Budget Comment 2009

Rates and limits

Corporation tax

The current rates for corporation tax have been confirmed to be unaltered. The rates in force are as follows:

• Main rate - 28%
  
• Ring-fenced profits - 30%
  
• Small companies' rate - 21%
  
• Ring-fenced small companies - 19%

An indication has been given that the 28% rate will continue after 1 April 2010 but this will need to be confirmed in next year's Finance Act.

No change has been announced to the limits that apply to define which rate of corporation tax is applied to profits. These now remain unchanged for 15 years.

VAT : Change of standard rate - no change

The Chancellor confirmed that the standard rate of VAT will revert to 17.5% from 1 January 2010. This confirmation means that businesses will have plenty of time to amend their systems and plan for the change. The increase is timed to coincide with the Chancellor's expectation that the economy will by then be emerging from the recession.

Although there are plans for future increases in income tax for those on higher incomes, no such plans were announced for VAT. However, as the UK has one of the lowest standard rates of VAT in the European Union there is scope for the rate to be increased at some stage. This might be a tempting option for the Chancellor as he seeks to reduce Government debt.

Interestingly, the Budget announcements included a measure which will allow a VAT rate to be changed temporarily for a period of less than a year. That raises the question of why would the Chancellor introduce such a measure if he did not intend to use it? It is certainly a very useful short term revenue raising measure to have in reserve.

Anti - forestalling legislation

Where VAT rates are altered there are particular rules which deal with supplies which span the change. As the VAT rate is to increase from 1 January 2010, the Government is anticipating that there will be planning which seeks to bring forward the date that VAT is due, even though the related goods or services will be delivered after the rate change. This would be of benefit to customers that were not able to fully recover the VAT that they incur.

To combat certain prepayment schemes, the Chancellor announced that an additional VAT charge of 2.5% will be levied if arrangements are entered into in the following circumstances:

• if the customer is unable to recover the VAT charged and one of the following conditions apply?
  
  • either party is connected
  • the supplier funds the purchase
  • an invoice is issued but payment is not due for more than 6 months or
• the prepayment is for more than £100,000 irrespective of whether the customer can recover the VAT (although if the payment is made under normal commercial practice it is excluded).

This legislation will affect all transactions after 25 November 2008 and 31 March 2009.

Registration thresholds

As is usual, the Budget announcements included an increase in the VAT registration threshold from £67,000 to £68,000. The change is effective from 1 May 2009. Such a modest increase in the registration limit will be a disappointment to smaller businesses, who were perhaps hoping for more assistance in the current climate. A larger increase which would taken them out of the VAT regime, thereby allowing them to retain more of their income for re-investment in the business, or to pay wages.

Registered businesses will be able to deregister from VAT if their supplies fall below £66,000. This change is also effective from 1 May 2009 and represents an increase of £1,000.

Fuel scale charges

New rates for output tax payable on the provision of private fuel to employees will come into effect for VAT accounting periods beginning on or after 1 May 2009. The new rates are approximately 9% lower than the current rates.

Landfill tax

From 1 April 2010 the standard rate of landfill tax will increase from £40 to £48. The rate for inert waste will remain at £2.50 per tonne.