By Emma Tyrrell, 14/04/2009 00:00

How and when the Budget becomes law

After chancellor Alistair Darling stands up at the despatch box and reveals what treats and nasty little surprises lie lurking within his red Budget box, is there anything we can do to stop them?

Some changes take effect almost as soon as he sits down again, but others might still be days, weeks, months, or even years away.

Stop me if you've heard this before
Chancellors often like to announce tax changes several Budgets in advance, which obviously helps employers and tax professionals plan ahead, but also allows the government to trumpet any good news many times over.

Gordon Brown in his 10 years in the job proved particularly fond of this, spouting on about income tax cuts, child benefit and tax credits planned for one or two tax years down the line.

Back in the 2007 Budget, the headline-grabbing cut in the basic income tax rate from 22% to 20%, took effect in April 2008- more than a year later.

This means it's difficult for the average taxpayer to figure out just when Budget announcements are going to have an impact on his wallet.

What should be in this year's Budget?

Jam tomorrow, spam today
When tax-cutting measures are announced early, it is a good idea to look out for any replacement tax rises which may arrive sooner.

Brown's 1999 Budget, for example, scrapped married couple's allowance but promised a new children's tax credit would be introduced. But while the married couple's allowance was lost in April 2000, families had to wait another year to get the tax credit.

From 6pm tonight
If the chancellor decides to slap another few pence on cigarette duty, the effect is almost immediate.

Such increases usually take effect from 6pm on Budget day.

Hikes in the duty on beer or wine, however, usually take effect at midnight on the Sunday following the Budget.

The temporary tax
Although we have paid it, on and off, since 1799, we persist with the polite fiction that income tax is a "temporary tax".

In fact, although it has now been with us for centuries, income tax must be renewed through the finance bill each year. This has to receive Royal Assent by August 5, or income tax lapses.

In that unthinkable event, the government would have to pay back all income tax taken between April 6 and August 5 that year.

Personal income tax bands and allowances rise at the start of each tax year on April 6. If there are changes to the tax rates, they too occur at this point.

The bands and allowances are a different matter. Because the lower income tax and National Insurance thresholds are now harmonised, the chancellor needs to give employers time to make changes to their payroll software. As a result, personal income tax allowances and bands tend to be announced in the previous autumn's pre-Budget report.

No taxation without representation
You may be wondering how the government can bring in changes with effect from the start of a tax year, which only become law in the finance bill a few months later.

In fact, certain tax proposals in the chancellor's speech can come into effect immediately, as a result of the Provisional Collection of Taxes Act.

This allows changes to taxes, or - in the case of income tax - continuation of taxes, to be validated by a single motion taken immediately after the Budget speech, giving the authorities temporary powers to collect revenues until the Finance Act for the year is passed.

In addition MPs must pass the individual resolutions on each tax and duty within 10 "sitting" days of the Budget, followed by a second resolution within another 30 days.

While income tax (like corporation tax - another temporary tax) might lapse if the Finance Act wasn't passed, other taxes such as VAT, stamp duty and duties on petrol, alcohol and tobacco, are permanent. Without a Finance Act the government would still be able to collect them, at the previous year's rates.

Does that mean it's too late to change unpopular Budget proposals?
No. Before it gets Royal Assent, the finance bill has to go through three readings in the House of Commons, with committee stages in between, during which amendments - often hundreds of them - can be proposed and debated.

The Lords get one day to look at and debate the Bill, but are not allowed to vote on it.

Some Budget proposals only make it to the statute books after years of wrangling and numerous rounds of consultation. Ill-thought through plans may be altered to tighten a loophole, or relaxed to benefit unintended victims.

Other Budget proposals may make it through numerous consultation rounds, only to be scrapped later.

In the 2003 pre-Budget report Brown announced that as part of pensions simplification plans, investors would be able to hold residential properties, among other investments, within a personal pensions.

This sparked huge interest in self-invested personal pensions (Sipps), which would have offered the easiest access to such investments. But the plan was scrapped at the eleventh hour, when the Treasury belatedly realised that its popularity would cost it billions of pounds in lost revenue from buy-to-let investors.