CLA Chief Tax Adviser Adrian Baird's analysis of the Budget 2009

Here is a summary of the main points in the 2009 Budget that are likely to be of interest to CLA members, by the CLA's Chief Tax Adviser Adrian Baird.

1. The trust rate increases to 50% from 2010/11 – it is 'married' to the new top rate of income tax announced in the PBR of last year.  What changes is the new trust rate is now 50% (rather than 45%) and is applied a year earlier (2010/11 rather than 2011/12). [See para 6 of BN01].

2.      The main rate of corporation tax remains at 28% [BN02] but the small companies' rate (which was due to increase from 21% to 22% under the Budget 2007 announcements) is pegged at 21% [BN03].  Accordingly the three rates of corporation tax remain 21% (profits below £300,000), 29¼% (profits between £300,000 and £1½m) and 28% (profits above £1½m). 

3.      A new 'temporary' first year capital allowance of 40% on plant and machinery expenditure is introduce for FY 2009 (or unincorporated 6^th April 2009 to 5^th April 2010) [BN04].  In effect, this benefits expenditure in that year above £50,000 (which still gets 100% AIA) other than expenditure on the following ((a) – (d) of which still qualify for 100% FYAs and (e) to (f) which are excluded):

1. energy saving plant or machinery; and
2. new low-emission cars; and
3. new refueling equipment; and
4. environmentally beneficial P&M to improve water quality or water use (though there are revisions to what qualifies under this head [BN11];
5. long-life assets; and
6. integral features; and
7. cars; and
8. leasing assets.
3. For corporate trading losses sustained in accounting periods ending in the year 24 November 2008 to 23 November 2010 and for unincorporated trading losses arising in tax years 2008/09 and 2009/10, loss may be carried back three years (rather than one year) using profits of later years first [BN13].
4. The SDLT holiday (reducing the 1% charge to 0% on residential property costing between £125,000 and £175,000), which began on 3 September 2008, is extended from 2 September 2009 (when it was due to end) to 31 December 2009 [BN45].
5. Relief for pension contributions will be restricted to basic rate from 6 April 2011 for those with taxable income of £150,000 or more [BN47].  There are forestalling provisions to curtail exploitation operating from 22 April 2009. 
6. With effect from 22 April 2009, inheritance tax agricultural property relief and woodlands deferment relief are extended to property in the European Economic Area (EEA) rather than restricted to property situated in the UK, Isle of Man and Channel Islands [BN50].  Of course, this suggests APR is here to stay otherwise the Jäger decision – which has caused this change – would have been used as the 'excuse' to curtail APR.
7. The 'naming and shaming' of tax defaulters costing the Exchequer more than £25,000 is intended [BN63].
8. VAT registration threshold increase from £67,000 to £68,000 [BN70].
9. Confirmation that standard rate of VAT increased from 15% to 17½% from 1 January 2010 [BN71]
10. A new managed payment plan will allow payments of CT and IT to be spread over a period 'straddling' current due dates BN88]
11. The new aligned time limits are applied to inheritance tax.  Generally speaking this means that Claims are limited to a time limit of four years (variable at present) and mistakes can be corrected within the same four years (six years at present). However note HMRC have 20 years (currently six years) to correct mistakes that are deliberate [BN89]
12. Confirmation of the new aligned penalty regime for mainstream taxes [BN90].  These include:
1. £100 automatic penalties for late filing + £10 per day after a further three months + additionally 5% of tax after six months + additional 10% of tax after 12 months + 70% tax penalty for deliberate mistakes or 100% for deliberate concealment
2. 5% of tax for late payment + additionally 5% after six months and again another 5% after 12 months.
13. The HMRC Charter will go ahead obliging HMRC to publish a Charter which sets out '...standards of behaviour and values to which HMRC will aspire in dealing with taxpayers...' (emphasis added in bold – note we are not 'customers') [BN92].

Please note that in this analysis not all technical issues have been included for simplicity.