UK: Pre-Budget Report Published
UK: Pre-Budget Report Published
The United Kingdom’s 2009 Pre-Budget Report (PBR), “Securing the recovery: growth and opportunity,” was published on 9 December 2009, together with associated documents.1 (For coverage of last year’s PBR, see Flash International Executive Alert 2008-203, 24 November 2008.) The PBR is intended to provide an annual update on the government’s economic and budget forecasts, and to explain in advance the measures likely to be included in the Budget in the spring of the following year to enable time for consultation on those measures.
The main measures affecting individuals and their employers are set out below. Please note that the U.K. tax year ends on 5 April so, for instance, 2009/10 denotes the tax year ending 5 April 2010.
Personal Taxes – Income Tax Rates
Income Tax Bands
For the 2009/10 and 2010/11 tax years, the income tax bands are proposed to be as follows:
Years 2010/2011 2009/2010
Starting rate for savings * 10% £0 – £2,440 £0 – £2,440
Basic rate 20% £0 – £37,400 £0 – £37,400
Higher rate 40% £37,401 – £150,000 Over £37,400
Additional rate 50% Over £150,000
[£1 = $1.627; £1 = €1.104]
* There is a 10-percent starting rate of tax – but only for savings income. If an individual’s non-savings taxable income exceeds the starting-rate limit, then the 10-percent starting rate for savings will not be available for savings income. The rates applicable to dividends are 10 percent for dividend income up to the basic-rate limit and 32.5 percent up to the additional rate. A new dividend additional tax rate of 42.5 percent will also be introduced from 6 April 2010.
Personal Taxes – Income Tax Personal Allowances
For 2010/11, the basic personal allowance will remain unchanged from £6,475, but it will be subject to an income limit of £100,000. Where an individual’s income is below the £100,000 income limit, he/she will continue to be entitled to the full allowance. Where an individual’s income is above the income limit of £100,000, the allowance will be reduced by £1 for every £2 above the income limit.
Personal Taxes – Bonuses Paid by Banks
A new payroll tax of 50 percent on discretionary bonuses of over £25,000 paid from 9 December 2009 until 5 April 2010, has been introduced. This new tax applies in respect of employees who are in “banking employment” and who are employed by a “taxable company” or otherwise provide “banking services” to a “taxable company”. The tax will be paid by the employer and not the employee. It applies in relation to both resident individuals and nonresident employees who perform duties partly in the United Kingdom. This payroll tax will be due on 31
The details of this new tax are complex and a technical note has been published by HMRC.August 2010, and will not be deductible for corporation tax purposes.
Personal Taxes – Contributions to Pension Schemes Anyone who may be affected should seek specific advice from a qualified tax professional.
In the last Budget3 on 22 April 2009, the Chancellor of the Exchequer announced that from 6 April 2011, those individuals with incomes over £150,000 would have their tax relief restricted. The government has announced that the definition of income for the purposes of this threshold will include the value of employer pension contributions. However, this will not apply for those with income of less than £130,000.
Anti-forestalling legislation was also announced in the last Budget to prevent individuals bringing forward pension contributions to avoid the introduction of the new restrictions on pension contributions. This legislation applied to individuals with income of £150,000 or over in 2009/2010 or the preceding two tax years. The anti-forestalling threshold of £150,000 has now been reduced to £130,000. This reflects the position whereby from 6 April 2011, individuals with income of less than £130,000 before the inclusion of employer pension contributions will not have their tax relief restricted.
The government has also launched a three-month consultation in relation to the details of how the pension tax relief should be implemented from 6 April 2011; in particular, in relation to defined benefit pension schemes.
National Insurance Contributions (NIC)
It was announced in last year’s PBR that from 6 April 2011, there would be a 0.5-percent increase in National Insurance Contributions (NICs). This 0.5-percent rise has been replaced by a 1-percent increase in NIC rates, so that the main rates of employee Class 1
NIC and Class 4 NIC will be increased by 1 percent to 12 percent and 9 percent respectively. The Class 1 employer rate of NIC will be increased by 1 percent to 13.8 percent. The increased rate will also apply to Class 1A and Class 1B NIC. The additional rate of Class 1 and Class 4 NICs will be increased by 1 percent to 2 percent.
The NIC rates for 2010/2011 remain unchanged from 2009/2010. The Lower Earnings Limit (LEL) has been increased by £2 to £97.
Offshore Bank Accounts
A requirement to notify HMRC when opening offshore bank accounts in certain jurisdictions is to be introduced. This is to be supported by a separate penalty regime which could result in combined penalties of up to 200 percent of the unpaid tax.
As explained in our earlier Flash International Executive Alert 2009-223 (2 December 2009), HMRC is obtaining details from over 300 financial institutions for U.K. taxpayers with offshore accounts. The ‘New Disclosure Opportunity’ gives those with undeclared offshore assets until 4 January 2010, to come forward. In HMRC’s words “if they do not come forward now, they can expect much tougher penalties in the future.”
Information on Other Measures
Information about other measures in the PBR can be found on the Web site for KPMG LLP (U.K.) at: http://www.kpmg.co.uk/pbr.
Source: Fragomen
