Extension of carry back of trading losses

A company may normally carry back trading losses arising in an accounting period for twelve months, and set that loss off sideways against its profits from any other source. In the pre budget statement last November, new rules were introduced in relation to losses of accounting periods ending in the window from 24 November 2008 to 23 November 2009 to allow trading losses to be carried back for more than one year in certain circumstances, effectively giving a three year carry back period. The government has announced further extensions to this support by extending the enhanced relief for two years rather than one.

Foreign profits

The tax exemption for most foreign dividends received by UK groups of companies has been confirmed and will be supported by a restriction on interest deductions combined with the replacement of the Treasury Consents rules with a new post transaction reporting requirement. This will herald the changes to the controlled foreign companies rules and is intended to improve the competitiveness of the UK as a location for multi national businesses.

VAT – change of standard rate

There is to be no extension to the period for the reduction in the standard rate of VAT which was reduced from 17.5% to 15% in the pre budget report. The rate will revert to 17.5% with effect from 1 January 2010 and legislation will be introduced to prevent any manipulation of the rules in relation to this.

Stamp duty

The stamp duty holiday for all houses costing up to £175,000 is to be extended until 31 December 2009.

Support for savers

The government has announced that the ISA investment limit is to be increased to £10,200, of which £5,100 can be saved in cash. The new limits are to be introduced for those aged 50 or over for the tax year 2009/10 but only for deposits being available from 6 October this year. The higher ISA limits will then apply to everyone from 6 April 2010.

Offshore disclosure

The much anticipated new disclosure opportunity for those with offshore bank accounts will run until March 2010, giving owners of these accounts the opportunity to disclose relevant details to the tax authorities of their own accord in exchange for lower penalties. This is in line with the coordinated international approach being taken towards undisclosed offshore bank accounts as outlined at the G20 Summit meeting recently.

Company car tax

In recognition of the ever lowering CO2 emissions from modern cars, on which benefit in kind tax charges are calculated, the government has announced that it is again moving the goalposts on these with effect from 6 April 2011, by shifting the CO2 emissions thresholds down by 5grams per kilometre with effect from 6 April 2011.

It has also announced that the current £80,000 cap on company car list prices for the purposes of calculating company car benefit will be abolished such that the drivers of the most expensive company cars will pay a tax charge based on the full list price of the car when new.

The old discounts available for different types of vehicles will be completely abolished and replaced by a single system which simply rewards lower CO2 emissions.

Income tax rates and allowances

The income tax personal allowance for 2009/10 remains at £6,475, as announced in the pre budget statement last November. However, rather than gradually reduce the basic personal allowance for income tax for individuals whose gross income is more than £100,000, the Chancellor has decided to fully withdraw the allowance for those with incomes over £100,000 with effect from 6 April 2010.

A new 50% top rate of income tax will be applied to those with incomes above £150,000 with effect from next April. This represents a two fold change from the pre budget statement where the Chancellor announced a top rate of 45% on incomes above £150,000 effective from 6 April 2011.

Tax rate on dividends

From 6 April 2010 there will also be a new higher rate of tax for dividend income. The new rate of tax of 42.5% will apply to dividends, which would otherwise be taxable at the new income tax rate of 50%.

Tax rate applicable to trusts

From 6 April 2010, the dividend tax rate will be increased to 42.5% and the trust rate of tax will be increased to 50%.

Tax relief on pension fund contributions

Higher rate tax relief will continue to be available on pension fund contributions until the end of the tax year 2010/11, however thereafter relief is to be restricted to those with incomes over £150,000 the effect of which will be to taper the relief to 20%.

The Chancellor has announced that he intends to consult on the implementation of this restriction but has already flagged up that prior to the change, the government will also introduce legislation to prevent higher rate tax paying individuals from taking advantage of the pensions relief by making substantial additional contributions prior to the restriction coming into effect on 6 April 2011.

Further extension of carry back of trading losses

The November 2008 pre budget report announced a temporary twelve month extension of loss carry back for business from one to three years, and this is to be extended for two years rather than one. It will be effective for the 2008/09 and the 2009/10 tax years.

The rules allow only trading losses to be carried back, but certain furnished holiday letting losses are treated as trading losses for these purposes.

Enhanced first year capital allowances.

The government has doubled the first year capital allowance from 20% to 40% for one year, introduced retrospectively with effect from 5 April 2009.