2009 Budget: The impacts
Initial assessment indicates that there are no direct impacts on Payroll operations for the 2009/2010 tax year. Whether further detail will be declared in the Notes to Software Developers is not clear at this stage, but there appears to be no planned update or uplift for May (or June), as has been traditional for some years.
All tax allowances, bands and rates are as announced in the Pre-Budget Report 2008 (PBR 2008).
However, high earners (those earning over £150,000) have measures applied (effective 22 April 2009) to prevent them taking advantage of tax relief’s on pension scheme contributions prior to the announced change coming into effect in April 2011. This change has no impact on Payroll calculations with regard to Pension Schemes and tax relief. Any tax liability forms part of Self Assessment requirements (non-payroll).
What was announced in the Pre-Budget Report 2008
The Pre-budget report indicated a number of future changes:
- From April 2010 – the personal allowance will be restricted to half its value for those with incomes over £100,000 (to equate with basic tax payers) and to zero for those with incomes over £140,000 (this has been changed)
- From April 2011 – the introduction of a new income tax higher rate of 45% (this has now changed)
- From April 2011 – the lifetime and annual allowances for tax-free pension savings will be held at a constant £1.8 million and £255,000 respectively for five years (a revision has been made for those earnings over £150,000)
- From April 2011 a 0.5% increase in the employer and employee rates for Class 1 NICs alongside an increase in the point at which people begin to pay NICs to align with the income tax personal allowance.
The following was announced in the budget:
- April 2010 – New higher tax rate of 50% for those earning £150,000 or more
- April 2010 – Personal allowance restriction for those earnings over £100,000 to be Nil
- April 2011 – Tax relief on pension contributions to be restricted to basic rate for those earning £150,000 or more and measures to prevent “forestalling” (to stop high earners getting in quick)
Additional Rate of Income Tax and Income-Related Reduction of the Personal Allowance from April 2010 (based on BN01)
The Budget 2009 announced some revised and new changes to income tax:
- From April 2010 (brought forward from April 2011) - the new higher tax rate of 50% (not the original 45% announced at PBR 2008) will be introduced for those with incomes of £150,000 or more.
- From April 2010 - the basic personal allowance for income tax will be gradually reduced (£1 for every £2 earned over) to Nil (not the half originally announced in PBR 2008) for individuals with “adjusted net incomes” above £100,000.
- New powers to vary income tax rates for the charges that apply to registered pension schemes
We await the detail on how this will impact payroll and Income Tax calculations.
Pensions – Limited Tax Relief for High Income Individuals (Anti-Forestalling) (based on BN47)
The government has announced a restriction to the basic rate of income tax, tax relief on pension savings with effect from April 2011 for people with incomes of £150,000 or more who on or after 22 April 2009:
- Change their normal regular pension contributions
- Change the way that benefits are accrued
- Their contributions/benefits accrued exceed £20,000 per annum
This restriction applies to all contributions (both employee and employer). The charge on the individual has the effect of restricting tax relief on the additional pension savings over £20,000 to basic rate.
No payroll operation change is required as any “anti-forestalling” will be undertaken through Self Assessment.
Individual Savings Accounts (ISAs) (based on BN51)
- 6 Oct 2009 – For people over 50, the ISA limit is raised to £10,200 of which £5,100 can be saved in cash.
- 6 Apr 2010 – The new limit applies for all ISA investors
No payroll, benefit or HR impact, though this may be of general interest to some.
UK Personal Allowance and Relief for Non-Resident Individuals (based on BN54)
Legislation in the Finance Bill 2009 will withdraw the entitlement for non-resident individuals who currently qualify for UK personal allowances and relief’s solely by virtue of being a Commonwealth citizen.
Potentially an impact on the P46Expat process but detail is awaited
Living Accommodation provided by Reason of Employment – Payments of Lease Premiums (based on BN56)
Legislation will be introduced to stop attempts to avoid tax on the benefit of living accommodation when provided to employee by reason of their employment through the payment of lease premiums.
Where an employee is provided with accommodation there is a tax charge on the benefit. Where rent is paid the charge is based on the actual rent paid (less any amount made good by the employee).
Some arrangements involve upfront payments, which are described as lease premium, and a payment of a very small rent in order to try to avoid paying tax.
New legislation will ensure that where lease premium is paid (for a lease of 10 years or less), the lease premium will be treated as actual rent paid spread over the duration of the lease.
This revised legislation will apply to leases entered or extended on or after 22 April 2009.
No payroll impact excepting the calculation of values used if taxed at source (through the payroll) but implications for P11D reporting values and HR consideration where such operations may have been offered to employees.
Changes to Company Car Tax 2011-2012 (based on BN64)
These changes are to be made from 6 April 2011 - In summary:
- New rates for company car tax will be set
- The £80,000 price cap will be removed
- Discounts given to cars using alternate fuels will be removed
No payroll impact. May impact HR in the choice of company car schemes in the future (especially a consideration for long car lease terms). The rules of calculation under P11D will be revised.