The Chancellor, Alistair Darling introduced a pre-election pre-Budget Report in the House of Commons that would, he said, “build a strong economy and a fair society”.
He went on to say that he wished to take steps to “support the economy, businesses and households” in order to provide a “platform for growth and opportunity”.
So what does this all mean and how will it affect individuals and businesses?
Personal Tax Review
One of the major announcements in Alistair Darling’s pre-Budget Report was the decision to raise employers’ and employees’ national insurance contributions.
Employee, employer and self-employed NICs will rise by 0.5 per cent in April 2011 on top of the 0.5 per cent increase announced in the 2008 pre-Budget Report.
To make sure that those on lower incomes are not hit by the extra charge, the level at which NICs become payable will also go up in April 2011 by £570. This means that people earning less than £20,000 won’t face a hke in their NICs.
There are changes to income tax as well, although they have been deferred. The point at which taxpayers are charged the higher, 40 per cent rate of income tax is to be frozen in 2012/13 at its 2011/12 level, which means more people will be liable.
As widely predicted, the Chancellor felt unable to introduce a promised higher (£350,000) threshold for the inheritance tax allowance. Consequently, the £325,000 threshold is to remain in place for 2010/11.
On the subject of property, the stamp duty holiday, which had been introduced to help boost the housing market, is, as was planned, to come to an end on 1 January 2010.
Employer pension contributions are to be included in the definition of tax income for pension tax relief purposes. But there will be an income floor so that those with pre-tax incomes of less than £130,000, excluding employer pension contributions, won’t be affected.
Small Business Review
Mr Darling announced that the Business Payment Support Service, which enables firms that are facing temporary financial difficulties to arrange with HMRC for more time to settle their tax bills, will continue indefinitely. So far some 160,000 businesses have used the service to defer paying £4 billion of tax, of which £3 billion has since been repaid.
To the relief of smaller firms, the Chancellor has deferred the planned rise in the rate of small companies’ corporation tax. The 1 per cent rise, from 21 to 22 per cent, has been held over for another year, remaining at 21 per cent in 2010/11.
The business rates relief scheme for empty properties, which was introduced in the 2008 pre-Budget Report, has been extended. Empty properties with rateable values up to £15,000 were exempt from business rates under the scheme in 2009/10. That relief has now been granted for an extra year. For 2010/11, empty properties with a rateable value below £18,000 will not be liable to business rates.
In a green tax measure, electric cars are to be exempt from company car tax for five years and there is to be a 100 per cent first year capital allowance for electric vans, both from April 2010.
As from 2012, there are to be changes to company car tax. The CO2 emission thresholds for CCT bands will be moved down by 5g CO2 per km, while the graduated table of CCT bands will include a new 10 per cent band for cars emitting up to 99g CO2 per km.
The fuel benefit charge multiplier will rise from £16,900 to £18,000 from April 2010.
Changes to the flat rate VAT scheme have been announced in the pre-Budget Report.
These were generally expected and necessary because the standard rate of VAT is to revert back to 17.5 per cent on 1 January 2010 after 13 months at 15 per cent.
The scheme allows small businesses with an annual turnover up to £150,000 to pay HMRC a fixed percentage of their turnover, rather than the usual payment of output tax and recovery of input tax on actual positive rated outputs and inputs. The percentages are based on the norm for particular business sectors based on statistics available to HMRC.
The percentages were revised downwards on 1 December 2008 when the standard rate was reduced to 15 per cent. However, the changes from 1 January 2010 will not only reflect the reversion to the 17.5 per cent standard rate, but also take into account business patterns across the various sectors over the last year.
Joining the scheme is optional and businesses are entitled to leave it any any time. Leaving the scheme retrospectively is at HMRC’s discretion. However, they have stated that they will apply this sympathetically if buisnesses consider it is no longer helpful to them after the changes.
Employment – From next month no-one under 24 needs to be unemployed for longer than six months, as opposed to the current 12 months, without receiving training or work. The minimum number of hours those aged 65 need to work in order to be eligible for tax credits is to be cut. Every 16 or 17 year old school leaver to be guaranteed a place in education or training again next September. Special fund to provide financial help for 10,000 undergraduates from poorer backgrounds, enabling them to join internships in industry and the professions.
Pensions – Basic state pension to rise by 2.5 per cent next April, an increase of 4 per cent when the low rate of inflation is taken into account.