• Overview

  In less than sixty minutes Chancellor Darling delivered his second Budget. He introduced this as a Budget to help the United Kingdom through a global recession, get people back to work, keep people in work, invest in the key public services and rebuild financial services. He drew a parallel with the 1930s when he commented that too little was done too late and the same mistake would not be repeated. 
   
  Perhaps the biggest surprise (apart from additional measures to tax the rich) was that there were few surprises. Much of what he said had already been predicted and had been mentioned in the Pre Budget report. A great deal was said about the economy and that there were no quick fixes or overnight solutions. In many areas however, the initial reaction was, in the words of David Cameron, “a missed opportunity”. This was a Budget that could quite easily have come from any point of the past 12 years.
   
  The Chancellor has introduced certain measures to help business, for example, doubling the capital allowances on plant and machinery but more could have been done. He has committed to keeping people in work or finding jobs or training for the unemployed. It is pleasing to hear that help is going to be given to the under 25s who are out of work which should ensure that potential brains of the future are not lost. 
   
  High earners (approximately 2% of the working population) will be badly hit in three ways – 50% income tax for earners over £150,000, the loss of personal allowances for those earning £100,000 and the removal of higher rate relief for pension contributions, again for those earning over £150,000 a year – over the next two or three years. It is estimated that if these measures do come to fruition that it will bring in an additional £7bn a year in income tax. 
   
  The property sector and the motor industry were both looking for incentives to help kick start their respective industries and whilst not wholly tax related, there was some incentive for people to scrap their old bangers but a limited opportunity in which to do so.
   
  In the property sector, extra financial support has been promised to help developers continue with their ‘fallow’ developments and ensure that completed properties are sold. 
   
  The Chancellor recognises that the UK is a leader in various sectors such as advanced manufacturing, bio-techs, research and development and scientific arenas. To maintain our position at the forefront of these sectors he has set aside £750m in an investment fund. 
   
  The Chancellor called this a Budget to offer hope and assistance whilst maintaining fairness and opportunity but regrettably there was not very much of substance. Lessons have been learned from history in that to beat a recession, the money supply has to keep working.  Whether or not this Budget will do that remains to be seen and for many this was a disappointing Budget. Unlike the 1930s, we now play in a global market. It is also worth noting that before many of the measures mentioned today come into play, there will be another Pre-Budget report and Budget 2010.

   

• Companies listed

  There is little to encourage liquidity and new investment in listed companies. The Chancellor has missed the opportunity to stimulate equity investment in early stage growing companies and in most companies on AIM. While there is a full carryback of an individual’s investment in the EIS to the prior year, the changes otherwise remove a few anomalous issues and do not increase either the allowed level of investment in individual companies or the size of eligible companies that may benefit under the schemes.
  
  Increased VAT administrative burden
  A significant overhaul of the place of supply measures announced by Europe means extra form-filling for certain suppliers.
  
  Capital allowances – temporary first year allowance
  The Budget proposes the introduction of a temporary first year allowance for all businesses at a rate of 40% on qualifying capital spend incurred in the one-year period from April 2009. This will be in addition to the Annual Investment Allowance, which is a 100% allowance that was introduced from April 2008.
  
  Taxation of foreign profits reform
  The significant reforms proposed in the 2008 Pre-Budget Report are being introduced. In summary: 1) Dividends and other distributions from foreign companies will largely be exempt from 1 July 2009; 2) A worldwide debt cap is being introduced to restrict tax relief on interest, for large groups, for accounting periods beginning on or after 1 January 2010; 3) Consequential changes to the Controlled Foreign Company (CFC) legislation are being made.
  
  Penalty regime for late PAYE and NIC
  With effect from April 2010, all employers will face additional risks of penalties and interest if they make late monthly payments of PAYE and NIC.

  Return to 17.5% VAT rate confirmed  
  The Chancellor has today reiterated the announcement he made in the PBR that the standard rate of VAT would return to 17.5% from 1 January 2010.
  
  VAT rules change for overseas suppliers
  A fundamental change to the place of supply rules has been approved by Europe. The change will mean that the basic place of supply for supplies to overseas businesses will be the place where the customer is established. The change will take place from 1 January 2010.
  
  Group relief and preference shares
  Legislation to be introduced regarding issuing particular types of shares.
  
  Connected company interest payable
  New rules on the tax deductibility of ‘late paid’ interest between connected companies were announced in the Budget. These are to replace the existing rules which were largely suspended for payments between connected companies in July 2008 when HMRC acknowledged that the ‘late paid rule’ may have contravened EC Treaty freedoms.

