UK: Budget 2009 - Part 2 of 2

Last Updated: 23 April 2009
Article by Sandy Bhogal, Michael Cashman, James Hill, Andrew Stanger and Peter Steiner
This article is part of a series: Click Budget 2009 - Part 1 of 2 for the previous article.

Originally published 23 April 2009

Please click here to read Part 1 of Budget 2009

Keywords: Budget 2009, Green tax, enhanced capital allowances, energy-saving, landfill tax, Finance Bill 2009, HM Revenue & Customs, climate change levy, penalties, late payment of tax, personal tax accountability, senior accounting officers, income tax, capital gains tax, corporation tax, overpayments, extra statutory concessions, ESCs, tax rates, allowances, personal pension schemes, National Insurance contributions, inheritance tax, taxable bands, corporation tax, Stamp taxes and duties

Other

"Green" tax measures

Budget 2009 includes a number of measures which attempt to promote a green and carbon efficient economy.

Enhanced Capital Allowances for Energy-Saving and Water Efficient (Environmentally Beneficial) Technologies

Businesses investing in certain plant and machinery that is energy efficient, reduces water use, or improves water quality are entitled to 100 per cent. first year capital allowances in respect of capital expenditure on such items. The lists of technologies covered is being expanded from a date to be appointed.

CHANGES TO THE LANDFILL TAX REGIME

The standard rate of landfill tax will increase by £8 to £48 per tonne. This will affect business registered for landfill tax that make any standard rated disposal on or after 1 April 2010.

Additional provisions included in the Finance Bill 2009 and associated secondary legislation will result in certain uses of material on landfill sites being subject to tax. These measures are a reaction to the Court of Appeal decision in Waste Recycling Group. These reforms also protect the investigative position of HM Revenue & Customs by providing for the introduction of secondary legislation, which would ensure that where appropriate, HM Revenue & Customs is provided with sufficient information to enable it to determine whether a taxable disposal has taken place. These arrangements will take effect from 1 September 2009.

CLIMATE CHANGE LEVY

Legislation will be introduced in the Finance Bill 2009 to entitle manufacturers of certain plastic products to claim some relief from climate change levy in respect of supplies of electricity and liquefied petroleum gas, in return for an associated reduction in their emissions and/or energy consumption. Although these measures will take effect from the date of Royal Assent of the Finance Bill 2009, they must be implemented via a climate change agreement between the relevant sector association and the Department of Energy and Climate Change. Such an agreement can only be entered into by the sector association once regulations laid by the Department of Energy and Climate Change are in force.

Reforms introduced by the Finance Bill 2009 will enable HM Revenue & Customs to recover climate change levy from any facility that has claimed relief on the basis of an anticipated reduction in its emissions and/or energy use but has failed to meet its target provided that the facility in question is in a sector that has failed to meet its sector level target for that same period. The ability of HM Revenue & Customs to reclaim climate change levy in this way will apply to climate change agreement certification periods commencing on or after 1 April 2009.

Draft regulations laid before Parliament in the Autumn will extend the climate change levy to supplies of low value solid fuel made on or after 1 January 2010.

HM Revenue & Customs – powers and processes

HM Revenue & Customs Charter

Legislation will be introduced in the Finance Bill 2009 requiring HM Revenue & Customs to prepare and maintain a Charter setting out the standards of behaviour and values to which HM Revenue & Customs will aspire in dealing with taxpayers and others, and require HM Revenue & Customs to report annually on the extent to which they meet the standards of that Charter. A number of consultation documents have been published on this area, with the latest being issued on 3 February 2009. Previous consultation documents and draft Charters have excited a great deal of debate; however, HM Revenue & Customs hopes to issue the Charter in Autumn 2009 and it is stated that this must be in place by 31 December 2009.

HM Revenue & Customs powers, deterrents and safeguards: - penalties for late filing of returns and late payment of tax

Following HM Revenue & Customs' recent consultation on penalties for the late filing of returns and the late payment of tax, the Finance Bill 2009 will introduce a new penalty regime comprising both fixed and tax-geared penalties which is broadly applicable to income tax, corporation tax, national insurance contributions, stamp duty land tax, stamp duty reserve tax, inherent tax, pensions schemes and petroleum revenue tax (similar penalties will be imposed in relation to PAYE and the Construction Industry Scheme (CIS), although these will be modified to take into account the particular circumstances relating to PAYE and the CIS). Where there is an annual or occasional obligation to file a tax return, penalties will be:

  • £100 immediately after the due date (whether or not tax has been paid);
  • daily penalties of £10 per day for a maximum of 90 days for returns that are more than three months overdue (this only applies to annual obligations);
  • penalties of 5 per cent. of tax due for the return period for prolonged failures (due at 6 months, and again at 12 months); and
  • higher penalties of 70 per cent. of the tax due where a person fails to submit a return for over 12 months and deliberately withholds information necessary for HM Revenue & Customs to assess the tax due.

