On Thursday 1 July 2010, the Chief Minister set out the budget for the upcoming tax year commencing on 1 July. Details of the salient points are set out below:
The economy
- Gross Domestic Product grew by 8% in the year to March 2009 to £869m, following a 8.8 per cent increase in 2008, and is forecast to grow by 5% in 2009/10 to £914m. Some of the growth in the current year resulted from a change in the manner in which GDP is calculated, and so excluding this change, the growth for the year was 5.4%.
- The number of jobs in the economy fell slightly to 20,450 at October 2009 – a reduction of 59 from the previous record high of 20,509.
- Net public debt stood at £139m at 31 March 2010 (2009: £62.5m), approximately 15% of estimated GDP at that date.
- The budget surplus for last year was a record £29.7m (2009: £15.1m) representing approximately 10 per of expenditure.
- Total Government revenues of £334m were recorded for the year ended 31 March 2010 (2009: £306m) against expenditure of £304.5m (2009: £295.6m).
- £106m has been invested in capital projects for the year ended 31 March 2010, and a further £150m has been allocated for the current year.
Personal taxation
- Revenue from personal income tax rose to £115.6m, an increase of 6% from the prior year.
- For the Allowance Based system, all allowances are increased by 2.8% with effect from 1 July 2010.
- The effective tax rate has been lowered on all income bands, and no individual will pay income tax if their income is below £8,000 per year.
- The top rate of tax on the Gross Income Based system of 35% for those earning more than £100,000 is abolished. The top rate of income tax is now therefore 29%, which starts on any income over £25,000.
- In addition, the tax rate on incomes above £353,000 reduces to 20%, and falls progressively to 5% on any income over £1m. The effective rate of tax on an income of £1m is now 20%, with any excess income taxed at 5%.
- Minimum tax payable by Category Two individuals increases to £22,000 from £20,000 and the maximum amount of their income on which they pay tax increases from £70,000 to £80,000.
- The income of individuals categorised as High Executives Possessing Specialist Skills (HEPSS) that is chargeable to tax increases from £100,000 to £120,000.
Pensions
- From 1 July 2010, tax relief on contributions to Retirement Annuity Contracts and Personal Pension Schemes will be limited to the lesser of 20% of earned income or £35,000.
Social insurance
- The maximum weekly social insurance contributions for employers and self employed individuals increases by 10%.
- The maximum weekly social insurance contributions for employees rises by 6%, or £1.42 for those earning in excess of £12,000 a year.
Corporate taxation
- Revenue from corporate taxation rose to £28.5m from £25.9m in the previous year, an increase of 10%.
- Corporation tax rate of 10% with effect from 1 January 2011, with utility companies (telecommunications, electricity, water, sewage and fuel) charged at 20%.
- The Government is budgeting for a £10m reduction in corporation tax revenues from the prior year on account of the reduction in the corporation tax rate. Uncertainty exists as to how much revenue will be raised by those companies that are currently tax exempt and will be paying tax in the future.
- Draft Income Tax Act has been published, and is subject to a consultation period. The new act will be effective from 1 January 2010.
Other areas
- Commercial rates increase by 12%, and the early payment discount is halved to 5%.
- Commercial electricity tariffs rise by 10%.
- Domestic electricity tariffs increase by 5%.
- Water tariffs increase by 3.5%.
- The statutory minimum wage increases by 8% to £5.40 per hour with effect from 1 January 2011.
Contact your usual BDO contact, or christian.summerfield@bdo.gi for further information on how these changes will affect you.