2008/2009 tax year

What the numbers really mean

ALLOWANCES & RELIEFS

INDIVIDUALS - INCOME TAX RATES 2008/2009 (2007/2008)

* Dividends are increased by a non-repayable tax credit of 1/9th

** 10% up to £2,320. If an individual’s taxable non-savings income is above this limit, the 10% rate does not apply

Dividends are treated as the top slice of total income, savings as the next slice and other income as the lowest slice

NATIONAL INSURANCE CONTRIBUTIONS (NIC)

*contracted out rate is 9.1% (9.1%) for salary related schemes, 11.4% (11.4%) for money purchase schemes for earnings from £105 to £770 (2007/2008 £100 to £670)

CAPITAL GAINS TAX (CGT)

Married couples/civil partnerships (unless permanently separated)
Transfers between spouses/civil partners - recipient is deemed to acquire the asset at 31 March 1982 and at the value at that date, or original date and at cost of acquisition if later

Exempt assets include main home, cars and chattels worth less than £6,000Chattels worth more than £6,000: alternative charge on 5/3 excess over £6,000

Entrepreneurs’ Relief - from 6 April 2008

Available on ‘material disposals’ of:
• Shares in a trading company (or holding company of a trading group) if holds at least 5% ordinary share capital and voting rights throughout period of ownership, and is an officer or employee for at least 12 months
• All or part of a trading business the individual carries on alone or in partnership, for at least 12 months
• Assets of the individual’s or partnership’s trading business following cessation and used for over 12 months
• Assets owned by the individual and used by the connected trading partnership or personal trading company (or group) for over 12 months

INHERITANCE TAX (IHT)

Lifetime gifts
• to an individual are initially not chargeable to tax
• to trusts established after 22/03/06 are taxable at 1/2 death rates
Gift within 7 years of death - tax at death rates payable, reduced as follows and credit given for any tax paid on lifetime gift:

Trusts established after 22/03/06, accumulation and maintenance trusts from 6 April 2008, and all discretionary trusts are subject to a 10 year charge of 6% on assets in excess of nil rate band and pro rata on exit. Certain trusts established on death are not liable to these charges

Main exemptions

Business and agricultural relief
Interest held for more than 2 years in a business, farm or shares in qualifying unlisted companies and let farmland held for more than 7 years - 100%

Assets used by qualifying company or business, or controlling holding in listed company - 50%

Payment date
6 months after death/chargeable transfer, or for lifetime gifts made 06/04 to 30/09, due 30/04 in next year.

TRUSTS - INCOME TAX RATES 2008/2009 (2007/2008)

Trusts where settlor or spouse/civil partner retains interest taxed as settlor's income

Trusts for the vulnerable - subject to election taxed as beneficiary's income

CORPORATION TAX
Year to 31 March

• Companies chargeable gains included in profits chargeable to corporation tax. Indexation relief continues to apply

• Large companies are entitled to a tax deduction equivalent to 125%* of their actual expenditure on qualifying R&D. Other businesses 150%*
* To be amended to 130% and 175% respectively subject to EU approval

CAPITAL ALLOWANCES

• Plant and machinery - 20% (reducing balance)
If working life of 25 years or more - 10% (reducing balance)
Fixtures integral to buildings - 10% (reducing balance)
Annual investment allowance £50,000 per annum (excluding cars)

• 100 % for: restoring flats over pre-1980 shops; designated energy saving plant and machinery; scientific research; commercial buildings in enterprise zones; energy efficient technologies and low emission cars; renovation of business premises in disadvantaged areas; natural gas, biogas and hydrogen refuelling equipment

• Acquisition of intangibles (goodwill, intellectual property, etc) allowances in line with accounting depreciation (min 5% p.a.)

• Cars (maximum £3,000 p.a. per car) - 20% (reducing balance)

• NB: Where the original market value of a leased car exceeds £12,000, tax relief is restricted in respect of lease charges paid

VAT

If annual turnover less than:

£67,000 from 01/04/2008 - registration not necessary
£65,000 from 01/04/2008 - deregistration possible
£1,350,000 - eligible to use Cash Accounting scheme
£1,350,000 - eligible to use Annual Accounting scheme
£150,000 - eligible to use Flat Rate scheme

Car fuel scales (where private fuel provided)

24 bands based on CO2 emissions
(www.hmrc.gov.uk/budget2008/master-notes.pdf - P181 for full detail of bands)
VAT for 3 month period between £20.55 and £71.94
VAT for 1 month period between £6.85 and £23.98

Errors on VAT Returns

From July 2008 voluntary disclosure limit increased from £2,000 to the greater of £10,000 or 1% of VAT turnover subject to a maximum of £50,000

STAMP DUTY AND STAMP DUTY LAND TAX

Exempt: All assets other than land and property, shares and interests in partnerships

Shares and securities: 0% up to £1,000
0.5% above £1,000

From 1 Oct 2007 to 30 Sept 2012 no charge on Zero Rated Carbon Emission homes up to £500,000. Above £500,000 the charge will be reduced by £15,000.

