Until this morning, in common with many of my colleagues, I was anticipating a comprehensive Pre-Budget Report which would set out Labour's stall in advance of the General Election next year. We were let down. The opportunity which Darling and the Labour Party had to establish the fiscal foundations for a potential fourth term has not been taken.

I had foreseen an increase in capital gains tax and changes to the main inheritance tax reliefs, but this did not happen.

Darling and Labour have played safe so as not to alienate the electorate.

What we have instead is a reduction in bingo duty and a tax on bankers' bonuses which may well prove ineffective and not make the desired contribution to our debt reduction. It has been a wasted opportunity.

Commentary from Robert Jamieson, partner with Mercer & Hole and past President of the Chartered Institute of Taxation.

The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Robert you can contact him at robertjamieson@mercerhole.co.uk or call 020 7353 1597.

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The Chancellor has confirmed that the furnished holiday lettings rules will be withdrawn from 2010/11.

This means that a furnished holiday let will be treated as any other property business. Some of the tax consequences of this will include the following issues:

• Losses incurred before 6 April 2010 that have not been relieved at that date will be treated as losses from a property business. These will then only be available to set against future profits of the property business as will any future losses.
• Capital allowances will not be available for expenditure incurred on or after 6 April 2010 on plant and machinery for use within the let property.
• The business is no longer a trade for capital gains purposes which will result in the potential loss of some valuable capital gains reliefs.
• From 6 April 2010 income from letting furnished holiday accommodation will not be relevant UK earnings for pension relief purposes. 

Liz Cuthbertson is a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Liz you can contact her at lizcuthbertson@mercerhole.co.uk or call 020 7353 1597.

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It had already been announced that there would be a half percent increase in National Insurance Contributions (NIC) from next April. Today’s Pre-Budget Report has announced that there will be a further half percent increase from April 2011. This means that from April 2011 the main rate for employees will be 12% and for the self-employed will be 9%. The rate of employer contributions will be 13.8%.

To compensate lower earners the starting threshold will be raised by £570.

Costs are going up more steeply than otherwise expected from April 2011.  The rates for the self-employed, employees and employers will all rise by 1% (previously expected to be at 0.5%).  This will mean an effective highest rate of tax of 52%

Barry Hallam is a senior manager at Mercer & Hole. If you would like to discuss the contents of this post with Barry you can call him on 020 7353 1597. 

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The Chancellor has announced in his Pre-Budget Report the expected measures to claw-back some of the large bankers’ bonuses for the tax payer.  The key details are as follows:

• Legislation in Finance Bill 2010 will introduce a new bank payroll tax. This will be set at 50%.
• It will be payable by a bank, on the amount of a bonus to which a banking employee is entitled, to the extent that the bonus exceeds £25,000.
• A bank will also be liable to the bank payroll tax where the bonus entitlement arises in respect of services performed for the bank regardless of who awards the bonus.
• The bank payroll tax will have effect from the time of the announcement on 9 December 2009 until 5 April 2010 for all discretionary and contractual bonus awards.
• There is an exception for contractual bonus entitlements where the payer has no discretion as to the amount of the bonus because of a contractual obligation existing at the time of the Chancellor’s announcement.

Barry Hallam is a senior manager at Mercer & Hole. If you would like to discuss the contents of this post with Barry you can call him on 020 7353 1597. 

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The Chancellor has just sat down after presenting his 2009 Pre-Budget Report. We are awaiting the details being released on the Treasury website but the key points from his speech for private clients appear to be:

• VAT will return to 17.5% on 1 January 2010
• Stamp Duty holiday will end on 1 January
• The time to pay scheme will continue for as long as needed
• State pensions will rise by 2.5% from next April. Child benefit will also rise
• A new boiler scrapage scheme for 125,000 households plus extra energy efficiency help
• 50p tax on landlines to finance superfast broadband
• 50% one off levy on bankers’ bonuses over £25,000 paid by the bank in addition to the tax paid by the employee
• Freezing of Inheritance Tax Nil Rate band at £325,000
• Freezing higher rate tax threshold
• Anti avoidance measures following on from the information received from offshore banks
• National Insurance starting threshold raised.

