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The Chancellor finally got round to presenting his pre-budget report on Wednesday 9 December. I don't think many commentators expected much and that is precisely what they got!
Personal Tax
Income tax rates, bands and allowances have been frozen at their 2009/10 levels for 2010/11. There is, of course, the new 50% rate to contend with for taxable income in excess of £150,000 and the loss of personal allowance for taxable income in excess of £100,000 previously announced. Apart from a small change in the lower earnings threshold (up £2 to £97 per week), NI rates are also unchanged. This is only a temporary respite as NI rates for employers, employees, and the self employed will all rise by 1% in 2001/12 although increases in the thresholds will alleviate the impact to some extent.
The previously advised increase in the Inheritance Tax threshold will not now take place and it will therefore remain at £325,000 for 2010/11. No announcements have yet been made regarding the annual exemption or rate of Capital Gains Tax.
Business Tax
The small companies rate of corporation tax has again been held at 21%, at least until 2011/12. The main rate of corporation tax remains at 28%. We already knew that the standard rate of VAT reverts to 17.5% on 1 January 2010. What had not been announced before the report were the new rates for those on the VAT flat-rate scheme. These have now been published and, in general, are not the same as they were prior to the drop in the standard rate to 15% last year. 11 rates are lower, 19 the same, and 25 higher than before. HMRC do seem to be catching on to the benefits that some businesses were obtaining through use of the scheme.
Cars
Some subtle changes will take place to the benefit in kind percentages for company cars in 2012/13 which will undoubtedly increase the charge levied on most vehicles. More immediately the theoretical annual value used to calculate the fuel benefit is to increase from £16,900 to £18,000 in April. This increases the potential maximum fuel benefit to £6,300 reducing even further the attraction of this particular benefit for most employees.
Bankers Bonus Tax
The attack came but in a not entirely expected way. Discretionary bonuses in excess of £25,000 paid after the pre-budget report and not a contractual obligation at that time will suffer a levy on the employer of 50%. This has no effect on the individual's own tax liability on the income - presumably at least 40%. In addition the levy will not be deductible for corporation tax purposes. So, if a bank pays an employee a bonus of £100,000 before 5 April 2010, the bank will pay a 50% levy, plus 12.8% national insurance - £62,800. The individual will be due 40% tax and 1% national insurance - £41,000. Total revenue to the Treasury = £103,800. Net income to individual = £59,000.
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