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Perhaps one theory in the 2009 budget was that high earners had already been ‘softened up’ by the announcement in the 2008 Pre-Budget Report that a 45% tax rate would apply to them from 2011.
Assuming they were already mentally prepared for this – and their votes already lost – one suspects that it took little thought not only to bring forward this increase to 2010, but to raise this higher ‘higher’ rate to 50%.
Those falling within that bracket might breathe a silent prayer of thanks to the G20 meeting that delayed the budget until April. If it had been held in March, the Chancellor might have been tempted to bring in the increase from 6 April 2009.
This measure in turn has a knock-on effect for dividends, with those liable at the 50% ‘additional’ rate (those with a taxable income above £150,000) being taxed at 42.5% on dividend income.
Trustees should also note that they do not escape and, again with effect from 2010-11, the dividend trust rate rises to 42.5% and the trust rate to 50%.
Soak the rich
Higher rate taxpayers with gross incomes exceeding £100,000 were also already prepared for a two-stage loss of personal allowances from 2010-11.
The budget removed the two-stage element and the whole allowance will be withdrawn at a rate of £1 of allowance for every £2 of ‘adjusted net income’ exceeding £100,000.
I am surprised that the expression ‘tax simplification’ wasn’t mentioned, but perhaps we are well beyond such pretence now, particularly when the calculation of adjusted net income includes the adding back of ‘payments to trade unions or police organisations deducted in arriving at the individual’s net income’.
This possibly relates to relief obtained under ITA 2007, ss 457 and 458, although as this is limited to £100 (i.e. 0.1% of the total income, if that) one must wonder whether the effort was worth it. Still, another example of ‘joined up thinking’, I guess.
As they will have by now realised, those earning in excess of £150,000 appear to be bearing the brunt of the direct income tax measures, but they will no doubt be pleased to learn the important part that they are playing in ‘maintaining macroeconomic stability’ and HM Treasury’s plans regarding ‘building Britain’s future’.
The Chancellor’s speech also mentioned the much leaked restriction to higher rate tax relief on pension premiums.
The Treasury document states that ‘from April 2011, tax relief on pension contributions will be restricted for those with incomes of £150,000 and over and tapered down until it is 20%’.
Strangely, the list of HMRC press release makes no direct mention of this, but BN47 does have information on ‘pensions: limiting tax relief for high income individuals (anti-forestalling)’.
Apparently, the reason for this is that the main measure restricting relief will be in Finance Bill 2010 following consultation, but Finance Bill 2009 will contain measures to prevent taxpayers avoiding the effect of the new rules which will not affect ‘normal, regular ongoing pension savings that were in place before 22 April 2009’.
Those in the habit of paying annual premiums in excess of £20,000 may be adversely affected.
No one left?
At first glance, the above are the main measures affecting the personal direct taxpayer. Perhaps I am being cynical, but on the basis that the average wage and average pension ‘pot’ are less than £30,000, one might hazard a guess that the Government believes that the adverse tax effects visited on those with six-figure incomes will not elicit much sympathy among other taxpaying voters.
However, bearing in mind the level of Government debt and the possible future measures that may be required to repay it, a paraphrased version of Martin Niemöller’s poem might be relevant:
‘They came first for the higher-paid taxpayers, and I didn’t speak up because I wasn’t a higher-paid taxpayer. And then ... they came for me ... and by that time there was no one left to speak up.’
Richard Curtis
Tinkering around
It was, apparently, a ‘budget to support business’.
Yes, you’ve guessed it: they’ve tinkered around with capital allowances again. I thought for a moment that the Chancellor was going to say that he had temporarily doubled the annual investment allowance, but what he actually announced was that ‘for this year, I will double the main capital allowance rate to 40%’.
What the budget note says is something different again – a temporary first year allowance for the current tax year of 40%, but with the usual exclusions for hired assets, etc.
So let me get this straight. If I ran a medium-sized business I had several years of FYAs at 40% up to April 2008. If I ran a small business I had, in addition, a succession of ‘temporary’ increases to 50%.
Then I was told that this was all being swept away and I was to get a 100% allowance for the first £50,000 and 20% or 10% WDAs on the remainder, which is what happened for 2008-09.
Now I’m told that, in addition to the AIA, I also get an FYA for this one year only of 40%. Does anyone really expect me to care, since I’m probably making a loss?
As expected
Several announcements from the PBR were confirmed. The deferral of the small companies rate increase to 22% planned for this year is very welcome, the temporary status of the VAT cut to 15% is probably less so.
There is, as promised, a forestalling provision to prevent advantage being taken of the temporary 15% rate. It will levy a supplementary charge on exempt or partially exempt traders where any one of three conditions applies:
- the supplier and customer are connected parties; or
- the supplier funds the purchase of the goods or services (or grant of right); or
- a VAT invoice is issued by the supplier where payment is not due for at least six months.
This is still a fairly limited provision, and it will allow a certain amount of advance payment and invoicing to take place between genuinely unconnected parties.
However, those who thought to get in before the forestalling provision was announced in the hope that it would not turn out to be retrospective were unwise: it takes effect from 25 November 2008.
To put a monetary cap on the benefit that can be taken within the confines of this provision, a supplementary payment will also be due when the amount prepaid exceeds £100,000, even if it does not fall within any of the three conditions.
Following seemingly endless consultation on company car benefit, we finally get away from special discounts for hybrids, LPG, bioethanol, refined pigeon droppings or whatever, and simply have a charge from 2011-12 based on carbon dioxide emissions.
The base level for a benefit in kind charge based on 15% of list price is reduced to 125 g/km, with a reduced charge of 10% for those under 110 g/km.
Except for fully electric cars… At least these now get their own rate rather than a stupid 6% deduction from what was always going to be a 15% scale charge; but why have a special 9% rate for electric cars when the normal rules would have given a very similar result at 10%?
Far more welcome, for those who like a bit of schadenfreude, is that the £80,000 cap on the list price of the car is to be removed, no doubt causing much wailing and rending of garments in the Top Gear offices.
The new rules for capital allowances on cars are confirmed as well: in particular, the potentially disastrous inclusion of cars in the two general plant and machinery pools. The result of this is that the pools accumulate an ever-growing balance of unrelieved expenditure.
Fortunately, the budget note also confirms that for sole traders and partnerships it will be possible to avoid this by having an element of private use. The car will then remain in its own pool, and balancing allowances will be due when the car is disposed of.
Mike Truman
Read more budget comment by Rufus, the Taxation tax hound.
