Income Tax
2009/10
There will be no changes in either the basic rate (20%) or higher rate (40%) of income tax for 2009/10.
The personal allowance for 2009/10 will increase from £6,025 to £6,475.
The basic rate limit (being the point at which higher rate income tax becomes payable) for 2009/10 will increase from £34,800 to £37,400.
Subsequent Years
From 6 April 2010, the value of the personal allowance to an individual with gross income over £100,000 will be reduced by up to half (ie amount of allowance reduced by £1 for every £2 above the income limit up to a maximum of one half of the personal allowance).
Similarly from 6 April 2010 the value of the personal allowance to an individual with gross income over £140,000 will be gradually withdrawn (ie the amount of the allowance will be further reduced by £1 for every £2 above the income limit up to a maximum of the full amount of the personal allowance).
A new 45% rate of income tax will be introduced from 6 April 2011, applicable to non-savings and savings income above £150,000.
Income above £150,000 that comprises dividends will be taxable at the new rate of 37.5%.
6 April 2011 will also see 5% increases in the rates of income tax for trusts – the dividend trust rate will be increased to 37.5% and the trust rate of tax to 45%.
National Insurance
2009/10
The Upper Earnings Limit (UEL), being the earnings up to which the main rate of employee contributions at 11% are payable, will be aligned with the income level at which the higher rate of income tax starts to apply. This will result in the UEL increasing from its current £40,040 to £43,875.
Subsequent Years
The main rates of NICs will all be increased by 0.5% from 6 April 2011, such that employee’s Class 1 contributions will be at 11.5% (on earnings up to the Upper Earnings Limit, currently £40,040) and 1.5% (on earnings above the Upper Earnings Limit), and Class 4 contributions 8.5% (on profits up to the Upper annual profits limit, currently £40,040) and 1.5% (on profits above the Upper annual profits limit).
Employer’s Class 1 contributions will also increase by 0.5% to 13.3% from 6 April 2011, as will Class 1A and Class 1B contributions.
The “primary threshold”, being the point at which NICs become payable, will be broadly aligned with the income tax personal allowance from 6 April 2011.
Business Tax
The planned increase from 21% to 22% in the small companies rate of corporation tax has been deferred by a year until 1 April 2010.
There will be a temporary extension to the period that current trading losses can be carried back against previous profits, from the current one year entitlement to a period of 3 years, with losses being carried back to later years first. This measure will have effect for company accounting periods ending in the period 24 Nob 08 to 23 Nov 09. For unincorporated businesses, the measure will have effect in relation to trading losses for the 2008/09 tax year.
The current rules for capital allowances on “expensive cars” will be abolished and replaced with an environmentally based pooling system with effect from 1 April 2009 for corporation tax purposes and 6 April 2009 for income tax purposes. Thereafter the rate of allowance will be based on the car’s CO2 emissions.
Whilst maintaining its position that so-called “income shifting” is unfair, the Government is not intending to include legislation in the 2009 Finance Bill but will instead “keep this issue under review”.
Pensions
The lifetime allowance and annual allowance will be frozen at their 2010/11 amounts (£1.8m and £255k respectively) for the next 5 tax years, that is up to and including 2015/16.