As is invariably the case there will be more important changes buried in the detail of the documentation. More information will be posted during the afternoon.

Barry Hallam is a senior manager at Mercer & Hole. If you would like to discuss the contents of this post with Barry you can call him on 020 7353 1597. 

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The Chancellor has just announced that the inheritance tax threshold will be frozen at £325,000 until 2011.

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The Chancellor announces that a one off 50% supertax will be imposesd on bankers bonuses over £25,000.

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The Chancellor tells us he is determined to support growth, predicting 1% growth in 2010 and 3.5% in 2011 and 2012.
 

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Chancellor Alistair Darling confirms that the VAT rate will return to 17.5% on the 1 January 2010 as anticipated.

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All eyes will be on Chancellor Alistair Darling in the House of Commons as he delivers his Pre-Budget Report 2009 at 12.30pm on Wednesday 9 December 2009.  The Pre-Budget Report comes as Britain struggles to emerge from recession and a General Election nears.

Stay in touch with our blogs after the Chancellor’s speech to find out the views of Mercer & Hole’s experts.

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.

Lisa Spearman is a partner at Mercer & Hole. If you would like to discuss the contents of this post with Lisa you can call her on 020 7353 1597. 

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Although I think the 2009 Pre-Budget Report will not contain any shockers ahead of the General Election next year, I do feel that the tax take has to be increased somehow and this could lead to 'tweaks'. My own 2009 Pre-Budget Report prediction could be a change to the tax rule on 'flipping second homes' to mitigate Capital Gains Tax (CGT). This rule was widely publicised in the press earlier this year, following the criticism of MPs and their expenses, but actually is available to everyone with two or more homes and not just MPs!

Broadly speaking, a main residence (sometimes referred to as a Principle Private Residence) is CGT-free on a disposal provided the property was not purchased for the sole reason of making a profit and the dwelling was an individual's only or main residence throughout the period of ownership. Exemption also extends to gardens and grounds of up to half an hectare. The last 36 months are also always exempt. All fine so far but what happens where you have two or more main residences? The rules allow you to secure at least the last 36 months of any gain tax-free by flipping your main residence election to your second home for 1 month. You lose the benefit of 1 month of relief on one property but gain 37 months relief on another. This can represent a real tax saving.

If another residence is acquired, you have an opportunity to make an election for which property you wish to be covered for which periods otherwise the Revenue will choose for you. The election must be made within two years of the date the new situation arose and if one house is replaced then a new two year period begins. You must actually reside in both properties, for some time at least, and any period of ownership not elected as the main residence will be chargeable to CGT. There are also rules relating to the fact that a husband and wife, or civil partnership, can only have one main residence between them.

Please get in touch if you would like to know more about whether you can take advantage of these rules.

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.

Helen Mckie is a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Helen you can call her on 01727 869141.

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The Chancellor delivered his Pre-Budget Report on 24th November 2008. Our Partners and Managers posted a number of blogs in relation to the 2008 Budget announcement – on both SME Plus blog and Tax Plus blog.

For concise, up-to-date and easy to digest Pre-Budget information please find below a list of the respective blogs posted: 

SME Plus 

Pre-Budget Report 2008 - VAT

Pre-Budget Report 2008 - Plant and machinery leasing

Pre-Budget Report 2008 - Income tax...relief for trading losses

Pre-Budget Report 2008 - Tax relief for business expenditure on cars

Pre-Budget Report 2008 - Corporation tax...small companies rate

Pre-Budget Report 2008 - Corporation tax...tax relief for trading losses

Pre-Budget Report 2008 - Empty property relief

Pre-Budget Report 2008 - Taxation of foreign profits

Pre-Budget Report 2008 - HMRC Business Payment Support

Tax Plus 

Pre-Budget Report 2008 - Non doms update

Pre-Budget Report 2008 - Income Shifting Rules...the dog that didn't bark!

