Alistair Darling presented his second Budget speech in his usual calm, quiet tones, occasionally having to raise his voice over the opposition MPs' cries of astonishment at the awful economic statistics that he was announcing. His predictions from last November, depressing though they were, turned out to be far too optimistic. He tried to reassure us by saying that things will get better next year, but how reliable are his forecasts now? What is certain is that the Government is very short of money, and will have to start raising cash from somewhere soon.

Mr Darling's delivery tended to disguise the significance of some of the things he said: for example, he swept away New Labour's repeated promise not to raise the top rate of tax within the life of this Parliament. In 2010/11, income tax will be levied at 50% on those with incomes above £150,000, and new rules on personal allowances will create a 60% tax band for those earning just over £100,000. Mr Cameron hopes to win an election on the back of Labour's economic problems, but then it will be his turn to try to fill the hole in the public finances - it will be interesting to hear the Conservatives' proposals for doing this as the election approaches.

Meanwhile, HM Revenue & Customs have been given new powers to inspect taxpayers' records from 1 April 2009, and new severe penalties may be imposed on people who have paid the wrong amount of tax carelessly or deliberately. Some of the Budget announcements indicated a further crackdown on tax avoiders and tax evaders. The Government - whichever side is in - will be looking for money. We will continue to provide support and advice when they come knocking.

Significant points

• Income tax rates to rise for high earners in 2010/11.
  
  
• Further increases to come in taxation of company cars.
  
  
• Tax relief for pension contributions to be restricted for high earners in 2010/11.
  
  
• Increase in ISA investment limits.
  
  
• Extension of Stamp Duty Land Tax holiday to December 2009.
  
  
• First year allowances for purchases of plant for one year.
  
  
• New crackdown on tax evaders.
  

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Rates of credit

Many of the rates of tax credit have risen in line with inflation. The figures that are most relevant to higher earners - the "family element", £545, and the level of combined income at which it starts to be withdrawn, £50,000 - remain unchanged.
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Rates and limits (Table D)

The percentage rates of NIC remain unchanged. An increase is expected in 2011, but no further details of this were given in the Budget.

The upper earnings limit, at which employee contributions drop from 11% to 1%, has increased substantially this year in order to align it with the level at which higher rate income tax is payable. Because different amounts are subject to income tax and NIC (e.g. savings income, which is not charged to NIC), it will be rare for the thresholds to concide exactly. What is certain is that the increase in the upper earnngs limit will significantly increase the NIC payments of high earners: a higher proportion of their pay will be charged at 11% instead of 1%.

A new threshold has also been introduced for 2009/10. The "upper accrual point" is the top limit for those on contracted-out pensions to enjoy the contracting out rebates. For example, an employee with a salary-related contracted-out scheme will pay 9.4% NIC on earnings between £110 and £770 a week, then 11% on earning between £770 and the upper earnings limit of £844, then 1% on any earnings above that.

These two changes together mean that the rates of NIC may be unchanged, but the amounts of NIC deducted from the pay of high earners will increase sharply between March and April. For example, a contracted-out employee earning £4,000pm will pay £307 rather than £277 - an increase of 10%.

Company cars and fuel (Table C)

There are no changes to the taxation of company cars and fuel for 2009/10. The charge is based on a percentage of the list price for the car and the same percentage of a fixed figure of £16,900 for the fuel. The percentage is linked to the CO2 emissions rating of the car.

It had already been announced that there will be increases to tax charges from April 2010 because the thresholds for CO2 emissions will be lowered by 5g/km: for most people this will add 1% to the percentage that is applied to the list price of the car and to the standard figure for fuel to give the taxable benefits in kind.

A further 5g/km will be taken off the thresholds for 2011/12, leading to a further 1% addition to most people's percentages. For example, a petrol-engined car with a rating of 150g/km will have a percentage of 18% in 2009/10, 19% in 2010/11 and 20% in 2011/12.

The upper limit on list prices, currently £80,000, will also be removed in 2011/12, so drivers of very expensive cars will see a substantial increase in their tax charges.

