The overall theme of this year’s UK Pre-Budget Report, announced on 9 December 2009, is pretty much in line with what the Chancellor announced in his 2009 UK Budget, with the budget deficit predicted to reach just under £180 billion and the UK economy contracting in 2009 by, a worse than previously estimated, 4.75%.

However, the speculation of drastic tax rises and public spending cuts did not materialise. There was no increase in the rate of capital gains tax, which remains at 18%.

There was no increase in VAT and more importantly, no other announcements regarding changes to VAT (the standard rate of VAT IS returning to 17.5% on 1 January 2010 following the ending of the VAT holiday).

There were no further increases in the rates of income tax, with the top rate of income tax still increasing to 50% from 6 April 2010 but of course, it is not possible to completely “get away with it”.

There will be an increase of 1% in National Insurance Contributions, both employer and employee, from 6 April 2011. This is twice the increase announced in 2008.

There has also been a tightening to the pension restrictions commencing in April 2010, a freezing of the inheritance tax threshold and income tax allowances, and hikes in the company car and fuel benefits.

One of the correct predictions was that the UK Government were going to tackle banks to ensure that the sector’s future development was sustainable.

Although there was no bank windfall tax announced, the much anticipated, headline grabbing “bank payroll tax” has been introduced for a limited time (although it can be extended).

Under this, bonuses paid in excess of £25,000, from 9 December 2009 to 5 April 2010, by banks and building societies will be subject to a charge levied at 50%.

This is payable by the employer and is not tax deductible. In addition, the employee will continue to pay income tax and National Insurance Contributions on the bonus.

It is likely to harm the UK’s competitive edge as an international financial centre and indeed any tax raised by this measure may be outweighed by those financial businesses and employees moving to more attractive locations.

It is rumoured that banks are already considering ways to avoid the new payroll tax but significant anti-avoidance provisions have been included in the announcement.

Indeed, further anti-avoidance measures and harsher penalties are being planned through a consultation document on the strengthening and enhancement of the disclosure regime for tax avoidance schemes.

More importantly for those with international interests are the new measures being introduced to tackle offshore tax evasion.

Although the UK tax authorities receive substantial data on bank accounts both in the UK and from other EU countries, there is a view that UK taxpayers are failing to declare these accounts, together with the income and gains arising.

The UK tax authorities have even given people the chance to disclose under firstly, the Offshore Disclosure Facility (in 2007) and then current New Disclosure Facility (see our newsflash of 2 December 2009).

The UK Government has, therefore, announced a new notification requirement for offshore bank accounts held by individuals in certain high risk jurisdictions, which do not have adequate arrangements for the exchange of information, supported by a separate penalty regime.

Under these proposals evading tax offshore could result in combined penalties of up to 200% of the unpaid tax.

A consultation document has been issued for the implementation of these measures, together with the potential for reforming the information requirements for other offshore financial structures e.g. non-UK resident trusts.

The consultation period finishes on 3 March and we will provide full details once further information is available.

Finally, one other point worth a mention is that preliminary discussions will commence regarding the taxation of foreign branch profits.

If implemented, and there is no guarantee of that, it may result in the move to an exemption regime for these profits, which could assist UK companies with overseas branches. Again, we will provide further information once this is available.

In conclusion, it is not surprising that no major measures were announced in the PBR given next year’s General Election so perhaps the UK taxpayers did get off lightly.

Then again, perhaps these are still to come and speculation is likely to continue in the coming months.