Where the obligation to make a payment is annual or occasional, a penalty of 5 per cent. of the unpaid tax will be due generally one month after the payment due date, and further penalties of 5 per cent. will be due at 6 months and again at 12 months after the due date. However, as announced in the Pre Budget Report 2008, these penalties can be suspended where the taxpayer makes an arrangement with HM Revenue & Customs. The introduction of such flexibility, and the ability of HM Revenue & Customs to waive penalties, is to be welcomed at a time when an increasing number of businesses are facing difficulties in the current economic climate.

Prior to payment of the penalties, taxpayers will have the right to appeal on the basis of "reasonable excuse" although further clarification will be required on the circumstances in which HM Revenue & Customs will accept that there is a "reasonable excuse".

Publishing the names of deliberate tax defaulters

Legislation is to be included in the Finance Bill 2009 which will allow HM Revenue & Customs to publish the name and details of individuals, businesses and companies who are deemed "deliberate tax defaulters" – specifically, those who are penalised for deliberately understating tax due, or overstating claims or losses, of more than £25,000; or deliberately failing to notify HM Revenue & Customs when required to do so or deliberately committing certain VAT and excise wrongdoings, leading to a loss of tax of more than £25,000. The new legislation will not apply to deliberate defaults committed prior to the legislation becoming effective; and going forward, those who make an unprompted disclosure or a full prompted disclosure within the required timeframe in respect of a deliberate tax default will not be affected.

HM Revenue & Customs powers, deterrents and safeguards – compliance checks

Following the sweeping changes introduced in the Finance Act 2008, under which HM Revenue & Customs aligned record-keeping requirements, information and inspection powers and assessment time limits across income tax, capital gains tax, corporation tax, VAT and PAYE, a raft of measures relating to HM Revenue & Customs' powers and compliance have been included in this year's Budget. These changes further extend the 2008 framework to the environmental taxes (aggregates levy, climate change levy and landfill tax), insurance premium tax, stamp duty land tax, stamp duty reserve tax, inheritance tax and petroleum revenue tax. It is anticipated that the record keeping requirement, information and inspection powers will be brought into effect from 1 April 2010, and the time limits for assessments and claims will have effect from 1 April 2011.

The normal assessment time limits by which the amount of tax due can be changed will be reduced to, broadly, 4 years for mistakes and 20 years for deliberate understatements.

Corporate transparency – personal tax accountability of senior accounting officers of large companies

With effect for accounting reference periods beginning on or after the date that the Finance Bill 2009 receives Royal Assent, legislation will be introduced which will require large companies (or large groups of companies) which are subject to UK taxation to notify HM Revenue & Customs of the identity of their "senior accounting officer". This measure is based on the US 2002 Sarbanes Oxley Act which placed similar obligations on senior officers of US corporations. The senior accounting officer will have to take reasonable steps to establish accounting systems within his company that are adequate for the purposes of accurate tax reporting (and monitor such systems); certify annually that the accounting systems in operation are adequate for the purposes of accurate tax reporting; and specify the nature of any inadequacies and confirm that those inadequacies have been notified to the company's auditors. Where there is a careless or deliberate failure to meet these obligations, or a carelessly or deliberately incorrect certificate or notification is given, penalties (HM Revenue & Customs has suggested a penalty of £5,000) may be imposed both on the senior accounting officer personally and the company.

Reclaiming income tax, capital gains tax and corporation tax overpayments

Legislation will be introduced in the Finance Bill 2009 which will allow taxpayers to reclaim overpayments of income tax, capital gains tax and corporation tax where no other statutory route is available.

Under the new measures, there will no longer be a requirement that the overpayment must have arisen from a mistake in a tax return and have been made under an assessment; and the claimant will determine the amount to be repaid rather than HM Revenue & Customs deciding what is " just and reasonable" in the circumstances. Whilst the relaxation of the rules is to be welcomed, taxpayers should also note that the time limits for claiming a repayment will be reduced to four years from April 2010.