Employee accommodation

Where an employer provides residential accommodation for an employee, the taxable benefit in kind is calculated according to the rent paid by the employer or the capital amount paid for the property. An avoidance scheme has used the payment of a premium for a short lease to minimise both the rent and the capital value. New leases taken out from 22 April 2009 will be subject to tax on the employee and NIC on the employer as if the premium is a payment of rent which will be spread for tax purposes over the whole period of occupation.
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Pension contributions (Table B)

For the current tax year, 2009/10, pension contributions will be relieved as in past years, with expected increases in the maximum amounts of contributions and tax-free funds at retirement.

Tax relief will be restricted for the highest earners - those with incomes over £150,000 - from April 2011: instead of the current relief at the marginal rate of 40%, the relief will be tapered to 20%, the same level of relief that basic rate taxpayers receive, by the time income reaches £180,000. There will be measures to stop people on very high earnings paying unusually large contributions to take advantage of the greater relief in advance of the change: if someone with earnings over £150,000 pays contributions that are greater than £20,000 and greater than the regular contributions paid in previous years between 22 April 2009 and 5 April 2011, there will be a supplementary tax charge which will have the effect of cutting the tax relief to 20%.

Individual Savings Accounts

The limit for investment in tax-free ISAs increases from £7,200 to £10,200. This higher limit will apply from 6 October 2009 for people aged 50 and from 6 April 2010 for everyone else. Up to £5,100 can be invested in cash ISAs. As before, the balance has to be invested in stocks and shares.

Venture capital schemes

Minor but significant changes have been made to the Enterprise Investment Scheme, which encourages investment in unquoted trading companies. It has been necessary for the company to use 80% of the money raised within one year of the share issue and the remainder within two years. This is relaxed so that the whole of the money must be spent within two years. Up to 21 April 2009, half of an EIS investment in the first half of a tax year could be "carried back" for tax relief in the previous year. From 22 April 2009 onwards, the whole of any qualifying EIS investment made up to 5 October in the tax year can be relieved in the
preceding year.

The Corporate Venturing Scheme and Venture Capital Trusts enjoy the same relaxation in the time limit for spending the money raised from share issues.

Foreign dividends

Individuals who receive dividends from UK companies enjoy a 10% tax credit which is added to the net amount received to give the taxable income. The tax credit is then set against the tax liability, which means that a basic rate taxpayer has nothing to pay and a higher rate taxpayer pays 22.5% of the gross amount - equivalent to 25% of the net dividend. In April 2008, the tax credit rule was extended to recipients of dividends from foreign resident companies as long as they owned less than 10% of the shares.

These rules will now be extended to holders of 10% of the shares and above, as long as the country in which it is resident has a system of tax on profits similar to corporation tax. The rule will also apply to all dividends from offshore funds, unless they hold more than 60% of their investments in interest-bearing assets, in which case the distributions will be taxed as interest.
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Annual exemption and rate

The annual exempt amount for CGT rises from £9,600 to £10,100. Most trusts enjoy half the personal exemption (£5,050). The rate of CGT remains unchanged at 18% on net gains after reliefs, losses and the annual exemption. Entrepreneurs' Relief reduces the rate to 10% on the first £1m of gains on disposals of qualifying business assets.

Agricultural property

Holdover relief allows someone who gives away agricultural property to pass on the CGT charge on the gift to the donee. Up to now, the relief has only been available for land situated in the UK. From 22 April 2009, land anywhere in the European Economic Area can qualify.

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Rates and threshold

There are no changes to IHT rates. As previously announced, the nil rate threshold rose on 6 April 2009 to gifts of up to £325,000.

