UK Chancellor's Pre-Budget Report 2008

[TrueBlueTerrier]

Employee Issues

The 2008 Pre-Budget Report included only a few announcements that affect employees and employers, but their impact will be significant – although not immediate.

The big news is that National Insurance Contributions (NICs) will increase by 0.5 percent across the board from April 2011. This means that employees will pay NIC at 11.5 percent and at 1.5 percent for earnings over the upper earnings limit. NIC will be levied on employers at 13.3 percent.

The threshold at which employee NICs start to be paid will be tied into the basic personal allowance and the threshold at which the main NIC rate (currently 11 percent) reduces to the additional rate (currently 1 percent) will be the level at which people start to pay higher rate tax. The beneficial effect of the former is delayed until 2011/12, whilst the tax-raising effect of the latter applies from 2009/10. We are told that the effect of these changes is that people earning less than £20,000 per annum will pay less NICs, even with the 0.5 percent increase. However, everyone else will be worse off, with a net effect of some £3.8 billion in 2011-12.

Personal Tax

For individuals, this year’s budget has been dominated by the announcements of the changes in the tax rates for 2009/10 and the proposed changes in tax rates and national insurance for 2010/11 and 2011/12. The increase in the personal allowance and basic rate band for 2009/10 will result in small tax reductions for everyone.

However, for the better off and those in employment, these reductions will be clawed back beginning in 2009/10, with a reduction in the personal allowance for those earning in excess of £100,000 and its complete removal for those whose income exceeds £140,000. The removal of the personal allowance is particularly unjust since it contravenes the principle that everyone is entitled to a slice of income on which they should not be taxed.
From 2011/12 there is a higher rate of tax of 45 percent proposed for those with incomes of £150,000 and above. Such individuals will face a higher rate of 37.5 percent on dividends, which is an effective rate of 30.5 percent. These higher rates will also apply to most trustees. There is also a proposed increase in National Insurance rates of 0.5 percent for employees, employers and the self-employed.

PBR Highlights

Economic

* Economic growth forecast to be 0.75 percent for 2008, between -0.75 percent and -1.25 percent for 2009 and between 1.5 percent and 2 percent for 2010.
* Inflation fell from 5.2 percent to 4.5 percent last month and is forecast to continue to fall until it reaches 0.5 percent by the end of 2009.
* Public borrowing projected to be £78 billion this year and £118 billion for 2009. From 2010 borrowing will fall to £105 billion, £87 billion, £70 billion and £54 billion.
* Additional efficiency savings of £5 billion identified for 2010/11 – to give a total saving of £35 billion over three years.


Excise duties

* Duties on petrol, tobacco and alcohol will be raised to offset the reduction in VAT on these items.
* Differential first year rates for Vehicle Excise Duty will go ahead from April 2010.
* New Vehicle Excise Duty bands will be phased in with lower increases than previously announced.


People issues

* New 45 percent income tax rate band for people with income in excess of £150,000 per annum (to be introduced from April 2011).
* Increase in personal tax allowance (worth £120 to basic rate taxpayers) announced last May to be extended and increased (to give a benefit of £145 for basic rate taxpayers) from April 2009.
* From April 2010 the value of the personal tax allowance will be reduced for those with incomes between £100,000 and £140,000 so they receive the same benefit as a basic rate taxpayer. Those with incomes above £140,000 will lose the benefit of the full personal allowance.
* 0.5 percent increase in all rates of employers’ and employees’ National Insurance Contributions from April 2011 (but starting threshold for NIC aligned with Income Tax threshold).
* Class 4 NICs will also be increased by 0.5 percent from April 2011.
* The lifetime allowance for tax relief on pension funds will remain at £1.8 million up to and including 2015/16.
* Action to prevent individuals ‘income shifting’ (moving part of their income to another individual paying tax at a lower rate) is to be deferred.

Business taxes

* Increase in small companies’ rate of corporation tax (from 21 percent to 22 percent) to be postponed.
* Exemption for foreign dividends and changes to the Controlled Foreign Companies rules to be introduced in 2009 for large and medium-sized businesses.
* Temporary increase (for 2009/10) in empty property relief threshold for business rates.
* Small businesses will be able to spread tax payments for all business taxes.
* Companies and unincorporated businesses will be able to offset losses of up to £50,000 against profits made for the last three years.
* New rules for the treatment of expenditure on cars will be introduced from April 2009.
* Changes to the loan relationship rules affecting connected companies will be introduced from April 2009.
* Measures to be introduced to amend the legislation applying to Property Authorised Investment Funds and Qualified Investor Schemes from January 2009.
* A discussion document considering suggestions for ways to simplify corporation tax calculations and returns for smaller companies has been issued.

Value added tax

* VAT standard rate to be reduced from 17.5 percent to 15 percent with effect from 1 December until the end of 2009.
* The threshold above which businesses cannot use published VAT retail schemes is to be increased from £100 million to £130 million from 1 April 2009.
* The entry and leaving tests for the VAT flat rate scheme will be simplified with effect from 1 April 2009.

Anti-avoidance

* Previously announced measures to combat avoidance involving leasing confirmed.
* The Real Estate Investment Trust regime will be changed to prevent companies artificially circumventing the conditions for joining the regime.
* Measures to be introduced to prevent corporate streaming provisions in the Authorised Investment Funds from applying to investors who treat dividends from the fund as a trading receipt.
* Further consultation on a principles-based approach to financial products avoidance announced.

General / Other

* Air passenger duty to be reformed so that it becomes a four band system with those who travel further paying more. Previous plans for the ‘per plane’ duty abandoned.
* Consultation to begin in January 2009 on the wording for a new Taxpayers’ Charter.
* Several consultations looking at the next stages of work to modernise HMRC’s powers have been released.
* A further consultation has been released setting out plans for the harmonisation and simplification of the rules for interest charged/paid on all taxes and duties.

[TrueBlueTerrier]

according to the times.

As if

[pickaname]

Brown et al are twats...

VAT reduction will only benefit those who have money to spend in the first place and not low earners like you and I.

Retailers wont pass the meagre 2.5% on to consumers anyway.

Increase in NI contributions mean that those who have no money will be paying for it.

Higher taxes on the rich are long long overdue and in any case if you earn over £150k youre not going to struggle are you?

The country is bankrupt and we'll be living with this for 10 years at least.

[johno47]

Ime sure i heard the chancellor say thank you to Royal Mail and Centrica for making job vacancies available, or was i hearing things, could be the happy pill ime taking...