Sally Grimwood
+44 20 7007 9761

It will cost someone earning £20k or under nothing, because of a simultaneous rise in the NIC starting rate designed to mitigate the increase for low earners. For an employee earning £50,000 a year, the change will mean an increase in National Insurance of £23.65 per month. For their employer, it will mean an increase of £429.55 per annum. See press release.

• As expected based on this morning's papers, from today there will be a special 50% levy on all bonuses in excess of £25,000 paid to bankers. (Good news for other high earners - there's a tight definition of 'banks' and 'banking business' which will protect other industries.)
  
  The interesting twist is that the levy will be collected from the banks themselves rather than the employees, and won't be deductible for corporation tax purposes. This creates an effective tax rate on the bonuses of 69.7% for the banks. The Chancellor estimates that this will raise £550 million in 2009/10. Although the Chancellor has reserved the right to extend the scheme beyond the current year, his expectation is that it will be a one-off - presumably because he expects a more restrictive approach to bonuses to be enshrined in the forthcoming Financial Services Bill. See press release and supplementary notice.

The key measures for corporates

• Hot news for small and medium enterprises involved in R&D activities - from today they can claim R&D relief at 175% even if they don't own the underlying Intellectual Property created. This is a really big deal for the right companies, especially as they can still sell the R&D losses. See press release.
• Marginally less hot news is the new patent box regime, designed to keep IP ownership onshore. Income from patents will be taxed at just 10%, which will cost the Treasury £1.3 billion per annum. Although a good idea, the slightly disappointing aspect is that it will only apply from 2013, is restricted to patents granted after Finance Bill 2011, and doesn't seem to extend to other forms of IP such as copyright and trademarks. See this statement on the Revenue website.
• As expected the consultation on Controlled Foreign Companies has been deferred into the New Year.
• And on the subject of consultations, as widely expected there's going to be consultation on foreign branches. The point here is that there is a difference in treatment if foreign branch profits are taxed when dividends from foreign subsidiaries are exempt. The reaction from different industry sectors will be varied. Some groups use foreign branches in riskier ventures as a way of ensuring some relief for any start up losses and therefore there may be winners and losers if a branch exemption system were introduced. HMRC will need to manage these conflicting interests in the consultation process. See here.
• Draft anti-avoidance legislation has now been produced for transfers of capital allowances (further to the 21 July 2009 change of law - see below). There is also specific anti-avoidance targeted at particular planning structures which may be less likely to be stumbled into by the unwary (broadly targeting a lessor migrating into the UK, where lease rental income has been substantially dealt with offshore intending to create UK deductions post migration; and conversely a lessor who has claimed capital allowances migrating from the UK so that lease rental income is not subject to UK tax).
• There are two changes that have a broader application:
  
  • Capital allowance buying: now referred to as the buying of a "relevant excess of allowances" (previously "latent allowances") the rules became effective in July 2009. Subject to a "main purpose" test, where there is a change of ownership of a company with "excess allowances" then the way in which those allowances may be used will be streamed in the acquiring group.
    
  • On a more positive note, there is a relaxation on the punitive rules that have applied since 2006 on the sale of lessor companies ( which is a test by reference to GAAP lessor accounting and can apply to entirely commercially motivated arrangements) where the lessor has a deferred tax liability. From today, leasing companies may elect for no charge to apply, in return for ringfencing the profits arising in the leasing business.

The key measures for entrepreneurial businesses

• Leaving aside the NIC increases, there are some pleasing measures for entrepreneurial businesses on the whole. For starters, the small companies rate will be held at its current level of 21% for 2010 (the increase to 22% has been deferred). See this short sentence on the Revenue website.
• The Chancellor confirmed the Business Payment Support Scheme will be extended once again. The extension is much welcomed. We can help clients to apply for deferrals under the BPSS, and also help them improve their cashflow so that they can pay their tax when the deferral ends.

The key measures for VAT and Indirect

• As pre-announced, the VAT rate will return to 17.5% from 1 January 2010. Rumours that it would go higher proved to be unfounded. Retailers will be delighted.
  

The key measures for individuals

• Pensions forestalling: the special rules introduced at Budget 2009 to prevent people earning more than £150,000 from making large additional contributions to their pensions before 6 April 2011, have been extended to those with incomes of £130,000 or over, with effect from today. Further, the restriction of higher rate tax relief being introduced from 6 April 2011, which affects individuals with a 'gross income' of £150,000 or over who save in a registered pension scheme, has also been extended. 'Gross income' already included the value of the individual's pension contributions, but now also includes any pension benefit funded by the employer on their behalf. See press release.
• The inheritance tax threshold will be frozen at the current level of £325,000 for chargeable transfers of value made on or after 6 April 2010 (it was to have been increased to £350,000). See press release.