £150,000 (37.5% for dividends).

National Insurance

From 6 April 2009, the UEL (Upper Earnings Limit) for NI Contributions will be raised to £43,875 to be in line with the higher rate tax band.

From 6 April 2011 the other NI thresholds will be aligned with the tax bands but increased by 0.5% (Class 1 and Class 4).  This includes earnings above the UEL (increased to 1.5%).  In addition, the increase also applies to employers NI contributions.