Agricultural property

A 100% relief from IHT applies to the agricultural value of agricultural property. Up to now, the relief has only been available for land situated in the UK. From 22 April 2009, land anywhere in the European Economic Area can qualify. It will also be possible to claim the relief retrospectively where a charge arose on a transfer, including a death, from 22 April 2003. Claimants will have at least a year from 22 April 2009 to ask for a refund.
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Extended holiday

The one-year increase in the threshold for SDLT on residential property to £175,000 is extended by a further four months to 31 December 2009. After that, the 1% rate will again apply to purchases of residential property for consideration above £125,000 in general, or £150,000 in "disadvantaged areas". Once the threshold is exceeded, SDLT applies to the whole of the consideration: the charge on consideration of £176,000 is £1,760, not £10 (1% of the excess over £175,000).

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Rates of tax

The rates of corporation tax remain 28% for companies with profits over £1.5m and 21% for companies with profits up to £300,000, with a marginal rate in between those levels of 29.75%. The calculations are more complex for associated companies or those which receive dividend income. The small companies rate was intended to rise to 22% on 1 April 2009, but (as announced in November) this increase has been deferred to 1 April 2010.

Foreign dividends

The Budget has confirmed the introduction of a package of reforms to the taxation of the foreign profits of UK corporate groups, including a tax exemption for most foreign dividends. There will be associated changes to restrict interest deductibility based on a worldwide debt cap, and also to the Controlled Foreign Companies rules.
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Capital allowances

Capital expenditure on plant and machinery will enjoy a 40% first year allowance, instead of the normal 20% annual writing down allowance, if incurred in the year to 31 March 2010 (companies) or 5 April 2010 (unincorporated businesses). Businesses already enjoy a 100% annual investment allowance on purchases of plant, but this is limited to £50,000 a year. The new first year allowance will therefore benefit businesses which spend more than £50,000 a year on plant.

Registration threshold

The threshold of VATable turnover for registering a business for VAT rises by £1,000 to £68,000 from 1 May 2009. The level of turnover below which a business can deregister also rises by £1,000 to £66,000.

Fuel scale rates

The VAT charge which applies where a business provides car fuel for private use by a proprietor or employee increases slightly for return periods commencing from 1 May 2009. The rates depend on the CO2 emissions rating of the car and have to be obtained from the full table which is available on HM Revenue & Customs' website. The rates will change again on 1 January 2010 when the standard rate reverts to 17.5%.

Standard rate

There were no further announcements about the standard rate of VAT. The temporary cut to 15% will therefore end on 31 December 2009, and the rate will return to 17.5% on 1 January 2010. Measures have already been announced to stop traders artificially advancing tax points for supplies in order to charge 15% to people who cannot recover VAT in respect of goods or services that will really be supplied after the rate rises.

Cross border supplies

New rules will apply to traders supplying services to customers in other EU countries from 1 January 2010. There will be changes to the place of supply rules, which make some such supplies chargeable to UK VAT and some chargeable in the customer's country, and there will be a new requirement to report sales of services to HM Revenue & Customs on a quarterly basis. Anyone who is involved in international supplies of services will need to make their systems ready in good time.

There will also be a new electronic refund procedure for claiming back VAT on business expenditure incurred in other member states to replace the present paper-based system. The deadline for businesses submitting claims will be extended from 6 to 9 months, and the time limit for the authorities to pay the money will be shortened from 6 to 4 months.
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Other Measures

Table A
Allowances and Reliefs

2009/10

2008/09

Allowed at top rate of tax

Personal Allowance

£6,475

£6,035

Personal Allowance (65-74)*

9,490

9,030

Personal Allowance (75 and over)*

9,640

9,180

Blind Person's Allowance

1,890

1,800

Allowed only at 10%

Married Couple's Allowance (65-74)+*

N/A

6,535

Married Couple's Allowance (75 and over)+*

6,965

6,625

Income Limit for age-related allowances

22,900

21,800

+ only available if born before 6th April 1935.

* Age allowances are reduced £1 for every £2 by which income exceeds the income limit, until the age allowance is reduced to the normal allowance. Personal allowance is reduced before married couple's allowance. MCA is reduced to a minimum of £2,670 (2007/08: £2,540).

Bands

2009/10

2008/09

Starting (within basic rate band)*

£2,440

£2,320

Basic

37,400

34,800

Higher

over 37,400

over 34,800

* There is 10% starting rate for savings income only. If general taxable income exceeds the

starting rate limit, the 10% rate is not available.

