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The UK 2009 Budget

Designed to recoup the money that was invested in the falling economy by targeting high earners.

The UK Chancellor Alistair Darling delivered the 2009 Budget on 22 April. The business community has yet to digest the news but we can provide an overview here of what makes this budget different from all the previous ones.

Good news

For Business:

Capital allowances are to be temporarily increased from 20% to 40% for 2009/10 – this is good news as it is designed to encourage investment, in which businesses will be able to write off investments sooner and thereby reduce their tax.
Loss carry-backs for SMEs have been increased to £50,000. Companies’ losses would then be able to be carried back and matched against profits (giving a tax refund) for up to three years.
Motorists will obtain a discount of £2,000 on a new vehicle if they scrap a vehicle more than 10 years old that they have owned for more than 12 months. Is this move designated to revitalise the automobile industry or is it to win the next election?
£1.4 billion of additional targeted support in the low carbon sector, including offshore wind, energy efficiency, and small scale renewables. This moves the UK towards “Green" Manufacturing.

For Consumers:

A £1 billion injection is intended to ease pressure on homeowners and enable the construction industry to recover. A Stamp Duty holiday has been extended until the end of the year. No Stamp Duty will be paid on properties that are purchased for less than £175,000. Once this comes to an end, the Stamp Duty threshold will fall back to £125,000.
For the tax year 2009–10, the annual ISA investment limit will increase for everyone aged 50 years and over. Individuals will be able to save £10,200 in their ISA, up to £5,100 of which can be saved in cash.
The government is extending its support for vulnerable homeowners in financial difficulty through widening the eligibility criteria for the Mortgage Rescue Scheme so that households in negative equity are not excluded. As a part of this, the government is announcing a £20 million fund to enable local authorities to extend small loans to those families that are at risk of homelessness through repossession or eviction.

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Bad News

For Business:

Employers’ cost of employment will increase by 0.5% and NI will go up by 0.5% to 13.3% from 2010/11.
Personal liability for senior accounting executives. Senior executives in large firms face personal liabilities if their processes and controls are deemed less than ‚adequate‘.

For Consumers:

A new top rate of income tax of 50pc, and higher NI at 1.5% without a maximum limit, will mean the UK now has the highest personal tax rate in Western Europe. Tax relief on pensions for salaries over £150,000 reduced to 20%
Fuel up 2% a litre
The cost of a packet of cigarettes is to rise 2%
Alcohol duty to increase by 2%
European flights levy is up by approx. 20%, long haul rates up from £40 in 2009/10 (economy) to between £60 and £85 in 2010/11 and business class is up from £80 to a whopping £120 – £170 by 2010/11 depending on the distance flown.

Other aspects of this Budget are that the Corporation Tax for SMEs goes up as planned to 22% from 1/4/10. The VAT threshold rises from £67,000 to £68,000. Personal allowance increases from £6,035 to £6,475. Personal CGT allowance rises from £9,600 to £10,100. Higher rate tax increases from £34,800 to £37,400.

Overall, UK Businesses are rather unhappy with the income tax and cost employment increases. The Daily Telegraph reported that two of the business „ambassadors“ appointed by Gordon Brown to promote Britain overseas attacked the Prime Minister this weekend over his plans to raise income tax for the well-off, accusing him of having „a thirst for revenge“ against the City that would undermine the country's economic recovery. Sir Richard Branson said the decision to introduce a new 50% income tax rate would penalise entrepreneurs.

Higher taxes may bring short-term benefit to the country’s treasury but may cause long-term damage as it will discourage new businesses from entering the UK. Only time will tell whether this budget is the Labour’s last or if it will bring the UK out of this present recession sooner than we think.

Author: Richard Plasek, (FCMA, MBA, BA) Helrik Chartered Accountants
Photo: iStockPhoto