Pre-Budget Report 2008 - Top rate of income tax to be increased to 45%

Pre-Budget Report 2008 - National Insurance to be increased

Pre-Budget Report 2008 - Consultation documents

Pre-Budget Report 2008 - VAT

Pre-Budget Report 2008 - Compensation for the loss of 10% band made permanent

Pre-Budget Report 2008 - Tax rate for trusts to be increased

Pre-Budget Report 2008 - Pension tax telief...freeze on limits

Pre-Budget Report 2008 - Changes to trusts...trust Darling!

Pre-Budget Report 2008 - Penalties for late tax returns

To receive our blogs direct to your inbox visit http://www.mercerhole.co.uk/news, click on the blog of your interest and follow a few simple subscription directions.

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One of the many consultation documents that accompanied today’s Pre Budget report has indicated that HM Revenue & Customs would like to reform the penalty regime for the late submission of Self Assessment tax returns. Currently the £100 fine for filing a tax return late can be mitigated by paying sufficient tax by the due date. HMRC see this regime as largely ineffective.

The Revenue want to separate the obligation to submit a tax return from the obligation to pay the tax. One proposal is that there should be a fixed penalty arising the day after the filing date followed by daily penalties for continued delay (after three months). If the return remains outstanding there would a further penalty linked to the amount of tax due (up to 100%!).

Separately, the Revenue would be able to charge the usual interest for paying the tax late but also penal interest set at a percentage of the tax outstanding one, six and twelve months after the due date.

Expect changes in the 2009 Budget.
 

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Today’s Pre Budget Report contains the news that both the lifetime and annual allowances for pension schemes will be frozen from April 2011.

The lifetime allowance is due to be increased to £1.8 Million for 2010/20011 having being introduced in 2006/2007 at £1.5 Million. The annual allowance is due to reach £255,000 (up from £215,000 in 2006/2007)

The 2010/2011 limits will now remain until at least 2015/2016 without increase. It remains to e seen whether it will be possible to obtain pension relief at the new top rate of 45% after April 2011.
 

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Hidden in the detail of today’s Pre Budget report is the news that, from April 2011 the tax rate applicable to trusts will be increased from 40% to 45% and the dividend rate for Trusts will be increased from 32.5% to 37.5%.

It is unclear whether a beneficiary who is only liable to basic rate or the “lower” 40% will be entitled to full credit for the tax paid by the trustees
 

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Alistair Darling, in his second Pre Budget Report, has announced that the measures introduced in September as compensation for the removal of the 10% tax rate will be made permanent.

Initially the compensation, given by means of an, over inflation, increase in personal allowances of £600 was to last for only one year. It has now been announced that the increase will be permanent and in fact will be increased by a further £130 from next April. The basic personal allowance will be £6,475.

The point at which higher rate tax becomes payable is also increased by more than inflation (£800) to £37,400.

However, it is not all good news – from April 2010, those who have income of over £100,000, will have the personal allowances gradually restricted so that only basic rate relief is obtained and if the income exceeds £140,000 the allowances will be further restricted until extinguished.

As mentioned elsewhere, from April 2011 those with income over £150,000 will be liable at a top rate of 45%
 

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As widely reported, the PBR today has confirmed that the standard rate of VAT will be cut to 15% with effect from 1 December 2008. (The new VAT fraction to be applied to VAT inclusive prices will be 3/23).

This means that standard rated supplies of goods and services made after this date will attract the new rate of VAT. Supplies at the zero or reduced rates and exempt supplies are not affected. The new rate will remain in place for 13 months till 1 January 2010, when it will rise again to 17.5%. (Anti- forestalling legislation will be brought in to prevent planning around the subsequent rate increase).

