Individuals Back to top
Income tax
The Chancellor announced a number of fiscal measures to support individuals who were on modest or middle incomes.
In May of this year he announced an increase in the income tax personal allowance, for a period of one year (ie tax year 2008/09). This increase was intended to benefit basic rate taxpayers £120 a year and was introduced to assist those individuals affected by the abolition of the 10p tax rate.
The Chancellor announced that he was making this temporary tax cut permanent and would make a further increase of £130 above indexation from April next year (ie for the tax year 2009/10).
The Chancellor pointed out that those with the highest incomes have seen their earnings double since 1996 and he announced that he was to introduce two measures which would affect those on higher incomes.
- From April 2010, those earning between £100,000 and £140,000 will have reduced personal allowances so that they get the same benefit as basic rate taxpayers. Where an individual’s income is above the income limit of £100,000, the allowance will be reduced by £1 for every £2 above the income limit up to a maximum of one half of the basic personal allowance. Where an individual’s gross income is above £140,000, the amount of their allowance will be further reduced by £1 for every £2 above the income limit up to a maximum of the full amount of the basic personal allowance.
- From April 2011 a new rate of income tax of 45% will be introduced for those earning over £150,000. These individuals will also be taxed at a higher rate of 37.5 per cent on dividends. The dividend trust rate will be increased from 32.5 per cent to 37.5 per cent and the trust rate of tax will be increased from 40 per cent to 45 per cent.
Set out below are the income tax personal and age-related allowances for 2008/09 and 2009/10.
| |
2008/09 |
2009/10 |
Change |
Personal allowance (age under 65)
Personal allowance (age 65-74) (1)
Personal allowance (age 75 and over) (1)
Married couple's allowance (age less than 75 and born before 6 April 1935) (1) (2)
Married couple's allowance (age 75 and over) (1) (2)
Married couple's allowance – minimum amount (2)
Income limit for age-related allowances
Blind person's allowance
|
£6,035
£9,030
£9,180
£6,535
£6,625
£2,540
£21,800
£1,800
|
£6,475
£9,490
£9,640
£6,865
£6,965
£2,670
£22,900
£1,890
|
+£440
+£460
+£460
+£330
+£340
+£130
+£1,100
+£90
|
(1) These allowances reduce where the income is above the income limit by £1 for every £2 of income above the limit. They will never be less than the basic personal allowance or minimum amount of married couple’s allowance.
(2) Tax relief for the married couple's allowance is given at the rate of 10 per cent.
The taxable bands for income tax are set out below.
| |
2008/09 |
2009/10 |
Starting savings rate 10%*
Basic rate: 20%*
Higher rate: 20%*
|
£0 - 2,320
£0 - 34,800
Over £34,800
|
£0 - 2,440
£0 - 37,400
Over £37,400
|
* There is a 10p starting rate for savings only. If an individual’s non savings taxable income exceeds the starting rate limit, the 10p starting rate for savings will not be available for savings income.
The pension scheme allowances are:
| |
2008/09 |
2009/10 |
Change |
Annual allowance
Lifetime allowance
|
£235,000
£1,650,000
|
£245,000
£1,750,000
|
+£10,000
+£100,000
|
From 6 April 2010 the lifetime allowance will increase to £1.8 million and the annual allowance to £255,000. The Chancellor also announced that he would hold the increased rates up to and including 2015/16.
National Insurance Contributions
The Chancellor stated that from April 2011 he proposed to increase by half a per cent all rates of National Insurance Contributions (NICs) for both employers and employees. Employees will pay Class 1 NICs at 11.5 per cent and at 1.5 per cent for earnings over the upper earnings limit. Employers will pay Class 1 NICs at 13.3 per cent. However, in order to assist those on modest incomes, the starting rate for National Insurance Contributions will be raised to align it with the income tax personal allowance. This will mean that no one earning under £20,000 will pay more National Insurance Contributions in spite of the increase in rates. However, those earning in excess of £20,000 will be worse off.
