Impact of VAT rate reduction to 15%
The Chancellor has reduced the standard rate of VAT from 17½% to 15% for supplies treated as made after 1 December 2008 until 31 December 2009, after which it will revert to the current rate again. Zero rated supplies and supplies at the reduced rate of 5% are unaffected. Anti-avoidance rules will be put in place to prevent businesses artificially accelerating the time of supply any time before the end of 2009, to take advantage of the 15% rate.
If a landlord has opted to tax and has charged VAT on rents, service charges or insurance rents due on 29 September 2008 in respect of the rent quarter 29 September 2008 to 25 December 2008 then, if the tenant is unable to recover all its VAT (perhaps because it is carrying on an exempt or partially exempt business, such as a bank, building society, insurance company, educational establishment or charity), or perhaps because it is subletting and has not opted to tax itself, it may ask the landlord to issue a credit note in respect of the amounts referable to the period from 1 December to 25 December and a new VAT invoice showing VAT at 15% for the amounts attributable to that period. This will reduce the tenant’s irrecoverable input tax.
If a builder is refurbishing or constructing a building for a property owner who cannot recover all its VAT (perhaps because it is an owner occupier who is exempt or partially exempt, such as a bank or school, or perhaps because the owner has decided not to opt to tax) and the work spans 1 December, any future invoices and stage payments should be delayed until after 1 December 2008, whereupon the whole invoice (in respect of work carried out both before and after 1 December) can be invoiced at 15%.
Companies carrying on a property trade
Property trading businesses e.g. construction and companies who buy to sell properties, (including professions, but not investors) who incur a trading loss (if a company, in the accounting period ended in the period between 24 November 2008 and 23 November 2009 and, if unincorporated, in the tax year 2008-2009) can offset that loss against profits in the previous three years, taking current and later years first, instead of just one year, and reclaim the tax. However, only £50,000 of the losses can be carried back more than one year. Trading losses can also be carried forward against profits from the same trade indefinitely or group relieved.
No changes, but HMRC are consulting on identifying users of SDLT schemes disclosed by promoters, presumably by a scheme number inserted on the SDLT return, as a further deterrent.
Empty Rates Relief
For 2009-2010, empty properties with a rateable value of less than £15,000 will be exempt from business rates.
The REIT market has suffered this year with no new REITs for a considerable time due to market conditions. HMRC continues to work on reforms to improve the regime, but only announced a relatively small change to counter an aspect of tax avoidance. Owner-occupied property, including property let to another member of the group, is excluded from being part of the exempt property rental business, and anti-avoidance rules will be introduced from 1 April 2009 to ensure that this rule cannot be manipulated by splitting up activities into more than one group which are effectively under common control.
Land remediation relief and derelict land
This is a valuable relief (see Article Contaminated Land Remediation
). Where a company incurs expenditure for removing or mitigating the harmful effect of contamination, provided it has not caused the contamination itself, it can claim a corporation tax deduction equal to 150% of the expenditure. If the tax relief give rise to a loss, then the loss can be surrendered for cash.
From 1 April 2009 the relief will be extended to expenditure on remediating long term derelict land (i.e. land derelict since 1 April 1998 which was derelict when acquired by the claimant). There will also be changes to the rules applicable to Japanese knotweed. HMRC will be publishing draft guidance setting out more clearly how the revised tests for land remediation relief are to be applied.
Small Companies Tax
The rate of corporation tax for companies with profits below £300,000 was due to rise to 22% from 1 April 2009 as part of a package of phased increases. This has now been deferred to 1 April 2010 so the rate of tax remains at 21%.
From April 2010, personal allowances for individuals with gross incomes of more than £100,000 will be restricted.
From April 2010:
- a 45% income tax rate will apply on income of more than £150,000;
- a 37½% rate dividend income;
- an increase in ½% in class 1 and class 4 NICs.
These changes will further exacerbate the difference for individuals between investment (capital gains chargeable at 18%) and trading (taxable as income).