Welcome to the November 2009 Newsletter from Connolly Accountants & Business Advisors

Chancellor Alistair Darling will present his much-anticipated 2009 Pre-Budget Report to the House of Commons on Wednesday 9 December. The Chancellor is expected to outline his plans to aid economic recovery, as well as providing details of how the Government intends to reduce public debt.

As always, there has been plenty of speculation regarding other measures that may be included, with a possible increase in capital gains tax, further curbs on high earners, and the scrapping of childcare vouchers all featuring in recent press reports.

Meanwhile, the end of December signals the end of the temporary reduction in VAT. From midnight on 31 December, standard rate VAT will revert to 17.5%, although for some businesses trading beyond midnight the Government has announced an extension of the 15% rate until 6am on 1 January.

Business poised for Pre-Budget Report

As the Pre-Budget Report approaches, business and political groups have been keen to put forward their suggestions regarding the likely announcements.

The Chancellor will use the Pre-Budget Report to outline the Government's plans for the economy. In the current economic climate, and with a General Election looming, this year's Pre-Budget Report has particular significance. The late date of the Report could reflect the Government's hope that new data will indicate that the UK is emerging from the recession.

PBR Predictions

Some economists have suggested that key announcements could include proposals to introduce a flat rate of corporation tax, while other commentators have warned of a possible increase in capital gains tax. Plans to crack down on higher earners have also been highlighted, with some suggesting that the £150,000 threshold for the new 50% rate of income tax could be lowered.

Second home owners are also expected to be hit by the repeal of the furnished holiday letting scheme rules, with draft legislation set to be included in the Pre-Budget Report. In addition the temporary stamp duty 'holiday' is set to come to an end on 31 December, although some groups have called for a review of the regime.

An announcement on the childcare voucher scheme is also expected, with the Government facing increasing pressure to revise its plans to phase out tax relief on childcare vouchers, in favour of providing free nursery places for two-year-olds.

Under the current scheme, working parents can opt to sacrifice a proportion of their pre-tax earnings in return for childcare vouchers. The Prime Minister recently announced plans to scrap the scheme, arguing that the funds are poorly targeted. However, the proposals have been met with widespread opposition, leading to speculation that they will be revised ahead of the Pre-Budget Report.

Meanwhile, business groups have submitted a number of requests to the Chancellor, including calls for a freeze in employers' national insurance contributions, a moratorium on new business legislation until the General Election, and a scrapping of the IR35 regime and the proposed 'income shifting' rules.

Following the Pre-Budget Report, we will have coverage of all the key announcements affecting you and your business, so be sure to visit our website.

VAT reverts to 17.5%

On 31 December 2009, the temporary reduction in the standard rate of VAT is set to come to an end. The reduction from 17.5% to 15% was introduced on 1 December 2008, with the aim of boosting consumer spending during the economic downturn.

Applying the new rate

The rate of VAT that businesses charge depends on the date that goods or services are supplied. For VAT purposes this is the date that goods physically change hands (or a service is completed); or payment is received; or an invoice is issued – whichever is the earliest. The rules are modified in certain situations, including when there is a change in the standard rate of VAT.

For any sales of standard-rated goods or services that take place on or after 1 January 2010 businesses should charge VAT at the newly reinstated rate of 17.5%. This means that businesses currently calculating their VAT using the VAT fraction of 3/23 should use the new fraction of 7/47 from 1 January 2010.

Implications for retailers

For businesses such as retailers and restaurants, which principally make cash sales to customers not registered for VAT, the new rate will apply to all takings received on or after 1 January 2010, although for certain businesses including pubs, restaurants, clubs and telephone companies trading beyond midnight, the 15% rate will apply until 6am on 1 January.

The main exception to this rule will be where a customer pays for something they have taken away (or the supplier has delivered) before 1 January 2010. In this case, the sale took place before 1 January 2010 and VAT must be accounted for at the rate of 15%. Electronic tills, especially those set up to provide VAT information, will also need to be adjusted.

Planning Opportunity

Anti-forestalling legislation has been introduced to counter attempts to issue invoices or receive payments before 1 January 2010, even though delivery of goods or services is not due to take place until after 31 December 2009. This involves the imposition of a supplementary VAT charge of 2.5%. However, there are certain conditions under which the supplementary charge will not apply.

The planning opportunity arises where the supplier and customer are not connected with each other and the supplier is not funding the transaction. In these circumstances it is possible for the supplier to raise a VAT invoice up to 31 December 2009 of an amount up to £100,000 plus VAT at 15% and confirm a payment date falling within the following six months.

There are many other situations where special rules apply. Please contact us for further advice.

In early 2010, HM Revenue and Customs is also introducing the first in a series of changes to the rules on cross-border VAT. Meanwhile, from April 2010 the Government will begin the process of phasing out paper VAT returns. For further information on the forthcoming changes to the VAT regime, please visit our Hot Topics section.


30 December: Last day to file your 2009 Tax Return electronically if you wish to have a 2008/09 balancing payment of less than £2,000 collected through your 2010/11 PAYE code.

31 December: Last day for non-EC traders to reclaim recoverable UK VAT suffered in the year to 30 June 2009.

End of relevant year for taxable distance supplies to UK for VAT registration purposes.

End of relevant year for cross-border acquisitions of taxable goods in the UK for VAT registration purposes.

End of CT61 quarterly period.

Filing date for Corporation Tax Return Form CT600 for period ended 31 December 2008.

For more information on key tax dates and deadlines, visit our 2009/10 Tax Calendar.


'I can honestly say a lot of problems you hear from people who are moaning are from companies I wouldn't lend a penny to. […]The moaners are bust and they don't need the bank – they need an insolvency practitioner.'

Lord Alan Sugar, Government Enterprise Champion, whose comments at a recent business event prompted calls for his resignation by some business leaders.



Information on the childcare voucher scheme, including a handy savings calculator.


Essential business planning advice

For tips and advice on all aspects of business planning, visit the Your Business section.

The latest tax information

View the 2009/10 tax rates and allowances, plus a host of other tax information here.

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