12th MARCH 2008 BUDGET PROPOSALS
AND CHANGES FOR 2008/2009 previously announced
(Subject to details in the Finance Bill)
Ellis Atkins have taken all due care in the presentation of these notes. No responsibility for loss occasioned to any person or company acting or refraining from action as a result of any material in these notes can be accepted by Ellis Atkins, its partners or staff. Please contact us or your own professional advisor for advice specific to your circumstances.

1.1 The starting rate of 10% for earned income and pensions, but not for savings income, is being abolished from 2008/2009.

1.2 The basic rate is reduced from 22% to 20% from 2008/2009.

1.3 The higher rate remains at 40%, with the threshold increased from £34,600 to £36,000.

1.4 The tax rate for investment income (other than dividends) remains at 20%, but the 10% lower rate band is available for savings income only, up to a limit of £2,320, if not already utilised by earned income and pensions. Higher rate taxpayers will continue to be liable for an additional 20% of the grossed up income.

1.5 The tax credit on dividends remains at 10% and this is not repayable. As before, no additional tax is payable where taxable income is below the higher rate threshold. The higher rate on dividends remains at 32.5% of the grossed up income.

The age allowances abate by £1 for every £2 of income over £21,800 (formerly £20,900) until they are reduced to the basic allowances.  This level is reached at incomes from £28,990 for single persons age 65 to 74 to £37,460 for married persons age 75 and over.

1.7 Income Shifting

The Government is proposing to introduce new legislation from 2009/2010 focused on income shifting arrangements that make use of companies or partnerships to gain a tax advantage.

The purpose of the legislation will be to target arrangements where one individual does the lion’s share of the work, but another individual (typically the spouse) receives a disproportionately high distribution of the profits of the business. If the conditions of the legislation are met, then HMRC may treat the “shifted income” as income of the first individual and would not tax it as income of the second individual.

1.8 Child Tax Credit

The Child Tax Credit (CTC) is based on joint incomes.  The full child element payment is increased from £1,845 to £2,085 and is received directly from the HMRC. The income threshold, where only CTC is received and not Working Tax Credits (WTC), rises to £15,575. The income threshold for CTC family element remains at £50,000, reducing for joint incomes up to about £58,000.  The family element remains frozen at £545 per year. Further payment of up to £545 is given in the year of a child's birth, reducing for incomes up to £66,000. Claims must be made separately from Tax Returns. With effect from 6th April 2008, if income increases by more than £25,000 or personal circumstances change, then HMRC must be informed within 1 month in accordance with the notes sent with Award notices.

1.9 Car and fuel benefits

The system of car and fuel benefits based on the level of carbon dioxide emissions continues. From 2008/2009 the maximum percentage of the list price of the car, being 35%, is reached at 235 CO2 (previously 240 CO2).

A new band is to be introduced from 2008/2009 for qualifying low emissions cars (cars with CO2 emissions of 120g/km or less). Qualifying cars will be assessed at 10% of the list price for petrol cars and 13% for diesel.  

Cars manufactured to run on E85 bio fuel will receive a new 2% reduction from 2008/2009.

1.10 Van benefits.

As before, there is no benefit charge for employer provided vans that have insignificant or no private use.

The benefit charge for unrestricted private use of employer provided vans remains at £3,000, with an additional £500 if the employer provides fuel for private use as well.

1.11 Authorised Mileage Rates

The single authorised rate for all vehicles for business use of employees' own vehicles remain at:

1.12 Administration

Changes in tax due under PAYE, as a result of the alteration to the tax bands, will be effected for May 2008 for monthly payrolls.   New tax codes are to be applied from 6th April 2008.

1.13 From 2007/2008 tax returns for individuals, trusts and partnerships will have two separate filing deadline dates.  Paper returns are to be filed by 31st October and for returns filed online the date will remain at 31st January.

1.14 From 2007/08 the “enquiry window” for income tax returns will end 12 months after the filing of the return rather than the anniversary of the filing deadline.  This will also apply to Corporation tax returns for accounting periods ending after 31st March 2008.