Today’s Pre-Budget Report was aimed at sending a message to the banking sector with the expected introduction of a tax on bankers’ bonuses. Additionally, we saw minor tax breaks for small companies and the start of the tax rises with a further 0.5% rise in National Insurance Rates. Tax incentives were also introduced to encourage businesses and individuals to use green products.
Bank Payroll Tax
Bonuses paid by banks, building societies and financial companies to their employees exceeding £25,000 will be liable to tax at 50% on the excess. The employee will also have to pay income tax on the bonus at their applicable rate with no credit for the tax paid by the employer. The tax applies to all discretionary and most contractual bonus awards payable from 9 December 2009 until 5 April 2010.
National Insurance Contributions
The further 0.5% rise in National Insurance Rates will be effective from 2011, which, together with the 0.5% rise already announced gives an increase of 1%. However, to ensure that lower earners avoid this further increase, the primary threshold and lower profits limit will be increased by £570.
Pension Tax Relief
In the April 2009 Budget an announcement was made that pension tax relief would be reduced for those with incomes over £150,000. Today, it was announced that employer pension contributions will be taken into account in the definition of income. However, those with an income below £130,000 will not be affected.
VAT
The standard rate of VAT will return to 17.5% on 1 January 2010 as planned.
Inheritance Tax
The nil rate band for Inheritance Tax will be frozen at £325,000 until 2011. Anti avoidance IHT rules have also been brought in for transfers into trusts that avoid IHT rules by exploiting rules that relate to future interest in a trust.
Corporation Tax
Once again, the planned increase of the small companies’ rate of corporation tax from 21% to 22% has been deferred, this time until 6 April 2011. Additionally, the "Time to Pay" relief was extended.
Workplace Canteens
From 6 April 2011, the tax exemption that allows employees to sacrifice part of their gross salary to fund the purchase of food and drink in a workplace canteen will be withdrawn. The exemption will continue to apply to general subsidies available to all employees.
Company Car Tax
A number of measures have been introduced to encourage businesses to use environmentally friendly vehicles. Electric cars will have their car benefit charge reduced to nil for a period of 5 years from 6 April 2010, as will electric vans. Additionally, businesses that purchase new electric vans will be able to claim a 100 per cent first-year allowance for the business expenditure.
The current graduated table to company car tax bands will be extended down to a new 10 per cent band and all CO2 emissions thresholds moved down by 5g/km on 6 April 2012.
Greener Boiler Incentive Scheme
A £400 incentive will be available for replacing a working G rated boiler with a new efficient boiler or a renewable heat unit.
State Pension and Tax Allowances
The State Pension will see a 2.5% increase from April 2010 as it benefits from a guaranteed rise of this percentage.
However, tax allowances, which are based on the Retail Prices Index, will be frozen at 2009/10 levels.
If you would like further advice about how the Pre-Budget Report affects you or your business please contact Roddy Harrison, Claire Macpherson or Emma Donaldson for information.
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