Dec 09 Chancellor’s Pre-Budget Announcement Summary

Following the Pre-Budget announcement from the chancellor Alistair Darling, there have been some changes to the position of Tax and National Insurance Contributions for employees and employers and changes to the Employment Income Manual (EIM).

We have summarised the key points that may impact you.

Key Points

1. VAT will revert back to 17.5% from the current amount of 15% from 1 January 2010

All schemes that are effective from 1 January 2010 should be based on the 17.5% VAT rate, this will mean employees and employers will have to pay the full VAT amount on affected benefits. Some of the schemes that this applies to are Drive AT WORK™, Cycles AT WORK™, Computers AT WORK™, Cinema Tickets and Retail Vouchers.

2. Childcare Vouchers tax relief to be capped to 20% for all employees from April 2011

The government have announced that they will not be scrapping the salary sacrifice Tax and National Insurance Contribution (NIC) efficient childcare vouchers scheme, as first proposed earlier in 2009 at the Labour Party conference. Although the announcement means Childcare vouchers will still be available, there are some subtle changes, which will take effect from April 2011.

Some key changes

• Tax relief will only be available at 20% for employers who offer the scheme to all employees. Employers who do not offer the scheme to all employees within the company will not benefit from any Tax and NIC saving.
• All employees regardless of their tax band (higher rate or lower rate) will all only save 20% Income Tax, the NIC position has not been clarified at present.
• Employees will only be able to save up to £903 per year based on sacrificing £243 per month.

3. NIC will increase by 0.5% from April 2011

Chancellor Alistair Darling announced that he intends to increase all employer, employee and self-employed rates of NIC by a further 0.5% from April 2011. This is in addition to the 0.5% increase announced in 2008, which will also come into effect in 2011.

This will mean lower rate NIC rate will be 12% and higher rate limit will be 2%, the starting point from which this is payable will also be raised. Any employee earning under £20,000 will not be expected to pay any more NIC.

Employers will also see Employers Class 1, 1A and 1B NIC’s increase from 12.8% to 13.8% from 6 April 2011.

4. Government backs greener fleets*

Chancellor Alistair Darling has announced plans to increase the number of electric cars on the streets by exempting them from company car tax for five years. He also announced a 100% first year capital allowance for electric vans.

Darling said the plans were a key component of the government’s growth strategy of investing to keep goods and people moving.
In the Budget earlier this year the government said that in 2012 it intends to remove the 10% category for cars emitting 120g of CO2 per kilometre or less and instead extend the system of bands so that they increase by a percentage point with every 5g CO2 per kilometre increase in emissions, from 10%.

Darling announced that from April 2012 the 20% rate will apply to cars that emit 99g less CO2 per kilometre to ensure the bands continue to reflect advances in fuel efficiency.

Sources: *employeebenefits.co.uk, BDO and BBC website. Back