For sales spanning 1 December, special tax point rules mean that businesses can choose to charge VAT at the new rate on goods removed and services performed after the rate change, even if payment has already been received or VAT invoices issued. In those cases, credit notes will have to be issued to correct the VAT overcharged.

Special rules will apply to retailers, those providing continuous supplies of services (e.g construction industry) and other special schemes (second hand dealers etc). Detailed guidance on how to deal with the change is available on HMRC’s website.

The reduction in the standard rate will also amend the rates applied under the Flat Rate Scheme for small businesses. The revised percentages are published on HMRC’s website.

Other VAT and duty changes announced are;

• Increase in threshold for Bespoke Retail Schemes with effect from 1 April 2009.
• Simplification of the entry and exit rules for VAT Flat Rate Scheme with effect
  from 1 April 2009.
• Payment arrangements for those having difficulties paying VAT bills via the “Business Payment Support Service”.
• Increases in fuel/alcohol and tobacco duty.

The Chancellor has urged retailers to pass on the rate cut “as quickly as possible”. In reality, businesses may choose not to pass on the cut. They are unlikely to welcome it as it will cost them to implement changes to prices /accounting and point of sale systems. In the retail sector, where prices are already being heavily discounted, it is hard to see that a further 2.5% cut will have much of an impact on sales turnover.

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There are 8 Consultation documents issued alongside the PBR documents which are to a greater or lesser degree related to the new powers and penalties regime which comes in from 5 April 2009. The documents refer to the proposed new customers charter (reference the previous taxpayers charter of the 1990s) and there is also particular attention paid to ensuring that returns are filed and tax is paid on time…slightly at odds with the 2 pages of FAQs on the HMRC website offering support to distressed businesses. We will review the consultation documents and respond to them in detail as necessary.

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Alongside proposed increases in income tax the Chancellor has announced increases in National Insurance Contributions (NIC) will be increased by 0.5% across the board from April 2011.

This means that employers’ contributions will be increased to 13.3% and the main rates for employees and the self employed will be increased to 11.5% and 8% respectively. The additional rate for those who earn in excess of the upper earnings limit will also be increased by 0.5% to 1.5%

This is part of a package of proposed tax increases to help fund the short term measures announced elsewhere in his report.
 

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Chancellor Alistair Darling has announced in his Pre-Budget Report that the top rate of income tax is to be increased to 45% - but not until April 2011 and only on income over £150,000. This applies to income other than dividend income which will be taxed at 37.5% (up from 32.5%)

This is part of a package of proposed tax increases to help fund the short term measures announced elsewhere in his report.
 

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One of the Press notices confirms that the rules on income shifting will NOT now be introduced in Finance Act 2009 despite their deferral from the 2008 Bill. The income shifting rules had been proposed as a method of dealing with the Arctic Systems type situation where a lower rate paying spouse benefits from the earnings of a higher earning spouse. The matter is being kept under review which – it is to be hoped – is code for being forgotten about….

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Not all Bad News:

Interestingly, the withdrawal of personal allowances for those with income over £140,000 means that non domiciliaries claiming the remittance basis now have a bit less to lose – they will be in the same position as a high income UK domiciliary and with careful management, the impact of the withdrawal of the annual exempt amount can be kept to a minimum.

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With less than a week until Alastair Darling’s second Pre Budget Report (PBR) the speculation as to what may be announce on Monday 24 November is mounting.

Many commentators such as The Daily Mail and The Daily Telegraph are suggesting that the much heralded “tax cuts” will be geared to toward poorer families my boosting tax credits payments. This is echoed by The Sun and The Mirror . Whether the tax credits system is up to the task of putting extra cash in people’s pockets before Christmas is open to question.

The Guardian has David Cameron counselling The Chancellor against tax cuts and stating that Gordon Brown doesn’t “listen to his own lectures”. The Times has reported a call for VAT to be cut to 12½ %.

We will of course be blogging on SME Plus Blog and Tax Plus Blog, providing analysis on the key highlights next Monday.

If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.
 

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