Rates differ for General, Interest and Dividend income within each band:

Table B
Pension Contributions

The maximum annual tax efficient gross contributions (up to age 75) in 2009/10 are:

Maximum tax efficient fund (lifetime allowance) where benefits are taken in 2009/10: £1.75m.

Only current earnings count for the 100% limit. It is no longer possible to use prior earnings or to carry back contributions to earlier years.

Table C
Benefits In Kind

Car Benefit Assessment 2009/10

Charge based on a percentage of the initial list price of the car; the percentage depends on the carbon dioxide emission ratings of the car, if it has one. For older cars without a rating, the percentage depends on engine capacity.

For 2009/10 the percentage for a petrol engine is 15% for ratings from 121g/km - 135g/km. The percentage increases by 1% for every complete 5g/km in excess of this (i.e. at 140,145 etc), to a maximum of 35%. Diesel cars have 3% added to this figure, but still have a maximum percentage of 35%.A new lower rate of 10% (13% diesel) is available for cars with a rating up to 120g/km.

Car Fuel Assessment

The benefit is calculated using the same percentage as that used for the car benefit, applied to a standard figure of £16,900 (unchanged from 2008/09).

The taxable amount is therefore between £1,690 (10% - min.) and £5,915 (35% - max.).

Table D
Rates and limits for 2009/10

Employee's Contribution

Contracted in: 11% on earnings between PT and UEL, 1% above UEL.

Contracted Out: 9.4% on earnings between PT and UEL, 11% from UAP to UEL, 1% above UEL.

Earnings over £95 per week qualify for benefit, and must be reported under PAYE, but no NICs are payable until earnings exceed £110 per week.

The reduced Class 1 rate payable by certain married women and widows is 4.85% for earnings between £110 and £770 per week, 1% above £770 per week.

Welcome to the 2009 Budget Tax Facts

This document is prepared for guidance only. We recommend that you contact us for advice before acting on any information contained in the document and we cannot accept responsibility for any action taken without such advice.

Allowed at top rate of tax

2009/10

2008/09

Personal Allowance

£6,475

£6,035

Personal Allowance (65-74)*

9,490

9,030

Personal Allowance (75 and over)*

9,640

9,180

Blind Person's Allowance

1,890

1,800

Allowed only at 10%

Married Couple's Allowance (Up to 74)+*

N/A

6,535

Married Couple's Allowance (75 and over)+*

6,965

6,625

Income Limit for age-related allowances

22,900

21,800

+ only available if born before 6th April 1935.

* Age allowances are reduced £1 for every £2 by which income exceeds the income limit, until the age allowance is reduced to the normal allowance. Personal allowance is reduced before married couple's allowance. MCA is reduced to a minimum of £2,670 (2008/09: £2,540).

Important annual limits

2009/10

2008/09

Individual Savings Account investment

**£7,200

£7,200

Rent a room exemption

4,250

4,250

Enterprise Investment Scheme investment

* 500,000

* 400,000

Venture Capital Trust investment

! 200,000

! 200,000

* Relief at 20%  ! Relief at 30% **£10,200 for those aged 50+(6.10.09).

2008/09

2007/08

Starting rate on first *

2,440

2,320

Basic rate on next

37,400

34,800

Higher rate on taxable income over

37,400

34,800

Tax rates

Charge based on a percentage of the initial list price of the car, including accessories, delivery charges and VAT. The percentage depends on the carbon dioxide emissions rating of the car, and whether the engine runs on petrol or diesel. Lower rates may apply to electric or biofuel-adapted cars.

Ratings

Petrol

Diesel

0-120g/km

10%

13%

121-135g/km

15%

18%

over 135g/km

+1% for each extra 5g/km (140,145 etc.)

Maximum

35%

35%

Special rules apply to older cars which do not have a CO2 rating.
Employee contributions for private use are deducted from the taxable figure.
Company vans are charged at £3,000 if private use is more than home-to-work travel. An additional amount of £500 is charged if fuel is provided free for private use.