Set out below are the National Insurance Contributions for 2008/09 and 2009/10.
| |
2008/09 |
2009/10 |
| Lower earnings limit, primary Class 1 |
£90 per week |
£95 per week |
| Upper earnings limit, primary Class 1 |
£770 per week |
£844 per week |
| Primary threshold |
£105 per week |
£110 per week
|
| Secondary threshold |
£105 per week
|
£110 per week
|
| Employees’ primary Class 1 rate |
11% of £105.01 to £ 770 per week
1% above £770
|
11% of £110.01 to £844 per week
1% above £844
|
| Employees’ contracted-out rebate |
1.6% |
1.6%
|
Married women’s reduced rate
|
4.85% of £105.01 to £770 per week
1% above £770
|
4.85% of £110.01 to £844 per week
1% above £844
|
| Employers’ secondary Class 1 rate |
12.8% above £105 per week
|
12.8% above £110 per week |
| Employers’ contracted-out rebate, Salary-related schemes |
3.7%
|
3.7%
|
| Employers’ contracted-out rebate, money-purchase schemes |
1.4%
|
1.4%
|
| Class 2 rate |
£2.30 per week |
£2.40 per week
|
| Class 2 small earnings exception |
£4,825 per year |
£5,075 per year |
| Special Class 2 rate for share fishermen |
£2.95 per week |
£3.05 per week |
| Special Class 2 rate for volunteer development workers |
£4.50 per week |
£4.75 per week |
| Class 3 rate |
£8.10 per week |
£12.05 per week |
| Class 4 lower profits limit |
£5,435 per year
|
£5,715 per year
|
| Class 4 upper profits limit |
£40,040 per year |
£43,875 per year
|
Class 4 rate
|
8% of £5,435 to £40,040 per year
1% above £40,040
|
8% of £5,715 to £43,875 per year
1% above £43,875
|
Tobacco, alcohol and petrol duties
The Chancellor stated that the reduction in the rate of VAT (see below) lowers the amount paid on tobacco, alcohol and petrol. He therefore proposed to offset this reduction by increasing the duties on these items by an amount which would keep the overall cost to the consumer the same.
• The duty on alcoholic drinks will be increased by 8% with effect from Monday 1 December 2008.
• The duty on tobacco products will be increased by 4% with effect from 6pm on Monday 24 November 2008.
• The fuel duty rates for 2008 introduced in the Finance Act 2008 will be reinstated with effect from 1 December 2008.
Vehicle Excise Duty
The Chancellor announced that to assist motorists at this time, the previously announced new bands and rates of Vehicle Excise Duty will now be phased in over a period and the increases in duty will be lower.
In 2009, duty rates for all cars will increase by a maximum of £5. From 2010 the more polluting cars will see an increase of up to £30 compared with the previous proposal of up to £90. Less polluting cars will see no increases or a reduction of up to £30.
Savings
The Chancellor announced the setting up of the Saving Gateway to encourage those with modest incomes to save. From 2010 an individual on a low income who saves money through the Saving Gateway will have 50 pence added by the Government for every pound he or she saves.
Child Tax Credit
The two increases in Child Tax Credit previously announced by the Government and which were due to take effect next April and in 2010 will now both be introduced in April next year which will make the Tax Credit worth £2,235 for a family on a modest income.
Child Benefit
The Government had already announced an increase in Child Benefit from £18.80 to £20 in April 2009. The Chancellor announced that this increase will now take place in January 2009 – 3 months earlier than previously proposed.
Pensioners
The Chancellor stated that he wanted to do more for pensioners.
Pension Credit
The Pension Credit in to be increased from next April from £124 to £130 for individual pensioners and from £189 to £198 for pensioner couples.
State Pension
The Chancellor confirmed that the State Pension will increase in line with the highest rate of inflation this year. This will mean an increase in the basic State Pension for a single person from £90.70 to £95.25.
