2008 Budget Summary

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Income tax rates and thresholds

The following tax rate changes are effective from 6 April 2008:

• the 10% starting rate is removed
• the 22% basic rate is reduced to 20%
• the over-65 age related tax allowances increase by £1,180 above indexation

The thresholds from which the rates apply are confirmed as:

NICs rates and thresholds

There are no changes to NICs rates from 6 April 2008.

The NICs upper earnings limit increases by £75 per week above indexation, as the first stage towards aligning it with the level at which the higher rate of tax becomes payable.

From April 2009, the aligned upper tax and NICs threshold will be increased by £800 a year above indexation.

Enterprise Management Incentive Scheme

With effect from 6 April 2008, the individual option grant limit for Enterprise Management Incentives (EMIs) is increased from £100,000 to £120,000. Measures will also be introduced in the Finance Bill to bring EMIs in line with the EU state aids rules by providing that firms with more than 249 employees, and those involved in shipbuilding and in coal and steel production, will no longer be able to issue qualifying EMI options.

Cars and vans

From April 2009, the existing capital allowance treatment for business cars will be replaced by an approach based on each vehicles CO2 emission ratings.

Vehicle Excise Duty (VED) is to be reformed between 2009 and 2011 to provide financial incentives for choosing lower emission cars. For example, from 2010 the zero rate of VED during first year of ownership will be extended to all new cars with CO2 emission ratings of 130g/km or less, whereas the first year VED rate for cars with emission ratings of 255 g/km or more will increase to £950.

A VED incentive will be introduced with effect from 1 January 2009 to encourage early take-up of Euro V technology diesel vans ahead of mandatory introduction in 2011. The incentive will remain for the lifetime of the vans.

Provisions will be included in the Finance Bill to ensure that the van fuel benefit legislation mirrors that for company cars.

With effect from 6 April 2010, the lower threshold for the 15% company car tax band will be lowered from a CO2 emission rating of 135g to 130g/km.

From 6 April 2008, the car fuel benefit charge multiplier is increased from £14,400 to £16,900. From April 2009, the multiplier will be increased each year in line with price inflation.

No changes are being made to the rates and thresholds for mileage allowance payments (MAPs) for 2008/09. The tax and NICs treatment of MAPs may be aligned when payrolling of benefits is introduced.

Childcare vouchers

There is no change for 2008/09 to the £55 per week exemption for the provision of childcare vouchers or employer-contracted childcare.

Disclosure of tax avoidance schemes

Measures are to be included in the Finance Bill to improve the existing system of identifying users of disclosed tax avoidance schemes to ensure that they are all supplied with the Scheme Reference Number issued to the promoter who has disclosed it.

Tax avoidance schemes

Retrospective measures will be included in the Finance Bill to

• clarify the legislation relating to employment-related shares and securities to ensure that rules to prevent double taxation are not exploited to reduce the amount of tax and NICs paid on employment income
  
  
• confirm that a company's relief on its pension contributions in a given year is limited to the actual contributions it has made in that year.

Income shifting

Proposals to restrict the transfer of income to someone else who pays tax at a lower rate will not be introduced from April 2008. There will be further consultation with a view to introducing legislation from April 2009.

HMRC's review of powers, deterrents and safeguards

Further measures to be consulted on or introduced over the coming year include

• a single framework of penalties for failing to notify a new taxable activity
  
  
• a new single approach to compliance checks and assessment of errors across all direct taxes

New provisions are to be included in the Finance Bill that allow payment of tax by credit card and repayment of one tax to be set off against the debts of another, and that align and modernise HMRC's civil debt enforcement powers.

Travel expenses for temporary workers

The Government is concerned at the growing use of structures, such as "umbrella companies" or overarching contracts of employment with employment businesses, to obtain tax relief for travel expenses that would not be available to other workers. It will monitor the use of these structures and, if necessary, consider action in the future.

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