activpayoll Global Employment Solutions - Pre-Budget Report Briefing - December 2009
Introduction
The Chancellor of the Exchequer presented his 2009 Pre-Budget Report to Parliament on 9 December 2009. The information below is a summary of some of the announcements made during his Report that may have an impact on your business or on your employees'.
We hope that some of the information contained in the briefing will be of some interest to you, but you may find some of the issues covered do not relate to your particular circumstances. We hope that at least some of the information is of some use to you.
If you have any questions about the content of this briefing, or if you require clarification of any of the issues mentioned, please contact Simon Wright, Audit & Compliance Manager at activpayroll.
Simon can be contacted on 0131-473 2325, or you can e-mail him at
VAT
I will start off this briefing with a reminder that the VAT rate will return to 17.5% with effect from January 2010. The standard rate of VAT was temporarily reduced to 15 per cent on 1 December 2008.
Bank Payroll Tax
It was announced that Legislation in Finance Bill 2010 will introduce a new bank payroll tax. This will be set at 50 per cent. 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.
For the purposes of the bank payroll tax, a "Taxable company" is:
a bank;
a UK resident investment company or UK resident financial trading company in a banking group;
a building society;
a UK resident investment company or UK resident financial trading company in a building society group; and
a UK branch of a foreign bank or the UK branch of a foreign financial trading company in a banking group.
The bank payroll tax will only apply to amounts awarded after the announcement of the measure on 9 December 2009, in respect of which no prior contractual obligation to pay or provide a fixed amount had arisen, and during the following period ending on 5th April 2010 ("the Chargeable Period").
The Commissioners of HM Revenue & Customs will be responsible for the collection and management of the bank payroll tax, which will become due and payable on 31 August 2010. No deduction may be taken into account in calculating profits or losses for the purposes of corporation tax by any company in respect of any amount paid or payable as bank payroll tax.
There is too much information on this specific tax to be included in this newsletter, so if any client has any specific question, please contact Simon Wright using the contact details shown above.
Personal Tax and Individuals
In the budget in April of 2009, the Chancellor announced the following changes to tax rates and allowances for taxpayers with income over £100,000:
from 2010-11, there will be an additional higher rate of 50 per cent for taxable income above £150,000;
from 2010-11 the basic personal allowance for income tax will be gradually reduced to nil for individuals with "adjusted net incomes" above £100,000;
from 2010-11 there will be increases to the trust rate and dividend trust rate to match those for income tax; and
the measure includes new powers to vary the income tax rates for the charges that apply to registered pension schemes.
The Pre-Budget Report confirmed that, apart from these previously announced changes, the taxation and National Insurance rates for 2010-2011 will be largely the same as for the current tax year. All personal and age-related Income Tax allowances are to be frozen in 2010-11, and the tax bands for earnings up to £150,000 remain unchanged.
The government has announced that the point at which individuals start to pay the higher rate of Income Tax (known as the higher rate threshold) will be frozen in 2012-13 at 2011-12 levels.
The upper earnings limit and the upper profits limit for National Insurance will continue to be aligned with the higher rate threshold. The personal allowance will be indexed in line with inflation in 2012-13.
National Insurance Rates
For 2010-2011, the National Insurance rates are unchanged, with two exceptions. The Lower earnings limit, or the amount you can earn before paying primary Class 1 National Insurance is increased from £95 to £97.
Bizarrely, the other change the Chancellor saw fit to make was an increase of 10p in the Special Class 2 rate for volunteer development workers from £4.75 to £4.85. It is unclear what the volunteer development workers did to upset the Chancellor, but they seemed to have been picked out as a special case along with the Bankers.
Changes to National Insurance contributions from 2011
The government has announced that the employee, employer and self-employed rates of National Insurance contributions (NICs) will increase by 0.5 per cent from April 2011 in addition to the 0.5 per cent increase announced in 2008. This obviously means a total increase of 1% in NIC rates from April 2011.
The level at which people start to pay NICs will increase in April 2011 by £570 above the level previously announced. Those paying the standard employee rate and earning under £20,000 will pay less NICs overall as a result of these changes.
Pensions
The special rules introduced at Budget 2009 to prevent people from making large additional contributions to their pensions before 6 April 2011, have been extended to those with incomes of £130,000 or over from 9 December 2009.
The restriction of higher rate tax relief being introduced from 6 April 2011 which the Government is consulting on, will affect individuals with a ‘gross income' of £150,000 or over who save in a registered pension scheme. ‘Gross income' includes both the value of the individual's pension contributions and any pension benefit funded by the employer on their behalf.
It is also calculated before any deductions for charitable donations are made. However, there will also be a ‘floor', so it will only apply where the individual's income (excluding employer pension contributions) is £130,000 or over. So people who have an income of less than £130,000 are not affected.
Changes To Tax Rates For Special Charges And The Special Annual Allowance Charge
This measure increases the rates for the tax charge on short service lump sum refunds and Employer-Financed Retirement Benefits Schemes (EFRBS) payments, other than to individuals, and sets new rates for the special annual allowance charge with effect from 6 April 2010.