One-off payment
In addition to the winter fuel payment and the £10 Christmas bonus, in January next year every individual pensioner will receive a one-off payment of £60. Married couples will receive £120. The one-off payment, together with the Christmas bonus, will also be paid to children with disabilities.
Mortgages
The Chancellor stated that he wanted to take steps to improve the supply of mortgages.
Following measures taken to recapitalise the banks, the Government considers it important that these banks maintain the availability of mortgages. In addition, the Government intends to support the mortgage market by providing a temporary guarantee for securities backed by new mortgages.
The Chancellor announced his intention to set up a new body, the Lending Panel, which will monitor lending to businesses and households.
Repossessions
The Chancellor stated that the repossession of a house by a lender should be the last resort and he confirmed that this has been recognised by lenders. He announced that the major lenders had agreed to wait for at least three months after a borrower had fallen into arrears with his or her repayments before initiating repossession proceedings. This period would help give lenders and borrowers time to find a solution.
The Chancellor announced funding of £15 million for free and impartial debt advice which would be available to everyone.
The Chancellor also announced an increase of £100,000 to the upper limit of the Support for Mortgage Interest Scheme.
The Government is to extend the Mortgage Rescue Scheme which assists vulnerable homeowners who are facing difficulties in staying in their homes. The scheme will now cover those who are at risk through taking out a second mortgage.
New homes
The Chancellor announced an acceleration of capital spending for new social rented homes and shared equity schemes. An additional £775 million this year and again next year will be available to invest in new and modernised social homes and in regeneration projects.
Unemployment
The Chancellor recognised that, as the economy slows, it is crucial that the impact on employment is minimised. He announced the expansion of the Rapid Response Service which provides support for those facing redundancy. In addition, more pre-redundancy re-training will be provided through the Train to Gain initiative.
The Chancellor also announced the creation of the National Employment Partnership, to be chaired by the Prime Minister, which will help fill over half a million unfilled vacancies.
Businesses Back to top
Value added tax
The Chancellor stated that to prevent the recession deepening it was necessary to put money into the economy. He concluded that the “best and fairest” approach was to cut VAT from 17.5 per cent to 15 per cent for a period of 13 months commencing on Monday 1 December. He stressed that this was to be a temporary reduction in the rate which would revert to 17.5 per cent on 1 January 2010 when the economic recovery was underway.
Only standard-rated sales are affected. There are no changes to sales that are zero-rated or reduced-rated for VAT. There are no changes to the VAT exemptions.
The reduction in the VAT rate is designed to stimulate retail spending and for this reason the Chancellor asked retailers to pass on the reduced rate as quickly as possible.
The Chancellor has given businesses very little time to implement the new VAT rate and all invoices issued after 1 December 2008 should use the new rate. There is an exception if the business provided the goods or service more than 14 days before the issue of the VAT invoice or the invoice was paid before 1 December 2008.
The threshold above which retailers cannot use a published VAT retail scheme is to be increased from £100 million to £130 million.
Corporation tax
The planned increase in the Small Companies Rate from 21% to 22% from 1 April 2009 has been deferred until 1 April 2010.
The loss carry back rules are to be extended, for Corporation Tax accounts ending between 24 November 2008 and 23 November 2009 and Income Tax accounts ending in 2008/09, by allowing the loss carry back for three years (previously one year). The amount that can be carried back to the previous year remains unlimited but there is a maximum carry back of £50,000 in total to the earlier two years.
Additional measures
The Chancellor stated that “small and medium firms are the engine of our economy” and that they employ around 60 per cent of the private sector workforce. He acknowledged that in today’s economic climate these businesses are facing difficulties in relation to cash flow and credit.
The Chancellor announced the following measures to assist such businesses:
- The introduction in 2009 of an exemption for foreign dividends for large and medium-sized businesses.
- The improvement of UK rules for taxing Controlled Foreign Companies.