Car fuel benefit

The benefit of free fuel for private use in a company car is calculated using the same percentage as that used for the car benefit, applied to a standard figure of £16,900 (2008/09: £16,900). The taxable amount is therefore between £1,690 (min.) and £5,915 (max.).

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Higher Rate

Lower Rate

2009/10 & 2008/09 unchanged

All cars

40p

25p

Motorcycles

24p

24p

Bicycles

20p

20p

Business passengers

5p

5p

Higher Rate allowed up to 10,000 business miles.

Fuel-only allowances for company cars

Petrol

Diesel

LPG

From 1.1.2008

Up to 1400cc

10p

11p

7p

1401 - 2000cc

12p

11p

9p

Over 2000cc

17p

14p

12p

These figures may change more often than once a year.

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Maximum annual tax efficient gross contributions to age 75

- individuals

£3,600 or 100% of earnings to £245,000

- employers

£245,000 less employee contributions

Maximum tax-efficient fund on taking benefits in 2009/10: £1.75m (rising to £1.8m in 2010/11 then staying the same until 2015/16).

Only current earnings count for the 100% limit. It is no longer possible to use prior year earnings or to carry back contribution to earlier years.

Most personal pension contributions are paid net of basic rate tax. 

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Charges on or after 6th April 2008

Rates %

Charges between 6th April 2008 and 5th April 2009

0 - £325,000

NIL

0 - £312,000

Above £325,000

40%

Above £312,000

Lifetime chargeable transfers at half the death rate, ie 20%.
Business property relief of 100% for all shareholdings in qualifying unquoted trading companies and for most unincorporated trading businesses; agricultural property relief at 100% for qualifying holdings of agricultural land.
Annual exemption for lifetime gifts £3,000.
Small gifts - annual amount per donee £250.

Reduced tax charge on transfers within 7 years of death

Years before death

Percentage of death rates

0 - 3

100%

3 - 4

80%

4 - 5

60%

5 - 6

40%

6 - 7

20%

Over 7

NIL

Standard rate (3/23 of VAT-inclusive price)

15%

Registration level from 1.5.09

£65,000 per annum

Deregistration level from 1.5.09

£66,000 per annum

Standard rate rises to 17.5% on 1.1.10.

Scale Charges (from 1.5.09)

The scale charges for private use of business fuel change are based on the CO2 emissions rating of the car. A different charge will apply for each 5g/km increase between 135g/km and 235g/km (max). For a 3 month period:

120 or less

£109.57 net

£16.43 VAT

121-135

164.35 net

24.65 VAT

rising per 5g/km by approx*

11.00 net

1.65 VAT

235 or above

383.48 net

57.52 VAT

* exact figures must be obtained from full table. Rates will rise on 1.1.10 when the standard rate reverts to 17.5%.

Annual exempt amount 2009/10: individuals £10,100, most trustees £5,050.

Net gains after all reliefs and annual exemption amount are taxed at 18%. 

Entrepreneurs' relief

For disposals of sole trade or interest in a partnership trade, or shares in a trading company by an employee owning at least 5%, the gain (up to £1m lifetime allowance) is reduced to 5/9, to give an effective rate of CGT of 10%. Gains above the allowance are taxed at 18%.

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Year to 31.3.2010

31.3.2009

Main rate

28%

28%

Profits above

£1.5m

£1.5m

Small companies rate

21%

21%

Profits upto

£300k

£300k

Small/large marginal band

£300k - £1.5m

£300k - £1.5m

Fraction (effective rate)

7/400 (29.75%)

7/400 (29.75%)

Rates on sales

% of Total Consideration

Shares and marketable securities (nil if value up to £1,000)

0.5%

Land

0 - threshold

NIL

Threshold - £250,000

1%

£250,001 - £500,000

3%

£500,001 and over

4%

The threshold is £175,000 for residential property and £150,000 for commercial property. From 1.1.10 the residential threshold is due to fall to £125,000 (general) or £150,000 ("disadvantaged areas").