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

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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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The Pre Budget report will be on 24 November at 3:30pm according to the Treasury website.

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It is being reported by the BBC that Gordon Brown has stated that the Pre Budget Report will be “in a few days”. On GMTV today the Prime Minister increased the speculation that the Chancellor Alistair Darling is considering tax cuts to help people through the down turn.

If Mr Darling does present his Pre-Budget Report this week, we will of course be blogging on SME Plus Blog and Tax Plus Blog, providing analysis on the key highlights.    

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.

Watch this space for details as announcements are made.

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