Other Tax Announcements
Salary Sacrifice Workplace Canteens
From 6 April 2011 the exemption for the benefit of free or subsidised meals will be restricted where an employee has an entitlement to employer-provided free or subsidised meals in conjunction with salary sacrifice or flexible benefits arrangements.
Current law and proposed revisions
Currently, Section 317 of ITEPA removes the tax charge on the provision of meals for directors or employees if the meal is provided in a canteen or on the employer's premises and the following conditions are met:
the meal is on a reasonable scale;
all employees, or all employees at a particular work location, may obtain a free or subsidised meal (or a voucher for one); and
in the case of a hotel, catering or similar business, if free or subsidised meals are provided for employees in a restaurant or dining room when meals are being served to the public, part of the dining area must be designated for staff use only and the meals must be taken in that part.
The proposed revisions will remove the tax exemption in circumstances where employees are in effect using a designated amount of their gross remuneration to fund the purchase of food and drink at work. The measure will achieve this by amending section 317 of ITEPA to restrict its application. The amendment will prevent the exemption from applying where the provision of free or subsidised meals is linked to a salary sacrifice arrangement in which the employee has agreed to reduce their existing taxable employment income and is to be provided with food and drink (or the means of obtaining it) of a value that is commensurate with the amount of income given up.
The amendment will also prevent the exemption from applying where the provision of free or subsidised meals is linked to a flexible benefits remuneration arrangement which includes the provision of food and drink of a value that is commensurate with the amount of income given up.
The rules on employment-related benefits will apply in the normal way to the provision of food and drink to which the restriction in the exemption applies. Similarly, Class 1A employer NIC liability will apply in the normal way. The section 317 exemption will continue to apply in relation to general subsidies for canteens that are available to all employees, for example where the employer provides a general subsidy that is reflected in lower prices in the canteen.
Company Car Tax
From 6 April 2012 the current graduated table of company car tax bands will be extended down to a new 10 per cent band, and all CO2 emissions thresholds moved down by 5g/km. This will mean that the 10 per cent band will apply to company cars with CO2 emissions up to 99g/km. Qualifying Low Emissions Cars (QUALECs) will therefore no longer exist as a separate category.
The appropriate percentage for electric cars for the purposes of company car tax will be reduced from 9% to 0% for 5 years from April 2010. This will reduce the employee car benefit charge to nil and remove the Class1A NICs charge on employers.
Company cars - advisory fuel rates from 1 December 2009
From time to time, HMRC change the advisory fuel rates for company car drivers. These are the rates that can be paid to company car drivers without any tax and National Insurance liability arising. These rates apply to all journeys on or after 1 December 2009 until further notice.
Engine Size
Petrol
Diesel
LPG
1400cc or less
11p
11p
7p
1401cc to 2000cc
14p
11p
8p
Over 2000cc
20p
14p
12p
Cars and Vans Fuel Benefit Tax Changes
The figure used as the basis for calculating the benefit of private fuel received for a company car which is chargeable to tax and Class 1A NICs will be increased from £16900 to £18000 from 6 April 2010.
The figure used as the basis for calculating the benefit of private fuel received for a company van which is chargeable to tax and Class 1A NICs is increased from £500 to £550 from 6 April 2010.
As from 6 April 2010, the current flat rate for all vans of £3000 will be reduced to nil for electric vans with effect for a period of 5 years. This will reduce the employee van benefit charge to nil and remove the Class1A NICs charge on employers.
Sea Farers Deduction
Legislation will be introduced in Finance Bill 2010 to extend the Seafarers' Earnings Deduction to EU and EEA resident seafarers, ensuring the provisions are compatible with the EU Treaty. The measure will have effect on and after 6 April 2011.
Current law and proposed revisions
Seafarers' Earnings Deduction can provide 100 per cent UK tax relief for the earnings from carrying out duties as a seafarer wholly or partly outside the UK, during an eligible period. One of the qualifying conditions for Seafarers' Earnings Deduction is that the claimant must be ordinarily resident in the UK.
This condition will be extended so that seafarers who are EU or EEA residents can claim Seafarers' Earnings Deduction on their earnings as a seafarer that are liable to UK income tax. There are no other changes to the provisions for Seafarers' Earnings Deduction.
Gift Aid
Research into the effect of tax incentives on the level of donations from individuals to charity, informing possible reforms to Gift Aid, has been carried out and will be published on the HMT/HMRC website on 15th December 2009.
Business Payment Support Service
HMRC's Business Payment Support Service helps viable businesses facing temporary financial difficulties to spread tax payments over an agreed timetable. The service has supported over 160,000 businesses, collectively employing more than 1.2 million people, spread over £4 billion of tax. Of this, more than £3 billion has already been repaid.
All requests continue to be assessed on the same basis as when the service was introduced, and HMRC will continue to offer this service as part of their time to pay arrangements.
Double Taxation Relief Avoidance
The Financial Secretary to the Treasury announced in a Written Ministerial Statement dated 21 October 2009 that legislation will be introduced in the forthcoming Finance Bill to block an avoidance scheme that has been notified to HMRC regarding double taxation relief using unauthorised unit trusts.
