Alistair Darling’s second Budget on 22 April held few surprises given the current economic climate. Around 700,000 high earners (more than £150,000 per year) will be affected by a new 50% income tax rate, a cut in personal allowances (£1 for every £2 of income above £100,000, falling to zero for those earning £112,950 or more) and a reduction of the top rate of pension tax relief. These changes will be effective from April 2010, just before the next General Election (George Osborne, the Shadow Chancellor, would not confirm that these changes would be reversed if they got in…). Other ‘highlights’ included:
- VAT will return to 17.5% by December of this year from the current rate of 15%.
- The government pledged 1.7 billion to support Jobcentre Plus and the New Deal to protect 500,000 jobs.
- All those aged 25 or younger will be given a job or training if they have been unemployed for 12 months or more from January 2010.
- Statutory redundancy pay will increase from £350 a week to £380 a week.
David Daly of accountants Horwath Clark Whitehill has provided People Bulletin readers with the following additional detail of other changes affecting direct tax and benefits:
Staff living accommodation
The government used the Budget Day releases to announce a new anti-avoidance measure. Where living accommodation is leased by the employer, the benefit charge for the employee is normally based on the rent the employer pays. Some employers have sought to reduce the taxable benefit artificially by paying a substantial lease premium initially and a much lower rent thereafter. For leases entered into or extended on or after 22 April 2009 this will no longer be effective. On leases of 10 years or less, the benefit will be calculated by spreading the premium over the lifetime of the lease and adding it to the rent. HMRC hopes that this will produce a result much closer to the open market rent.
Company car taxation – changes are on the way
The car benefit charge is based on a percentage of the car’s list price, varying between 15% and 35% depending on the car’s CO2 emissions. For 2009/10 the entry level remains at 135 grams per kilometre. However, the 2008 Budget contained an advance announcement of a drop in the entry level to 130 gms/km, in April 2010. We now know this will be followed by a further drop to 125gms/km in April 2011. Each 5 gram drop in the entry level has the result of increasing the list price percentage by one percentage point for most cars.
Also from 6 April 2011, the government will scrap the discounted percentages that currently apply to Euro IV diesel cars registered before 1 January 2006, petrol-electric hybrid cars, road fuel gas-powered cars and cars capable of running on bioethanol.
At the same time, the £80,000 cap on the list price of company cars will be scrapped – the taxable benefit will be calculated on the full list price.
NICs – Upper Accrual Point
The Upper Accrual Point (UAP) is an additional NIC threshold which comes into effect on 6 April 2009. It falls between the ET and the UEL and so creates an additional step in the calculation of Class 1 NICs for both employees and employers. It has been introduced in connection with changes to the way the State Second Pension is calculated.
Earnings falling in the band between the UAP and the UEL will be liable to NICs at the full rate, i.e. 11% for employees and 12.8% for employers. This applies to all employees, including those who pay NICs at the contracted out rate (Tables D and E). So from 6 April 2009 the contracted out rebate applies only as far as the UAP and not all the way to the UEL as previously.
The change also affects the way NICs have to be recorded. Forms P11 and P14 for 2009/10 will have an extra column to record earnings that fall into the band between the UAP and the UEL.
National Minimum Wage – new HMRC powers
Two important changes came into effect on 6 April 2009, both intended to punish defaulting employers. The first concerns the calculation of NMW arrears. In future, once the original underpayment has been calculated, it will then be scaled up for each pay reference period using a fraction of CR/OR where CR is the rate of NMW that currently applies and OR is the original NMW rate that applied at the time.
The second change is the introduction of automatic penalties. From now on, where HMRC compliance officers discover arrears of NMW, the employer will be hit with a penalty of between £100 and £5,000. Employers who settle within 14 days of being notified will have their penalty reduced by 50%.
http://www.hm-treasury.gov.uk/bud_bud09_index.htm
www.horwath.co.uk