- A temporary increase for small businesses in the threshold for empty property relief. For the year 2009/10, empty commercial properties with a ratable value below £15,000 will be exempt from business rates. In addition, in order to reduce the cash flow impact on businesses, the Government will legislate to give more time to pay certain backdated business rates bills issued before 31 March 2010. Businesses having to pay these bills will be able to pay their liability for previous years in equal interest-free installments over 8 years, rather than immediately.
- Assistance to small businesses who need time to pay their tax bills. H M Revenue & Customs, through a new, dedicated Business Support Service will provide specific help to businesses to enable them to spread payment of their taxes on an agreed timetable that the business can afford. This will include corporation tax, income tax, national insurance and VAT.
- The monitoring by the Government of commitments given by banks to treat their business customers fairly and decently. In particular, those banks that have received Government funding should maintain the availability of lending to small and medium-sized businesses at 2007 levels and not increase overdraft prices for at least one year, in line with the commitment given by the Royal Bank of Scotland.
- Improving access to finance for small and medium-sized businesses by means of loans from banks that have received funds from the European Investment Bank and through credit provided by the Government through the temporary Small Business Finance Scheme.
- In 2009 the Government, through Business Link, will launch a new portal for credit-worthy small and medium-sized businesses who are having problems accessing credit.
- Additional support, through the Export Credit Guarantee Scheme, for smaller companies that export.
Income shifting
Some individuals are able to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax. This procedure is known as income shifting. It was thought that the Government would introduce measures to prevent this practice in the 2009 Finance Bill. However, because of the current economic challenges, the Government is deferring action but will instead keep this issue under review.
Capital allowances for business cars
The Chancellor confirmed that the Government is to modernise the tax relief for business expenditure on cars. The existing arrangements will be replaced by an emissions based approach and will take effect from 1 April 2009 for corporation tax and 6 April 2009 for income tax.
VAT – change in standard rate Back to top
Information for VAT registered businesses
- For 13 months from 1 December 2008, the standard rate of VAT will be reduced from 17.5% to 15%. If you used the old fraction 7/47 to calculate the VAT from your gross income/ takings, this fraction will now be 3/23
- There are no changes to sales that are zero/reduced rated and exempt supplies
- If you are a retail business making mainly cash sales to customers who are not registered for VAT (eg shop, restaurant, takeaway, hairdresser etc), or your sales are to domestic customers (eg plumber, electrician etc)
You can decide whether or to what extent you pass on the reduction in VAT to your customers within your price, but whatever your decision, when accounting for VAT to H M Revenue & Customs….
You should use the new rate for all takings received and work done from 1 December
Except for where your customer pays for something on or after 1 December, which they took away or received the service for before 1 December, in which case you should use the old 17.5% rate
- If you are a business that sells mainly to other VAT-registered businesses and have to issue VAT invoices
You should use the new rate for all VAT invoices you issue on or after 1 December
Except where you provided the goods or services more than 14 days before you issue the VAT invoice or you were paid before 1 December, in which case you must use the old 17.5% rate, regardless of the date of the invoice
- Continuous supplies, eg work in progress, such as ongoing construction work
Where you are involved in a continuous supply and cannot accurately connect when exactly the work was done for the amount invoiced or charged, you account for the VAT when you receive payment or issue an invoice and where this is on or after 1 December, this will be all at the new rate of 15%
- Sales spanning the change of rate
If you have received a payment or issued an invoice before 1 December for goods or services that will be delivered or performed on or after 1 December, you can choose to apply the new 15% rate to the amounts already received or invoiced. You will need to issue a credit note to your customer if you have already issued a VAT invoice at the old rate
- If you use a computer/software package that automatically calculates VAT, you will need to change it to reflect the new rate from 1 December
If you require assistance on this, please telephone Jan Harrison or Oliver Ward here
- If you use an electronic till, please change this yourself or contact your till supplier
- Flat rate scheme percentages will change from 1 December . Please check your revised rate on www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf