Finance Bill 2009

Mike Truman LLB FCA CTA (Fellow)

Editor, Taxation magazine

16 June 2009

These are the slides from my presentation at the AIMS conference on 16 June 2009. They are supplied ‘as is’ with no warranty or liability for any errors. They are supplied to act as notes for those who attended the presentation. Feel free to make copies for reference, but this does NOT extend to using the slides in your own presentations.

I have made one change, in response to a question on the day, to slide 18, explaining that there are no special rules for groups.

Everything covered in the presentation has appeared at some time during the past few months in Taxation magazine, so if you want commentary like this on a weekly basis, you need to subscribe! I have managed to persuade our marketing department to offer a 10% discount to new subscribers provided you apply before 30 June. Please email newsales@lexisnexis.co.uk quoting ‘EX 9214’ and you will get a year’s subscription for £269 rather than the normal £299.

THE BUDGET PROCESS…

• No longer follows sensible pattern– PBR November– Budget March– With rates etc for following year

• Still working out the effects of last Brown budget in 2007

• And planning rates for 2011/12

2009/10 TAX & NI BANDS

• PA to increase to £6,475 (7.3%)– Age related allowances £9,490 & £9,640 (5%)

• Higher rate band increases to £37,400– From £34,800, an increase of 7.5%

• But, upper NI limit aligned with tax band– £(37,400 + 6,475) = £43,875

• Lower NI threshold increases to £5,715– Increase of 5.2%– Still out of synch with PA

ORIGINAL PROPOSAL 2010-12

• From pre-budget statement in Nov 2008• 2010-11 start to lose PAs once GROSS

income exceeds 100k/140k– Half lost each time

• 2011-12 taxed at 45% over £150k NET income

BATTERSEA POWER STATION…

40%

60%

NEW PROPOSAL

• Everything comes in 2010-11• Lose PAs in one hit, income over £100k, net

of trading losses but gross of pensions and PA

• 45% rate becomes a 50% rate, still starting at £150,000 net income– Div rate 42.5%, trust rate 50%

GHERKIN

40%

60%

50%

MARGINAL TAX/NI RATES 2010/11

Band

Employed Self-Employed

0-£6,475 0% 0%

£6,475-£43,875 31% 28%

£43,876-£100,000 41% 41%

£100,001-£112,950 61% 61%

£112,951-£150,000 41% 41%

Over £150,000 51% 51%

Subject to confirmation of 2010/11 tax bands & allowances. Lower threshold planned to align with PA. Extra 0.5% NI still comes in 2011/12

HELPING YOUR CLIENTS

• … if they are caught by the marginal rate• Pay bonuses bi-annually• Make pension contributions• Offer a review for prospective clients

– All tax deducted under PAYE for marginal rate payers will be wrong!

INCORPORATION

• Still beneficial at all levels of income– Though not as much as before at

lower levels• Increasingly beneficial at highest rate

– But only if CT is 21%• Total tax with 22% CT rate, will be

almost exactly 50%– See calculation – but saves NI

TOTAL TAX ON DIVS

Profit

Less tax at 22%

1000

220

Gross up 100/90

780

87

867

Tax at 42.5% 368

Net div after tax 499

Net tax 50.1%

REDUCED RELIEF FOR PENSION CONTRIBUTIONS

• Tax relief on pension contributions is currently given at the taxpayer’s marginal rate of tax– Making saving for retirement even more attractive for

highest-rate taxpayers from 2011/12• Rate of relief on contributions will be tapered down until

it reaches 20% for incomes exceeding £180,000• Rules will apply from 6 April 2011

– With anti-forestalling provisions coming in from 22 April 2009

ANTI-FORESTALLING DOES NOT AFFECT…

• Anyone earning below £150,000 in the year and the two preceding tax years

• Anyone earning more than £150k carrying on with regular (1/4ly) pattern of contributions established pre 22.4.09

• Anyone whose pension contributions do not exceed £20,000 in the year

• Normal increases in defined benefit schemes• Rules are particularly harsh for the self-employed whose

earning patterns may be irregular– May get amended

PENSION NIGHTMARE, 2009/10

• Earnings £149,900, one–off pension contribution today of £40,000

• Get £200 pay increase• Gain £200 x 59% = £118• Lose £20,000 x 20% = £4,000

– No tapering in transition• Marginal rate of 1,991%!

NAMING AND SHAMING

• Quarterly publication of names, addresses, trade, tax etc, period covered

• Tax lost of more than £25,000• Deliberate/concealed defaults (not

careless)• No disclosure (not even prompted)

SECOND OFFSHORE “AMNESTY”

• New disclosure opportunity (NDO) to run from Autumn to 2009 to March 2010

• Fixed penalty to be announced– Understood to be 10% if not previously

contacted, more if you have• Last amnesty awarded a 10% penalty and

collected £400m in tax• HMRC has widened enquiries to banks

headquartered overseas

TRADING LOSSES - COMPANIES

• Loss carry back period extended to three years for APs ending between 24 November 2008 & 23 November 2010– Set against total profits on a LIFO basis

• Amount carried back beyond the 12m point restricted to £50,000– Which is time-apportioned where the loss-making AP

is less than 12 months long• Can’t get £50k x 2 both taken back three years• Applies separately to each company – no special rules

for groups

Loss problem

2006 2007 2008 2009

Profit Profit Loss Loss

50k - 2007 Wipe out Used (maybe 2005 too)

Balance to 50k

Used?

TRADING LOSSES – UNINCORPORATED BUSINESSES

• Where loss making AP ends in 2008/09 & 2009/10 the losses may be carried back further

• Normal s.64 claim is carry back one year– Extended by two years but only against

previous profits of same trade up to a maximum of £50,000

• Carry back is to later periods first

BUSINESS CARS

• New regime is….– 100% FYA for cars with emissions up to 110g/km– 20% WDA for cars with 111g/km to 160g/km – 10% WDA for cars above 160g/km

• 10% and 20% pools mean no write off of remaining expenditure on disposal

• Private use rules remain the same though• Leasing cars?

– Disallowance of 15% of leasing cost where emissions exceed 160g/km

CARS COMPARISON

Yr 1 Buy gas guzzler 50k

Before

3000

After

5000

Yr 2

Yr 3

WDA

Sale, £20k

3000

24000

4500

2050

Yr 3 Buy gas guzzler 50k 3000 5000

Total all.

Pool

33000

47000

16550

63450

POSSIBLE SOLUTIONS

• Leasing– Particularly if under 160g/km

• 100% qualifying cars if possible• Hold on to existing cars for longer• Buy vans…

SPOT THE DIFFERENCE…

Nissan Pathfinder Nissan Navara

Car Van…

Or is it…?

VAN DEFINITIONS

VAT BIK CA

1 TONNE PRIMARILY GOODS

Thanks for listening

• Visit www.taxation.co.uk tomorrow for a copy of the slides

• Slides and presentation are a basis for discussion, no liability is accepted for action taken or refrained from as a result of them.