Budget 2009: What it means for taxes

After the initial discussion of the headline-grabbing measures announced in the Budget, there is usually a period of reflection during which the wider impact of some of the tax changes is considered. Among the “headline grabbers” this year were such items as the limited extension of stamp duty relief for properties under £175,000 for a further four months until 31 December 2009 and the expected confirmation that the proposed changes to land remediation relief will be included in the Finance Act.

It is likely that this year will be no different, and this article highlights some of the tax changes buried in the detail of the Budget which are likely to be recurring themes over the next 12 months.

First-year allowances

The main fillip for business investment in financial terms is the introduction of a new first-year capital allowance (FYA) at a rate of 40% for expenditure incurred during this financial year (beginning 1 April 2009 for companies and 6 April 2009 for everyone else). The government predicts that this incentive will cost the exchequer £1.6bn over the next 12 months which, if correct, makes it the largest single giveaway by the government in the Budget. There is no doubt that this will be a significant incentive to invest in plant and machinery for those who can find the funding and have sufficient profits to use the allowances. However, there are indications to suggest that this incentive will not be as readily available as may first appear.

First, the FYA will not be available for expenditure that does not fall within the main 20% capital allowances pool. This means that long-life asset expenditure will not qualify for the first year allowances and will continue to attract allowances at 10%. Expenditure on integral fixtures will also not qualify for the enhanced relief. On this basis, the main building projects that are likely to benefit from this measure are projects that are sufficiently advanced by April 2010 to acquire items for fit-out.

The FYA will not be available for assets that are acquired for leasing, so it is unlikely that there will be a lease finance solution to obtaining the benefit of the FYA.

Landfill tax amendment and consultation

A recent Court of Appeal decision held that landfill tax did not apply where the material being sent to landfill was actually used within the landfill site itself. As well as raising the rate of landfill tax from £40 per tonne to £48 per tonne from 1 April 2010, the government has announced measures that will appear in the Finance Act to restrict the scope of this court decision so that landfill tax will continue to apply in the majority of circumstances. The government has also announced a full-blown consultation on the way in which landfill tax works with a view to overhauling the tax in 2010. Comments are invited on this consultation by interested parties by 24 July 2009.

Tax collection and compliance

One feature of the Budget that will apply to all businesses is the increased focus of HM Revenue & Customs on tax collection and compliance. This arises partly as the ongoing project to merge the functions of the former Inland Revenue and what was Customs & Excise so that, for example, late payment faces the same interest rate regardless of which tax is paid late. This is generally to be welcomed as it should reduce compliance burdens once the system is simplified across all taxes.

However, there are other compliance measures that have been announced as part of HMRC's ongoing quest to collect tax as efficiently as possible. Some of them have scant detail, such as the one line announcement of a consultation to find a long-term solution to the issue of false self-employment status. It is not entirely clear what industry sectors this review will look at in particular, but it seems likely that it may have consequences for subcontractors.

The main point that is likely to cause concern is the announcement that all large companies will be obliged to appoint and notify HMRC of the identity of its “senior accounting officer” (SAO). The definition of “large company” in this context is likely to extend to any company that does not traditionally fall into the small or medium enterprise bracket for other tax purposes.

The SAO will be personally responsible for ensuring and certifying that the accounting systems in place in the company are adequate for the purposes of accurately calculating the UK tax due. The company and the SAO personally can become liable for penalties where there is a careless or deliberate failure to comply with the obligation.

It remains to be seen what the final scope of this rule will be, but it marks the increasing desire of HMRC to put pressure on companies and particular individuals to assist them with collecting the tax due at a time when the increasing complexity of the tax system makes it difficult for long standing tax practitioners to work out the tax due.