Baker Tilly - Budget 2009

The importance of professional service firms to the UK economy has been acknowledged by the publication of the Treasury’s ‘Professional Service Global Competitiveness Group’ report. The report concludes that as the UK’s largest employer with the greatest sector output, professional service firms are much more significant to the economy than previously realised. The significant increases in payable tax, which will take effect from 2010 onwards, will directly impact upon firms' partners and employees.

Increased VAT administrative burden

A significant overhaul of the place of supply measures announced by Europe means extra form-filling for certain suppliers.

Baker Tilly analysis - From 1 January 2010 firms making supplies to EU businesses will need to submit a quarterly sales listing to HMRC. Firms will only have 14 days to submit these returns to HMRC, unless they file electronically, in which case the time-limit will be extended to 21 days.

In detail - Firms will need to ensure that they have adequate systems in place to capture the following information on the sales list:
VAT-registration number of customer Value of supplies. However, for businesses that incur VAT in Member States where they are not VAT registered, the system for reclaiming this VAT will become much simpler from Jan 2010. It is hoped that harmonising the procedural rules across the Member States and moving to an electronic system will enable businesses to successfully obtain the VAT refund to which they are entitled.

New 50% top tax rate

The Chancellor has effectively torn up his original proposal to introduce a 45% top rate in 2011. Instead the top rate will be introduced a year earlier, on 6 April 2010, and the increase over the existing top rate will be doubled as the new rate will be 50%. This also affects the rate of tax on dividends and the tax rate on trusts.

Top taxpayers’ pension restrictions have immediate effect

The Chancellor announced that relief for pension contributions is to be restricted as from 6 April 2011. In itself this restriction, though unwelcome, will be easy to follow. However, the anti-forestalling provisions that apply between 22 April 2009 and 5 April 2011 are complex and potentially punitive.

Capital allowances – temporary first year allowance

The Budget proposes the introduction of a temporary first year allowance for all businesses at a rate of 40% on qualifying capital spend incurred in the one-year period from April 2009. This will be in addition to the annual investment allowance, which is a 100% allowance that was introduced from April 2008.

Professional practices: penalty regime for late PAYE and NIC

With effect from April 2010, all employers will face additional risks of penalties and interest if they make late monthly payments of PAYE and NIC.

Return to 17½% VAT rate confirmed   

The Chancellor has today reiterated the announcement he made in the PBR that the standard rate of VAT would return to 17½% from 1 January 2010.

Capital allowances for cars

Changes have been introduced to the restriction on the tax deduction available for purchased and leased cars, with the emphasis on encouraging green choices.  Purchased cars will attract a writing down allowance of only 10% (on a reducing balance basis) of their CO2 emissions exceed 160g/km.  A 20% rate applies for cars with lower emissions, and even 100% if the emissions rating is 110g/km or lower.  If the cars are provided by a company employer, there are generally no balancing allowances on sale, which defers tax relief for a long time.  Partners' cars will still be dealt with individually, with the new write-down rates but a balancing adjustment on sale.  For leased cars with emissions over 160 g/km, a flat 15% disallowance of the leasing rentals applies, otherwise there is no adjustment, which is an improvement over the old regime.  The old allowance regime continues to apply to cars acquired before 1 or 6 April 2009 for company and partnership cars respectively.

Tax-efficient provision of employee accommodation curtailed

HMRC has announced that legislation will be enacted to stop, with effect from Budget Day, avoidance of income tax through the provision of accommodation to employees through so-called ‘lease premium’ arrangements. These arrangements have been particularly popular with employers of inbound expatriate employees whose stay in the UK is to be longer than 2 years.  Joint ownership arrangements seem likely to be the next best planning route.

Loss carry-back rules extended

The Budget proposes that the carry back of trading losses to relieve prior period profits and gains is to be extended from a one year carry-back to the three preceding years for a limited period. The loss which may be carried back to the preceding 12 months is unlimited whereas the loss carry-back to earlier periods is to be limited to £50,000. The 2008 PBR in November 2008 announced that this would be introduced for accounting periods ending in the one year period to 23 November 2009. The Budget proposes that this is extended to allow a carry-back to be made for accounting periods ending in the two year period to 23 November 2010.