Pre Budget Report 2008 – spend now pay later?

Alistair Darling today announced some significant tax changes in an attempt to mitigate the UK’s forthcoming recession.  There were short-term tax cuts but medium-term tax increases.

Good news:

  • VAT standard rate is temporarily cut from 17.5% to 15% from 1 Dec 2008 to 31 Dec 2009
  • Tax bills can be paid by instalments if businesses are experiencing cash flow problems
  • Small company tax rate has been held at 21% until 1 April 2010 when it is scheduled to increase to 22%
  • Businesses making losses in 2008/09 can offset them against profits of the previous 3 years subject to a £50k limit
  • Personal allowance (the tax free income threshold) is to be increased to £6,475 and the basic rate income tax limit increased to £37,400 from 6 Apr 2009
  • Income shifting legislation for husband and wife companies to be deferred another 12 months

Bad news:

  • The VAT flate rate percentages have typically been reduced by only 1% or 1.5% so these businesses may lose out
  • National Insurance will be increased by 0.5% for the self employed, employees and employers from 6 April 2011
  • Top rate of income tax to increase to 45% from 6 April 2011 if you earn in excess of £150k pa
  • Personal allowance to be reduced from 6 April 2010 for those earning in excess of £100k pa

Further details of rates can be found at the HMRC website: http://www.hm-treasury.gov.uk/prebud_pbr08_press02.htm

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