Interest harmonisation

Following HM Revenue & Customs' consultation documents ("Interest – Working Towards a Harmonised Regime", published in June 2008 and November 2008) and draft legislation, the rates of interest applied to overdue payments, overpayments and repayments are to be aligned for all taxes and duties administered by HM Revenue & Customs. This will take effect for all taxes from the date after the Finance Bill 2009 receives Royal Assent (with the exception of corporation tax and petroleum revenue tax, which will be addressed by legislation in the Finance Bill 2010). Due to the changes required to HM Revenue & Customs' computer systems, implementation is to be staged over a number of years.

Withdrawal of ESCs

Following the House of Lords decision in R (on the application of Wilkinson) v Inland Revenue Commissioners which made it clear that the scope of HM Revenue and Customs' administrative discretion to make concessions that depart from the strict statutory position was not as wide as was previously thought, HM Revenue & Customs has been reviewing the existing extra statutory concessions (ESCs) with a view to either withdrawing or legislating on those which are deemed to fall outside its administrative discretion (it is understood that the majority will continue to exist as ESCs as they are within HM Revenue & Customs' administrative discretion).

The Technical Note issued with the Budget 2009 materials sets out a list of ten ESCs that will be withdrawn. Nine of these are to be withdrawn on the grounds that they are obsolete, either because they are used so infrequently, or they address issues which no longer need to be addressed; however, one ESC (relating to use of the margin scheme when incomplete records have been kept) is being withdrawn on the basis that it has no basis in UK or EU VAT law and therefore must be withdrawn. Whilst this particular withdrawal will be of limited practical significance to most taxpayers, it is a reminder that HM Revenue & Customs' review of ESCs is ongoing and further withdrawals are possible.

Tax rates and allowances 2009/10

 

2009/10
£

Personal allowance (age under 65)

6,475

Personal allowance (age 65-74)

9,490

Personal allowance (age 75 and over)

9,640

Blind Person's Allowance

1,890

Married Couple's allowance*
(age less than 75 and born before 6 April 1935)

6,865

Married Couple's allowance* (age 75 and over)

6,965

Married Couple's allowance* - minimum amount

2,670

Income limit for age-related allowances

22,900

* Married Couple's allowance is given at a rate of 10%

Personal Pension Schemes

 

2009/10
£

Pension scheme earnings cap (1989 cap)

 

Pension scheme annual allowance (from 6 April 2008)

245,000

Pension scheme lifetime allowance (from 6 April 2008)

1,750,000

National Insurance Contributions

 

2009/10
£

Primary Class 1 contributions

 

Lower earnings limit (per week)

95

Upper earnings limit (per week)

844

Primary threshold (per week)

110

Secondary threshold (per week)

110

Class 2 annual small earnings exception

5,075

Class 2 rate (per week)

2.40

Class 3 rate (per week)

12.05

Class 4 contributions

 

Lower annual earnings limit

5,715

Upper annual earnings limit

43,875

Capital gains tax annual exempt amount

 

2009/10
£

Individuals etc

10,100

Most trustees

5,050

Inheritance Tax

 

2009/10
£

Individual allowance

325,000

Income tax: taxable bands*

£ per year

2009/10 £

Basic rate: 20%

0-37,400

Higher rate: 40%

Over 37,400

* The basic and higher rate income tax rates remain at 20% and 40% for 2009/2010. For 2010/2011, incomes over £150,000 will be subject to a new 50% income tax rate and the personal allowance will be gradually reduced to nil for those with an income over £100,000.

Corporation tax on profits

 

2009/10 £

Small companies' rate: 21% 1

0-300,000

Marginal relief

300,001-1,500,000

Main rate: 28%

Over 1,500,001

Stamp taxes and duties

Transfers of land and buildings (considerations paid)

Rate

Residential in disadvantaged areas

Residential outside disadvantaged areas

Non-residential

Total value of consideration

Zero

£0 - £150,000

£0 - £175,000*

£0 - £150,000

1%

Over £150,000
- £250,000

Over £175,000
- £250,000

Over £150,000
- £250,000

3%

Over £250,000
- £500,000

Over £250,000
- £500,000

Over £250,000
- £500,000

4%

Over £500,000

Over £500,000

Over £500,000

* The band for SDLT was temporarily increased to £175,000 for residential transactions falling between 3 September 2008 and 2 September 2009 and this measure was extended in the Budget 2009 to residential transactions up to and including 31 December 2009. From 1 January 2010, the band will revert to £125,000.

Footnote

1. Planned increase to 22% has been deferred until 2010.

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Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Copyright 2008. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.

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This article is part of a series: Click Budget 2009 - Part 1 of 2 for the previous article.
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