In his pre-budget report today, Chancellor Alistair Darling announced a range of measures designed to kick start the economy. The main changes are as follows:
Budget changes to VAT
The standard rate of VAT will be reduced by 2.5% from 17.5% to 15% on 1 December 2008. The new rate will apply until 31 December 2009, when it will go back up to 17.5%. There are no changes to sales that currently have no VAT applied to them (such as children’s clothes, foods and book) or to the reduced rate VAT which applies to fuel bills.
The effect of the VAT change will be to reduce the cost of items where VAT is currently charged at 17.5% by £2.50 for every £100 paid.
Budget changes to Personal Tax, Child Benefit, Tax Credits and National Insurance
- Child benefit increases due in April 2009 will be brought forward to January 2009
- The personal tax allowance increases to £6475 (from £6,035) and the basic rate tax limit goes up to £37,400 from April 2009
- However, the basic personal tax allowance will be reduced for individuals with income over £100,000 from April 2010
- A new rate of tax of 45% will apply to income over £150,000 from April 2011
- Class 1 and Class 2 National Insurance Contributions will be increased by 0.5% from April 2011
Help for Savers
The Government Savings Gateway will be extended to allow up to 8 million people on low incomes to benefit from an additional 50p added to every £1 they save through the gateway scheme, available through banks and credit unions.
Help for Pensioners
Pensions credit and the basic state pension will be increased in line with the highest rate of inflation. In addition, pensioners will receive a one off payment of £60 as well as the normal £10 Christmas bonus.
Excise Duty Changes
- Duty on alcoholic drinks will be increased by 8% from Monday 1 December 2008
- Duty on tobacco products will increase by 4% from 6pm today
- Duty rates for unleaded petrol and diesel will be increased by 2p per litre on 1 December 2008. These rates will be further increased on 1 April 2009 by 1.84p per litre and on 1 April 2010 by 0.5p per litre above indexation in that year. The duty rate for leaded petrol will be increased by 2p per litre on 1 December 2008.
Changes to car tax
Some of the changes to car tax won’t now be implemented.
Business Tax Changes
- The planned increase in the Small Company Rate from 21% to 22% from 1 April 2009 has been put back until 1 April 2010.
- Businesses will be allowed to offset losses against business profits for the last three accounting years, although the amount that can be carried back under the new rules is capped at £50,000.
- There will be a package of reforms to the taxation of corporate foreign profits, including the introduction of an exemption for foreign dividends in the Finance Bill 2009.
Business Payment Support Service
The Chancellor announced that from today, HMRC have introduced a new dedicated Business Support Service designed to meet the needs of businesses affected by the current economic conditions. Specifically, small and medium sized businesses will be able to spread tax and National Insurance payments owed to HMRC.
Air Passenger Duty
Air Passenger Duty is being reformed and will move from a 2 band structure to a 4 band structure with effect from 1 November 2009. This effectively means those people travelling the furthest will pay the highest Air Passenger Duty.
The Chancellor also announced a review of depositor protection for crown dependencies (i.e. Isle of Man and Channel Islands) but stated that only those that contribute to the UK system will be supported by the UK taxpayer.
The UK is also to take lead at EU level to push reform over Icelandic banks and related issue. The Chancellor has asked Commission for its recommendations by spring 2009.
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