The Spring Budget 2009
April 2009
Introduction
Alistair Darling's second Budget is remarkable for what was not said.
The Land of Leather 'buy now and pay in 2011' special offer continues but with no price being set until after the next election in 2011.
The Economy
The economy is even more broken than we thought back in the Pre-Budget Report in November and is expected to shrink by 3.5% in 2009 before growing again in 2010 by 1.25%.
A combination of increased government spending and lower tax receipts will lead to a budget deficit of £173 billion in 2009/10. This is equivalent to 12% of the national gross domestic product. The budget will continue in deficit until 2017/18 assuming the economy grows at the Chancellor's optimistic expectation of 3.5% a year.
What does this mean?
We will have to pay for it after the next election in 2011. How much and how quickly we pay for it will be a key issue in the election campaign.
For the moment the government has appeased middle England by introducing a 50% income tax rate and reducing pension tax relief for high earners from 2010/11. This will generate more headlines and column inches than the paltry £1.8 billion a year raised (only 1% of the total budget deficit).
Money Tip
The pound is likely to remain very weak throughout 2009 as international investors worry about the amount of debt being issued by the government.
Inflation may be a significant concern from 2010 onwards. Fix interest rates on your borrowings now as they will increase towards the end of the year.
The new tax rates and allowances are available here. The main Budget changes are as follows:
Income Tax
A new 50% Income Tax rate will apply to trusts and individuals with income over £150,000 a year from April 2010.
From April 2010 the tax free personal allowance will be restricted by £1 for every £2 of income over £100,000 a year until it falls to zero.
Tax relief for pension contributions will be restricted for individuals with incomes over £150,000 from April 2011.
Tax Tip
Consider advancing income into 2009/10 to pay less tax. You could pay a dividend or bonus before 6 April 2010 and save 10% tax.
Value Added Tax
VAT will remain at 15% until 31 December 2009 at which point it will revert back to the standard 17.5% rate.
The supply of services to other EU countries will change from 1 January 2010 and some of these supplies will now be liable to UK VAT. There will be a new requirement to report supplies of services within the EU to HMRC on a quarterly basis.
National Insurance
The rates of National Insurance are unchanged for 2009/10, but will increase from April 2011 probably by 0.5%.
Corporation Tax
The small companies rate of Corporation Tax (on profits of up to £300,000) will remain at 21% before increasing to 22% in April 2010. The main rate of Corporation Tax will remain at 28%.
Tax Compliance
A new system of tax compliance regulations came into effect from 1 April 2009 and will cover PAYE, VAT, Income Tax, Capital Gains Tax and Corporation Tax. The new regulations give HMRC one set of powers to inspect business records, assets and premises and the ability to see statutory business records without a right of appeal. There will be a single approach across all taxes to asking taxpayers and third parties for supplementary information, based on formal information notices with a right of appeal.
In addition there are plans to enable HMRC to publish the names of taxpayers who deliberately understate their tax liabilities by over £25,000.
Conclusion
Enjoy yourself while you can. There will be wide ranging tax increases and savage cuts in government spending following the election in 2011. We will all have to pay.
Need more information or advice?
Contact Michael Stone on 020 7580 1810, or email him at michaelstone@jamiesonstone.com
If you would like to order our full Spring Budget briefing or a pocket tax card then please do so here.
Please note that this newsletter is prepared for guidance only. We recommend that you contact us before acting on any information contained herein and cannot accept responsibility for any action taken without such advice.