Changes at a glance
- Those earning up to £40,000 a year will have an extra £116.60 a year from April 6, 2009.
- Prices in shops tipped to fall about 2 per cent from December 1 due to VAT cut.
- Limited companies face changes in paperwork, but the tax hike has been deferred
More cash for you
Most UK workers will have more cash to go around thanks to the tax cuts announced on November, 24, 2008.
With a recession looming, the UK Government wants people to start spending to boost the economy. Income tax will fall from April 6 and the rate of Value Added Tax (VAT) imposed on goods and services has been reduced from 17.5 per cent to 15 per cent.
AJ Halgryn, accounting manager of 1st Contact, says most workers would get the tax relief automatically next April.
However, workers who ‘contract out’ their services using a limited company will need to reduce the amount of VAT they put on the bill to their client/employer to 15 per cent, Halgryn says.
For contractors who are registered to pay a flat rate of VAT, the fall in VAT will reduce the benefit of this registration by 0.5–1 per cent a year.
The planned rise in the rate of corporation tax for small companies (those earning under £300,000 a year) from 21 to 22 per cent has been deferred from April 1, 2009 to April 1, 2010.
Plans to change arrangements for couples who use a limited company to split their incomes, and for a crackdown on expense claims by contractors using ‘umbrella companies’ have also been deferred.
Taxes will rise in 2010–11 to pay for the changes. VAT will go back to 17.5 per cent; tax will increase on incomes of more than £100,000 a year; and National Insurance contributions will rise by 0.5 per cent.