  Connected party trade debts  
  The Budget proposes to correct a mismatch in the legislation whereby a connected company writing off a trade or property business debt owing by a connected company would not obtain a tax deduction for the write off whereas the connected company benefiting from the release would be taxable on the release.
  
  Capital allowances for cars
  Changes to be introduced to the restriction on the tax deduction available for leased cars
  
  Personal accountability of senior accounting officers  
  Senior accounting officers of large companies may wish they had remained junior if they are hit by new rules announced in the Budget, which could result in personal liabilities for penalties.
  
  Minor change to negligible value claims
  A simplification is being introduced to assist groups of companies.
  
  Tax-efficient provision of employee accommodation curtailed
  HMRC has announced that legislation will be enacted to stop, with effect from budget day, avoidance of income tax through the provision of accommodation to employees through so-called ‘lease premium’ arrangements. These arrangements have been particularly popular with employers of inbound expatriate employees whose stay in the UK is to be longer than 2 years.
  
  Loss carry back rules extended
  The Budget proposes that the carry back of trading losses to relieve prior period profits and gains is to be extended from a one year carry-back to the three preceding years for a limited period. The loss which may be carried back to the preceding 12 months is unlimited whereas the loss carry-back to earlier periods is to be limited to £50,000. The 2008 PBR in November 2008 announced that this would be introduced for accounting periods ending in the one year period to 23 November 2009. The Budget proposes that this is extended to allow a carry back to be made for accounting periods ending in the two year period to 23 November 2010.

• Companies non-listed

  If this was meant to be a budget to help small companies, the Chancellor has missed by a mile. Whilst the increase in capital allowances and the enhanced loss carryback provisions are undoubtedly helpful, there is very little else to encourage the two million unlisted companies that form the backbone of the UK economy.

  Increased VAT administrative burden
  A significant overhaul of the place of supply measures announced by Europe means extra form-filling for certain suppliers.
  
  Deferral of tax payments
  The Pre-Budget Report announced the introduction of the Business Payment Support Service, which enabled businesses that are struggling to make their tax payments to come to an agreement with HMRC that will allow them to spread their payments.
  
  Taxation of foreign profits reform
  The significant reforms proposed in the 2008 Pre-Budget Report are being introduced. In summary: 1) Dividends and other distributions from foreign companies will largely be exempt from 1 July 2009; 2) A worldwide debt cap is being introduced to restrict tax relief on interest, for large groups, for accounting periods beginning on or after 1 January 2010; 3) Consequential changes to the Controlled Foreign Company (CFC) legislation are being made.
  
  EIS carry back relief restrictions being lifted
  EIS carry back relief restrictions are being lifted. This means that the total investment, made at any time within the tax year, can be carried back and treated as if invested in the previous tax year.  Before now, only a maximum of £50,000 could be carried back, and then only if invested by 6 October. This relief is effective from the current tax year 2009-10.
  
  Loss carry back rules extended
  The Budget proposes that the carry back of trading losses to relieve prior period profits and gains is to be extended from a one year carry-back to the three preceding years for a limited period. The loss which may be carried back to the preceding 12 months is unlimited whereas the loss carry-back to earlier periods is to be limited to £50,000. The 2008 PBR in November 2008 announced that this would be introduced for accounting periods ending in the one year period to 23 November 2009. The Budget proposes that this is extended to allow a carry back to be made for accounting periods ending in the two year period to 23 November 2010.
  
  Penalty regime for late PAYE and NIC
  With effect from April 2010, all employers will face additional risks of penalties and interest if they make late monthly payments of PAYE and NIC.

  Return to 17.5% VAT rate confirmed  
  The Chancellor has today reiterated the announcement he made in the PBR that the standard rate of VAT would return to 17.5% from 1 January 2010.
  
  VAT rules change for overseas suppliers
  A fundamental change to the place of supply rules has been approved by Europe.  The change will mean that the basic place of supply for supplies to overseas businesses will be the place where the customer is established. The change will take place from 1 January 2010.
  
  Group relief and preference shares
  Legislation to be introduced regarding issuing particular types of shares.
  
  Connected company interest payable
  New rules on the tax deductibility of ‘late paid’ interest between connected companies were announced in the Budget. These are to replace the existing rules which were largely suspended for payments between connected companies in July 2008 when HMRC acknowledged that the ‘late paid rule’ may have contravened EC Treaty freedoms.
  
