Budget Summary 2008-9

Alistair Darling delivered his first budget as chancellor on Wednesday 12th March and managed to deliver it quicker than any of Gordon Browns previous deliveries taking a mere 50 minutes compared to an average 58 minutes for Gordon. The probable reason behind this is that there is an outlook of an economy slowing down but with a hope that it will begin to improve in three years time.

The Budget Red Book shows that with the assumptions made by the treasury the net effect of the changes announced is a mere £140 million reduction in taxes during 2008-9. The two main ‘give aways’ are the extra winter fuel payments to pensioners costing £575m and the cost incurred in delaying increases in fuel duty came in at £550m. These costs are being met in the main by raising £400m from duty increases on drinks and a number of anti avoidance measures from which the government will be looking to raise £650m.

The main points are as follows

General Economic Outlook

Growth in Gross Domestic Product (GDP) during 2008 is predicted to be between 1.75% and 2.25%, increasing to between 2.25% and 2.75% in 2009 and 2.5% and 3% in 2010.

The Bank of England is tasked to maintain inflation at 2%

Taxes

Change in the main rate of corporation from 30% to 28% was confirmed along with an increase in the small companies’ rate of 1% taking it to 21% effective from 1st April 2008.

There is a simplification of the associated companies’ rules effective from 1st April 2008 which will restrict the attribution of rights and powers of business partners as associates for the purposes of the small companies’ rate only. Business partners will only be included where tax planning arrangements have at any time had effect in respect of the taxpayer company in order to secure greater relief under the small companies’ relief provision. In the absence of any such arrangements the partners’ rights will no longer be included in determining the associate status.

For individual tax payers the removal of the 10% tax band was confirmed leaving only two rates (20% lower rate and 40% higher rate). The 20% rate will apply on income up to £36000.

A change in the law regarding company van fuel benefit so that reimbursement of fuel for private use purposes will not be classed as earnings for tax purposes.

The threshold for which compulsory registration for vat is increased from £64k to £67k from April 2008 and the threshold for de-registration is increased from £62k to £65k.

The introduction of legislation from 2009 so that all claims for over/under declared vat will be restricted to three years.

Although announced last year the legislation for the new annual investment allowance will come into effect from 1st April 2008, for incorporated businesses and 6th April 2008 for unincorporated businesses. This will replace the existing system of capital allowances, with the exception of the 100% allowance , a business will be able to claim 100% first year allowances on expenditure up to £50,000 for plant and machinery in any year (with the exception of cars). Any amounts over this will form new pools of expenditure which will be given relief at either the 10% or 20% rate (depending upon the type of expenditure).

The introduction of a flat rate of 18% Capital Gains Tax was confirmed along with the increase in the tax free annual exempt amount from £9200 to £9600 in the 2008/9 tax year.

The proposals regarding ‘Income Shifting’ legislation have been delayed one year until April 2009.

Businesses Development

There will be a temporary 20 per cent increase in the funds made available under the small firms loan guarantee scheme A £12.5m fund was announced to encourage more female entrepreneurs.

There was also an increase to the annual limit for an enterprise investment scheme investor from £400k to £500k which will apply to investments made from 6th April 2008.

Employment and Training

The chancellor announced an extra £60m of funding over the next three years for adult training schemes £200m has been earmarked to improve under performing schools.

An additional £10m is being put into a training scheme for science teachers

Environment

There was a range of tax incentives given to encourage businesses to use fuel efficient company cars: the introduction of a new rate of 10% to apply to cars with emissions of 120g/kilometre from 6th April 2008, a reduction in the threshold for the 15% company car tax band for 135g of CO2/kilometre to 130g to apply from 2010-11.

Vehicle Excise duty(VED) is to be restructured in 2010 with a ‘one off’ duty on new cars being introduced that will see the higher consumption vehicles paying 950 vehicle excise duty in the first year whilst those vehicles below the EU cap will not have any duty in the first year.

It was also announced that there will be 6 bands of VED in 2009-10 which will aim to penalise higher consumption vehicles and reward lower consumption ones. Cars at the top band emitting CO2 levels of 255 g/kilometre will be charged VED at the rate of £425.

Companies will be hit with a ‘plastic bag tax’ next year if they fail to make significant inroads in phasing them out. New buildings should be zero carbon from 2019.

Duties

Duty on a pack of cigarettes to be increased by 11p and on 5 cigars by 4p.

Four pence was added to a pint of beer, 3p on a litre of cider, 14p on a bottle of wine and 55p on a bottle of spirits.

Pensioners

A winter fuel payment for over 60’s to be increased by £50 and over 80’s by £100.

Edmund house, 27 St. James's Road, Dudley, West Midlands, DY1 3JD