HMRC News

BUDGET REPORT 2009

This budget has been held after the start of the new tax year for 2009/10 and is the latest date since 1945.

Income tax

The 2009 Budget has announced the following income tax changes:

• from 2010/11, there will be an additional higher rate of 50% for taxable income above £150,000;
• from 2010/11 the basic personal allowance for income tax wil be gradually reduced to nil for individuals with "adjusted net incomes" above £100,000;
• from 2010/11 there will be increases to the trust rate and dividend trust rate to match those for income tax.

For 2009/10 there are two main rates of income tax. The 20% basic rate of income tax applies to taxable income up to £37,400. the 40% higher rate applies to taxable income above £37,400. From April 2010, a 50% additional rate of tax will apply to taxable income above £150,000.

From 2010/11, the basic personal allowance will be subject to a single income limit of £100,000. Where an individual's adjusted net income is below or equal to the £100,000 limit, they will continue to be entitled to the full amount of the basic personal allowance.

The personal allowances for 2009-10 are as follows:

• The basic personal allowance will be £6,475. For 2008-09 it was £6,035.
• For individuals aged 65-74 it will be £9,490. For 2008-09 it was £9,030.
• For individuals aged 75 and over it wil be £9,640. For 2008-09 it was £9,180.

Trading losses

Legislation will be introduced in Finance Bill 2009 to extend the ability of businesses to carry trading losses back against profits of earlier years to get a repayment of tax.

The measure will have effect on and after 22 April 2009 for company accounting periods ending in the period 24 November 2008 to 23 November 2010 and for tax years 2008-09 and 2009-10 for unincorporated businesses.

Trade loss carry back will be extended from the current one year entitlement to a period of three years, with losses being carried back against later years first.

The amount of trading losses that can be carried back to the preceding year remains unlimited. After carry back to the preceding year, a maximium of £50,000 of unused losses will be available for carry back to the earlier two years. This £50,000 limit applies separately to the unused losses of each 12 month period or tax year within the duration of the extension.

Corporation Tax

Legislation will be introduced in Finance Bill 2009 to keep the small companies' rate for all profits, apart from ring fence profits, at 21% form 1 April 2009 and keep the fraction of the marginal small companies' rate at 7/400.

The small companies' rate for ring fence profits remain at 19% from 1 April 2009 and the marginal small companies' relief fraction for ring fence profits will remain at 11/400.

The main rate of corporation tax after 1 April 2010 will remain at 28% and for companies' ring fence profits will remain at 30% on and after 1 April 2010.

Capital Allowances

Legislation in Finance Bill 2009 will introduce a new temporary 40% first-year allowance (FYA) for expenditure on general plant and machinery.

The temporary FYA will be available to:

• any individual carrying on a qualifying activity;
• any partnership; and
• any company.

The temporary FYA will apply to qualifying spending incurred in the 12 month period beginning on 1 April 2009 for the purpose of corporation tax, and on 6 April 2009 for the purpose of income tax.

As with previous and existing first-year allowances there are exceptions where the expenditure will not qualify for the temporary first-year allowance, the main exceptions include "special rate" expenditure (including long-life assets and integral features), expenditure on cars, and on assets for leasing.

The Energy Saving and Water Efficient Enhanced Capital Allowance (ECA) schemes allow businesses investing in designated technologies that reduce energy consumption, save water or improve water quality to write off 100% of the cost against the taxable profits of the period during which the investment was made.