Budget Report – April 2009

Budget Report – April 2009

Tax Changes

Against a backdrop of unprecedented economic gloom, Mr Darling presented his annual Budget speech yesterday.

We have set out below some of the announced changes to our tax system that affect individuals and businesses. If you would like more information on how these changes will affect you, or your business, please get in touch.

Personal Tax

Personal Allowances 2009-10

These remain as announced in the Pre-Budget report November 2008. From 6 April 2009 the income tax personal and age related allowances were increased to:

Age under 65 – £6,475
Age 65 to 74 – £9,490
Age 75 and over – £9,640

The income limit for aged related allowances (over 65’s) is increased to £22,900.

Blind person’s allowance increased to £1,890.

Personal Allowances 2010-11

The basic personal allowance will be reduced for taxpayers who earn more than £100,000 per annum.

Where an individual’s income is above £100,000 the basic personal allowance will be reduced by £1 for every £2 their income exceeds £100,000. For incomes above £150,000 there will be no personal allowance.

Income Tax Rates 2009-10

These also remain as announced in the Pre-Budget report November 2008. From 6 April 2009 the income tax rates became:

Starting savings rate 10%* – £0 to £2,440

Basic rate 20% – £0 to £37,400

Higher rate 40% – Over £37,400

* There is a 10p starting rate for savings only. If an individual’s non savings taxable income exceeds the starting rate limit, the 10p starting rate for savings will not be available for savings income.

New 50% Income Tax Rate from 2010-11

From 6 April 2010 a new income tax rate of 50% will be applied to taxable income in excess of £150,000.

Capital Gains Tax 2009-10

The annual exempt amount for individuals is £10,100 (and for most trustees £5,050). The rate of Capital Gains Tax remains at 18%.

Inheritance Tax 2009-10

The individual IHT allowance is increased to £325,000.

Pensioners Taxback Campaign

From autumn 2009 HM Revenue & Customs will be targeting pensioners who receive the Pension Credit to help them reclaim tax they may have paid in error from bank or building society interest they have received.

ISA’s

2009-10 The ISA investment limit for people aged 50 or over is increased from £7,200 to £10,200 (The maximum cash element is increased from £3,000 to £5,100)

2010-11 The investment limits are increased to the same level for all age groups.


Pension contributions – limiting tax relief at higher rates

From 6 April 2011 the Government intends to restrict tax relief for individuals with an annual income of £150,000 or more. Relief will be withdrawn gradually so that taxpayers earning over £180,000 will effectively achieve a 20% tax deduction, the same as a basic rate tax payer.

Additionally, from 22 April 2009, in certain situations any higher rate tax advantage, on additional contributions above a £20,000 limit, will be subject to a special annual allowance tax charge that will recover tax relief given at above basic rate. This will occur:

  1. If your income is over £150,000; and
  2. You make additional contributions in excess of your existing ongoing contributions, and
  3. Your total pension contributions in the year exceed £20,000 (including contributions made by the employer).

Excise Duty increases

Alcohol Duty – From midnight 22 April alcohol duty will rise by 2%, equivalent to:

1p on a pint of beer
13p on a 75cl bottle of spirits
4p on a 75cl bottle of wine

Tobacco Duty – After 6pm 22 April tobacco duty will rise by 2% which will add 7p to a pack of 20 cigarettes.

Fuel Increases – Duty increases will add 2 pence per litre to the cost of unleaded petrol and diesel from 1 September 2009.

Stamp Duty Land Tax

The present exemption from SDLT of residential property sales up to £175,000 is to be extended to 31 December 2009. After this date the SDLT threshold will revert to £125,000 (£150,000 in disadvantaged areas).

Business Tax

Furnished Holiday Lettings

Two radical changes have been announced that will affect the taxation of income and gains related to the letting of furnished holiday lettings.

1. Properties owned by UK taxpayers situated in the European Economic Area can now qualify as Furnished Holiday Lettings. Previously only properties situated in the UK qualified; and

2. From 6 April 2010 the Furnished Holiday Lettings rules are to be repealed!

Both of the changes have come about due to compliance issues with EEA legislation.

All taxpayers who own and let properties within the EEA, including the UK, may benefit from a strategic review of their present property tax planning due to these changes. It is vital that the narrow window of opportunity occasioned by this change be carefully explored.

Business Payment Support Service (BPSS)

Taxpayers who need to ask HMRC for time to pay tax should note that the BPSS are now able to accept requests for time to pay in a wider range of circumstances than have to date been permitted.

If you are likely to make a trading loss in the current year, when these losses are determined you can generally claim for the loss to be carried back and set off against your previous year’s profits. Obviously you would need to wait until the current years accounts are completed and a formal loss relief claim is made.

In recognition of this right to set off losses, BPSS advisers how now been instructed to take reasonable estimates of these losses into account when they agree to deferred payment of your previous year’s tax.

If you need help estimating your tax losses in the current year we can help.

Further extension of carry back of loss relief

The Chancellor has bowed to pressure to correct anomalies in the extended loss provisions he announced last year. This further extension to loss reliefs already available will enable both incorporated and unincorporated to carry back current losses, that were previously restricted to set off against the preceding year’s profits only, to the previous 3 years profits. The following bullet points summarise the main points:

· The relief is now available for two years. For limited companies, trading losses in an accounting period ending between 24 November 2008 to 23 November 2010. For unincorporated business losses agreed for a trading period that forms the basis period for 2008-09 and 2009-10.

· HMRC will make repayments occasioned by claims for the new relief on or after Budget Day 2009.

· The amount of the loss that can be carried back one year is still unlimited. Any carry back to the earlier two years will be limited to £50,000. The £50,000 limit is an annual limit.

· Losses will be applied to the latest of the three years first.

· As this is an extension to existing loss relief legislation, the current relief’s are still available.

Corporation Tax Rates

The small companies rate from 1 April 2009 is unchanged at 21 %.

Temporary First Year Capital Allowances

Since 1 April 2008 (corporation tax) and 6 April 2008 (income tax) businesses that invest up to £50,000 on certain plant and equipment can write off the entire amount against their taxable profits.

Any excess expenditure, over the £50,000 limit, is added to the pool of unrelieved expenditure and has qualified for a writing down allowance of 20%.

Today the Chancellor has announced that to encourage investment he will create a temporary first year allowance of 40% which will be applied to the excess over the £50,000 limit.

The new 40% allowance will be available for just one year, from 1 April 2009 (corporation tax) and 6 April 2009 (income tax) and will apply to assets which would be added to the main capital allowance pool except for cars and assets used for leasing.

VAT Rate Change

As expected the standard rate of VAT will be increased to 17.5% on 1 January 2010.

With effect from 1st May 2009, the thresholds for registration and deregistration are increased to £68,000 and £66,000 respectively.

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Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.