Pre-Budget Report
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Payments on account (POA) threshold: Individuals who complete a self assessment tax return have to make direct payments to HM Revenue & Customes (HMRC) of their income tax and Class 4 national insurance contributions. The POA are made on 31 January and 31 July each year with a balancing payment for the tax year being made by 31 January following the end of the tax year. The POA are broadly made by reference to the previous year’s liability. POA are not due where more than 80 per cent of the previous year’s liability was met by tax deductions at source from income such as employment or savings.

Currently where the previous year’s liability is less than £500 no payments on account are due and the taxpayer just makes one payment on 31 January following the end of the tax year of their full liability.

From 2009-10 the £500 threshold will be doubled to £1,000. The first POA affected by this change will be those due on 31 January and 31 July 2010.

Residence and domicile

The Government has announced the completion of the residence and domicile review with a package of reforms which will take effect from April 2008. The main proposal is that UK residents who are non-domiciled, who wish to continue to be taxed on a ‘remittance basis’ rather than on their worldwide income and gains, will have to pay an annual charge of £30,000. This measure is being introduced to ensure that they contribute in respect of the foreign income and gains which they keep abroad and on which they do not pay UK tax. The charge will apply if they have been resident in the UK for more than seven years.

Other proposals include

Users of the remittance basis will lose their automatic entitlement to certain allowances, such as the personal allowance, currently £5,225, subject to a de minimis.

To ensure that when determining if an individual is resident in the UK, days of arrival and departure are counted to amend the current rules to remove flaws and anomalies that allow individuals who are assessed only on a remittance basis to sidestep UK tax where it is due on income and gains.

The Government will consult on the detail of these proposals and on a wider range of options, including an option to make those individuals who are resident in the UK for more than ten years contribute more.

Pensions

The Government proposes to extend the existing rules to prevent the abuse of pension’s tax reliefs through members surrendering rights under registered pension schemes during their lifetime or through reallocation of assets after a member’s death. The measures will have effect for surrenders made on or after 10 October 2007 and for increases in pension rights attributable to the death of a member when the member dies on or after 6 April 2008.

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