  Connected party trade debts  
  The Budget proposes to correct a mismatch in the legislation whereby a connected company writing off a trade or property business debt owing by a connected company would not obtain a tax deduction for the write off whereas the connected company benefiting from the release would be taxable on the release.
  
  Capital allowances for cars
  Changes to be introduced to the restriction on the tax deduction available for leased cars
  
  Personal accountability of senior accounting officers  
  Senior accounting officers of large companies may wish they had remained junior if they are hit by new rules announced in the Budget, which could result in personal liabilities for penalties.
  
  Minor change to negligible value claims
  A simplification is being introduced to assist groups of companies.
  
  Tax-efficient provision of employee accommodation curtailed
  HMRC has announced that legislation will be enacted to stop, with effect from budget day, avoidance of income tax through the provision of accommodation to employees through so-called ‘lease premium’ arrangements. These arrangements have been particularly popular with employers of inbound expatriate employees whose stay in the UK is to be longer than 2 years.
  
  New compliance proposals
  HMRC announced a number of measures to counter late compliance and tax evasion including a ‘name and shame’ policy for deliberate defaulters and changes to penalties for late returns, but little on the anticipated second offshore tax ‘amnesty’.

• Not for profit

  The Chancellor did little to help charities weather the recession beyond the announcement of a new £20 million hardship fund. This will help organisations working with the most vulnerable and disadvantaged in society. Given the severe shortfall in income these organisations are facing the fund will be thinly spread. The much disliked substantial donor legislation introduced in 2006 and consulted upon last year remains in place, despite the publication last July of proposed amendments. Further ‘informal’ consultation is to take place with a view to new legislation in 2010. Our view is that it should be repealed.
  
  Little help for charities
  From 23 April a substantial donor will be someone giving more than £150,000 over six years (previously £100,000).  The £25,000 limit for donations in any one year is unchanged.  Although more substantial amendments to this anti avoidance legislation were proposed last July we will now have to wait until 2010 for any significant reform.

• Pension schemes

  Since 1997, the pensions sector has been a soft target for the current government. Instead of incentives for long-term saving, it has been used as a short-term tax-raising moneybox and today's budget does nothing to encourage long-term UK pensions saving in the future.
  
  

  Top taxpayers’ pension restrictions have immediate effect
  The Chancellor announced that relief for pension contributions is to be restricted as from 6 April 2011. In itself this restriction, though unwelcome, will be easy to follow. However, the anti-forestalling provisions that apply between 22 April 2009 and 5 April 2011 are complex and potentially punitive.

• Professional practices

  The importance of professional service firms to the UK economy has been acknowledged by the publication of the Treasury’s ‘Professional Service Global Competitiveness Group’ report. The report concludes that as the UK’s largest employer with the greatest sector output, professional service firms are much more significant to the economy than previously realised. The significant increases in payable tax, which will take effect from 2010 onwards, will directly impact upon firms' Partners and employees.
  
  Increased VAT administrative burden
  A significant overhaul of the place of supply measures announced by Europe means extra form-filling for certain suppliers.
  
  New 50% top tax rate
  The Chancellor has effectively torn up his original proposal to introduce a 45% top rate in 2011. Instead the top rate will be introduced a year earlier, on 6 April 2010 and the increase over the existing top rate will be doubled as the new rate will be 50%. This also affects the rate of tax on dividends and the Tax Rate on Trusts.

  
  Top taxpayers’ pension restrictions have immediate effect
  The Chancellor announced that relief for pension contributions is to be restricted as from 6 April 2011. In itself this restriction, though unwelcome, will be easy to follow. However, the anti-forestalling provisions that apply between 22 April 2009 and 5 April 2011 are complex and potentially punitive.
  
  Capital allowances – temporary first year allowance
  The Budget proposes the introduction of a temporary first year allowance for all businesses at a rate of 40% on qualifying capital spend incurred in the one-year period from April 2009. This will be in addition to the Annual Investment Allowance, which is a 100% allowance that was introduced from April 2008.
  
  Professional practices: Penalty regime for late PAYE and NIC
  With effect from April 2010, all employers will face additional risks of penalties and interest if they make late monthly payments of PAYE and NIC.
  
  

  Return to 17.5% VAT rate confirmed  
  The Chancellor has today reiterated the announcement he made in the PBR that the standard rate of VAT would return to 17.5% from 1 January 2010.
  
