Pre Budget Report 2009 - Business Tax

Bank payroll tax

As widely predicted, the Chancellor announced a special charge on bankers' bonuses. It appears likely to be a very complicated rule that will be hard to apply in practice, and perhaps the clearest thing about it is that it is charged on the employing bank or building society rather than on the individual employee. It is supposed to be levied at 50% on a bonus awarded from the moment the announcement was made on 9 December 2009 up to 5 April 2010, to the extent that the bonus exceeds £25,000. Unlike employer's NIC, the "bank payroll tax" will not be an allowable expense for the company's corporation tax.

The extra charge does not apply to basic salary or to bonuses which were a contractual entitlement before the announcement was made. At first sight, it would seem relatively easy for the bank to avoid the charge by delaying awarding the bonus until after 5 April, or by consolidating it with salary. It remains to be seen how effectively HMRC can police this headline-grabbing but controversial measure.

Capital allowances
Cars with an emissions rating below 110g/km already enjoy a 100% first year allowance for deduction against profits. From 6 April 2010 (1 April for companies) this will be extended to purchases of electric vans, provided European rules on State Aid are satisfied.  

Research and development

Companies enjoy an additional tax relief if they spend money on qualifying research and development activities. "Small and medium enterprises" (up to 500 employees, turnover up to €100m and balance sheet total up to €86m) can deduct 175% of R&D expenditure in computing their corporation tax profits, which at the main CT rate of 28% represents a subsidy of 21p for £1 of expenditure.

Until now, it has been a condition that the company claiming the deduction has had to have legal ownership of any intellectual property arising from the R&D work. This condition is removed for expenditure incurred in an accounting period ending on or after 9 December 2009. This means that the benefit could be enjoyed retrospectively - it will apply to the whole of an accounting year to 31 December 2009, even though the rule change has only just been announced.

Time to pay

The Business Payment Support Service was introduced in the 2008 PBR a year ago to help businesses defer payments of tax, PAYE and VAT in order to keep them going through the recession. This year's PBR states that 160,000 businesses have been allowed to postpone payment of £4bn of tax, of which more than £3bn has been collected. This year's PBR confirms that the service will continue to be operated by HMRC until further notice.

It is important to contact the BPSS before the tax liability becomes due and to agree a realistic payment schedule that must be adhered to. The BPSS may ask to see the business accounts and may object to deferral of tax if it appears that the owners or directors of the business are taking large amounts out in salary or dividends.

Empty property rates relief

The Government will extend the temporary increase in the threshold for business rates empty property relief for a further year, and will increase the value to which the relief applies. For 2010/11 empty commercial properties with a rateable value of up to £18,000 (2009/10: £15,000) will be exempt from business rates.