New leases
Rate Net Present Value of rent

Special rules apply to shared equity schemes

BENEFITS IN KIND

General rule
• Amount assessable is cost (including VAT) to employer

Exemptions
• Employee relocation expenses up to £8,000
• Incidental expenses of business trips per night up to £5 in the UK / £10 outside the UK
• Staff parties not exceeding £150 per employee p.a.
• One mobile phone per employee
• Benefit of occupying overseas holiday home owned by single purpose company

Loans
• Less than £5,001: no benefit
• Over £5,000: taxable on deemed interest at 'official rate'
• Special rules apply for some foreign currency loans

Living accommodation
• Greater of rateable value or rent paid by employer
• For accommodation where cost to employer was over £75,000, rateable value plus 'official rate' on excess of cost to employer over £75,000

'Official rate'
• With effect from 06/04/2007 - 6.25%

Private use of company car: scale benefits
• Benefit based on 10% to 35% of list price, dependant on CO2 emissions
• Supplement of 3% for most diesel cars, subject to a maximum charge of 35%
• No adjustment for business mileage or additional cars
• Cars without an approved figure of CO2 emissions will be taxed according to their engine size
• Special rules apply to LPG, electric and dual fuel cars, cars over 15 years old at the end of the tax year and to the value of accessories

Car fuel benefit - 2008/2009 (2007/2008)
The fuel benefit is a percentage of £16,900 (£14,400). The percentage is the same as used for the company car benefit

Private use of company vans
Vans available for private use: taxable benefit = £3,000. Further charge of £500 for private use of fuel

TAX FREE MILEAGE RATES

EMPLOYEE SHARE INCENTIVES

Share incentive plan - up to £3,000 of free shares p.a. plus further 2 shares for each share bought by employee (maximum free shares £6,000 p.a.). Open to all employees on similar terms. No tax or NI charges on grant or exercise if retained in plan 5 years. Increase in value after withdrawal from plan charged to CGT.

Enterprise management incentives - increases to £120,000 from 6 April 2008 (previously £100,000) of share options offered per employee. Maximum £3m per company. No tax or NI on grant or exercise unless granted at undervalue. Increase in value on disposal chargeable to CGT.

Other approved share incentive schemes also exist

Unapproved share option schemes - no limit, full discretion over qualifying employees. No tax or NI on grant of options lasting 10 years or less. Income tax charge on value when exercised plus (in certain circumstances) NI charge on exercise of options

PENSION CONTRIBUTION RELIEFS 2008/2009 (2007/2008)

Maximum contributions 100% of earnings to a limit of £235,000 (£225,000)

Up to £3,600 p.a. gross can be paid into pensions irrespective of earnings to age 75

Subject to any Registration of Protected pension funds, aggregate retirement benefits in excess of the Lifetime Allowance of £1.65 million may be subject to the Lifetime Allowance Charge of 55% of the surplus benefit

TAX SAVING INVESTMENTS

Subscriptions for shares in qualifying Enterprise Investment Schemes (EIS) companies and Venture Capital Trust (VCT) companies:

• Income tax relief: Investment up to £500,000 in shares in EIS companies qualify for income tax relief at 20% if qualifying criteria met for 3 years. Half of any investment but not more than £50,000 for investments between 06/04/08 and 05/10/08 can be carried back to give relief in 2007/08

• Income tax relief on investment of up to £200,000 on VCT companies qualify for income tax relief at 30% if qualifying criteria met for 5 years

• Capital gains exemption: Gains on disposals of EIS and VCT shares are exempt from tax if qualifying criteria met for 3 years

• CGT deferral: Gains on other assets may be deferred (and reinstated on the subsequent disposal of the EIS/VCT shares) if reinvested into qualifying EIS companies, or (if before 06/04/2004), a maximum of £100,000 p.a. into VCT shares

INDIVIDUAL SAVINGS ACCOUNTS (ISAs)

For individuals aged 18 or over

Annual ISA allowance is £7,200. Up to £3,600 of the allowance can be saved in cash with one ISA provider. The remainder of the £7,200 can be invested in stocks and shares with either the same or a different ISA provider

Individuals aged 16/17
Cash ISA only; maximum investment £3,600

Levels and bases of, and reliefs from, taxation are subject to change.