  Capital allowances for cars
  Changes to be introduced to the restriction on the tax deduction available for leased cars
  
  Tax-efficient provision of employee accommodation curtailed
  HMRC has announced that legislation will be enacted to stop, with effect from budget day, avoidance of income tax through the provision of accommodation to employees through so-called ‘lease premium’ arrangements. These arrangements have been particularly popular with employers of inbound expatriate employees whose stay in the UK is to be longer than 2 years.
  
  Loss Carry Back rules extended
  The Budget proposes that the carry back of trading losses to relieve prior period profits and gains is to be extended from a one year carry-back to the three preceding years for a limited period. The loss which may be carried back to the preceding 12 months is unlimited whereas the loss carry-back to earlier periods is to be limited to £50,000. The 2008 PBR in November 2008 announced that this would be introduced for accounting periods ending in the one year period to 23 November 2009. The Budget proposes that this is extended to allow a carry back to be made for accounting periods ending in the two year period to 23 November 2010.

• Private clients

  Higher rate taxpayers expected a harsh ride on taxes in today’s budget, but the reality was worse than anyone thought. With future increases in taxes already announced last year, no one expected the rate would increase to 50% or that pension relief would be withdrawn for those earning more than £150,000. The argument is that growing businesses need encouragement, so high earners must be taxed. However, what happens if these high earners are the ones running those growing companies?
  
  Personal allowance restriction - simpler and more severe
  The Chancellor has amended his original proposal, in the Pre-Budget Report, for the basic personal allowance to be phased out in two stages: now there will be a single threshold of £100,000 above which the allowance will be phased out.
  
  New 50% top tax rate
  The Chancellor has effectively torn up his original proposal to introduce a 45% top rate in 2011. Instead the top rate will be introduced a year earlier, on 6 April 2010 and the increase over the existing top rate will be doubled as the new rate will be 50%. This also affects the rate of tax on dividends and the Tax Rate on Trusts.
  
  Top taxpayers’ pension restrictions have immediate effect
  The Chancellor announced that relief for pension contributions is to be restricted as from 6 April 2011. In itself this restriction, though unwelcome, will be easy to follow. However, the anti-forestalling provisions that apply between 22 April 2009 and 5 April 2011 are complex and potentially punitive.
  

  Furnished holiday lettings   
  The rules treating furnished holiday lettings as trading are to be abolished with effect from 2010/11.
  
  New compliance proposals
  HMRC announced a number of measures to counter late compliance and tax evasion including a ‘name and shame’ policy for deliberate defaulters and changes to penalties for late returns, but little on the anticipated second offshore tax ‘amnesty’.

• Motor

  The headline-grabber for the motor industry is the well-trailed car scrappage scheme. There will be a £2,000 subsidy for motorists replacing cars over 10 years old with a new one. Lack of detail in the scheme's operation and fears of red tape being foisted onto dealers has caused a degree of immediate concern. Other issues surround the perceived loss of significant service and maintenance income. Obviously you can’t please all of the people all of the time but we support any move which will get buyers back into showrooms and free up the manufacturers’ supply chains.
  
  VAT rules change for car leasing
  The change will introduce differing VAT treatment between long and short term hire.
  
  

  Return to 17.5% VAT rate confirmed  
  The Chancellor has today reiterated the announcement he made in the PBR that the standard rate of VAT would return to 17.5% from 1 January 2010.

  Leasing allowances get greener
  The Finance Bill will include changes to the leasing allowances which will apply to expenditure on cars from 1 April 2009 (from 6 April 2009 for non corporate businesses). It will also introduce corresponding changes to the car capital allowance rules.
  
  Capital allowances get greener
  In line with the Chancellor's green agenda to discourage high emission vehicles.

• Property

  The property sector has been at the heart of the economic maelstrom both in the UK and in the US. The linked financing structures have resulted in problems for the financial sector that have seeped into the broader economy as the quality of underlying security has been brought into focus.
  
  Impact on the market
  What does the SDLT proposal mean for the property sector?

• Retail

  Impact on the market
  Overall, some help with liquidity but little hope of increased demand or a reduced cost base. Retailers will therefore be no better off as a result of the budget. Empty high street stores are likely to remain for some time, along with the prospect of further store closures and increased levels of retail un-employment.

  Return to 17.5% VAT rate confirmed  
  The Chancellor has today reiterated the announcement he made in the PBR that the standard rate of VAT would return to 17.5% from 1 January 2010.

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