Pre budget report

Using wording almost identical to that of a year ago, the Government's stated objective is to build a strong economy and a fair society, where there is opportunity and security for all.
The main announcements of the pre budget report are as follows

Companies
The expected increase in small companies’ tax rate has been deferred for another year, and will remain at 21% until April 2011, when it is expected to increase to 22%.

Business
To support business and their growth there will be a 12 month continuation of the Enterprise Finance Guarantee and the Business Payment Support Service will continue.

Legislation will be introduced in the Finance Bill 2010, but effective from April 2011, to restrict the tax exemption for workplace canteens in certain circumstances. The restriction will apply only where the provision of the meals is linked to some sort of salary sacrifice arrangement.
Specifically, the tax exemption will be removed 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. Similarly, employees will normally be caught if the subsidised meals are linked to a flexible benefits remuneration arrangement that includes the provision of food or drink.
The benefit of subsidised meals will not be affected in other circumstances, such as where the employer provides a general subsidy that is reflected in lower canteen prices. There will also be no changes to the existing tax treatment of luncheon vouchers, working lunches and other meals at work.

Company Cars
The percentages used for calculating the taxable benefit of a company car are set to be tightened yet again from April 2012.
The intention is also to extend the existing table, which currently does not go below 15 per cent unless a car is a qualifying low emissions car (with emissions not exceeding 120g/km), down to 10 per cent. The concept of the qualifying low emissions car will therefore be abolished as such cars will no longer need to be treated as belonging to a separate category. To qualify for the 10 per cent tax rate, a petrol car will from April 2012 need to have emissions that do not exceed 99g/km.
The taxable benefit of an electric vehicle provided as a company car will be reduced to zero (from the current figure of nine per cent of list price) for a period of five years from April 2010. Employers will also have no Class 1A NIC liability in respect of such vehicles.
Increases have been announced in the fuel scale charge for employees who do not have to pay for all private fuel for company cars or vans.
The scale charge for fuel for a company car is to increase from £16,900 to £18,000 from 6 April 2010, making it even clearer that the provision by an employer of free fuel almost never makes good tax sense.
From the same date, the scale charge for fuel for a company van is to go up from £500 to £550 (though some drivers of company vans are exempt altogether).

Inidividuals
Further support is to be provided for individuals, guaranteeing work or training for all 18–24s;
The provision of free school meals will be extended to a further 500,000 children. Free school meals will be provided to all families earning less than £16,190 per year. (This needs to be claimed).
The basic state pension will increase by 2.5%

All the main rates of income tax for 2010/11 remain unchanged, and the tax allowances and thresholds are also frozen for 2010/11.
The higher rate income tax starting point will be frozen in 2012/13
Pension relief is to be restricted from April 2011 for those with gross incomes of at least £150,000. Account will be taken of their employer contributions when calculating gross income.
As expected, an additional rate of 50% applies on income over £150,000.
Three changes are to be made, all of which will apply from 6 April 2010:

Tax returns for individuals and Companies
Under self-assessment, if a person or company fails to file a return by the due date, HMRC may issue a determination, i.e. an estimate of the tax due. Once issued, strictly a determination is only displaced if the taxpayer files a return within:
• five years (reducing to three years from April 2010) from the statutory filing date; or
• 12 months from the issue of the determination.
Some persons fail to meet the deadline and lack a reasonable excuse for their conduct.
However, by an extra-statutory concession, which is to be put on a statutory basis, if the person:
• demonstrates that the tax charged is excessive;
• demonstrates what the correct amount should have been; and
• brings his tax affairs up to date, including payment of tax, interest and penalties,
HMRC collect only the tax that would have been due had the person filed the return on time.
Generally, the concession applies to a person on only one occasion, although it may cover a number of years.
Penalties and interest still apply where a deadline is not met and tax is not paid when due.

Tax credits and Child Benefit
The child element of the Child Tax Credit is to be increased by £20 above earnings indexation, this is £65 in cash terms.
Other benefits including child benefit and tax credits are to increase by 1.5% where these would normally have been indexed by reference to RPI;
The threshold for receipt of the maximum child tax credit award rises to £16,190.
All other rates and thresholds in tax credits are unchanged.

Inheritance tax
The inheritance tax allowance has been frozen at £325,000 for 2010/11 and £650,000 for married couples.

VAT
As expected, the standard rate of VAT rises to 17.5% from 1 January 2010 and the sectoral rates for the flat-rate scheme for small firms are updated.

National Insurance Contributions
There will be an increase of 0.5% in most NIC contributions, over and above the increase previously announced of 0.5%
The lower earnings limit and the special Class 2 rate for volunteer development workers rises to £97 a week and £4.85 a week respectively.
For 2010/11, the lower earnings limit for primary Class 1 National Insurance contributions will increase from £95 to £97 per week and the special Class 2 rate for Volunteer Development Workers will increase by 10p to £4.85 per week, but all other NIC rates and thresholds will be unchanged.
For 2011/12, the main Class 1 employee rate will increase from 11%to 12%, the additional rate from 1% to 2% and the Class 1 employer rate from 12.8% to 13.8% (the increased employer rate also applying to Class 1A and Class 1B contributions).
For 2011/12, the main Class 4 rate will increase from 8% to 9% and the additional rate will increase from 1% to 2%.
For 2011/12, the primary threshold and lower profits limit will be increased by £570.
All other rates and thresholds will remain unchanged

Stamp Duty land tax
The holiday for residential properties valued up to £175,000 ends as planned on 31 December 2009.

Fuel Duties
The duty differential continues for two years for biofuels made from used cooking oils.

Vehicle excise duty
From 1 April 2010, the rates for motorbikes increase by £4 in the highest band, and by £2 in the second highest band. Other bands remain unchanged.

Tax evasion
Legislation will be brought forward to ensure that those who fail to declare offshore tax liabilities will face the tough penalties applying to deliberate tax evasion. There will also be a new requirement to notify HMRC when opening offshore bank accounts in certain jurisdictions, supported by a separate penalty regime.
Two artificial schemes designed to avoid inheritance tax charges on relevant property trusts have been closed with immediate effect. The Government has also announced that it is examining wider solutions to the problem of trusts being used to avoid inheritance tax charges.
Closing an IPT avoidance scheme. an insurance premium tax (IPT) avoidance scheme, through which IPT is avoided as a result of administration fees being artificially carved out of taxable insurance premiums, has been closed with immediate effect.
Capital allowances transfers, draft legislation has been published to prevent tax avoidance through the transfer of an entitlement to benefit from capital allowances on plant and machinery where the tax written down value of the plant or machinery exceeds its balance sheet value.
Legislation will be introduced in the Finance Bill 2010 to amend the threshold at which the special annual allowance tax charge applies. This is the anti-forestalling tax charge designed to prevent people making abnormally high pension contributions in advance of 6 April 2011 from which date higher rate relief for pension contributions is due to be restricted.
Currently, the special annual allowance tax charge applies only to individuals with income of £150,000 or over for the tax year or for either of the preceding two tax years. The rules applying to these individuals are not changed (except that the income definition for the £150,000 threshold will include the value of employer pension contributions).
However, from 9 December 2009, the special annual allowance tax charge will also apply to those with income of £130,000 or over for the tax year or for either of the two preceding years. In these cases, the special annual allowance tax charge will apply only to additional pension savings over and above the individual’s normal regular pension saving made on or after 9 December 2009.

Bank payroll tax
A new bank payroll tax, set at 50%, is to be introduced. The tax will be payable by banks (a term which in this instance includes financial businesses, building societies and UK branches of foreign banks) on bonuses awarded to banking employees to the extent that the bonuses exceed £25,000.
The tax will apply to all discretionary and contractual bonuses awarded between 9 December 2009 and 5 April 2010, with the exception of contractual bonus entitlements existing before 9 December 2009 where the payer has no discretion as to the amount of the bonus. The provisions will include anti-avoidance measures.
Bank payroll tax is payable on 31 August 2010 and is not to be taken into consideration when calculating a bank's profits or loss for corporation tax or income tax purposes. The new tax does not affect income tax or National Insurance liabilities of bank employees.

Research and Development tax relief
It is a condition of the research and development (R&D) tax relief rules applying to small or medium-sized enterprises (SMEs) that any intellectual property derived from the R&D must be owned by the company making the claim. This condition is to be abolished with effect for any expenditure incurred by a SME on R&D in an accounting period ending on or after 9 December 2009.