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Budget 2012

Budget 2012

The Chancellor of the Exchequer George Osborne presented his Budget for 2012 to Parliament on 21 March 2012.

Headline summaries of the main announcements which affect businesses and individuals and listed below (source HMRC website www.hmrc.gov.uk)

Income tax rates and Allowances 2012-13 and 2013-14

As announced at Budget 2011, the income tax allowance for those aged under 65 will increase by £630 in cash terms to £8,105 in 2012-13. There will be a corresponding £630 cash decrease in the basic rate limit, taking it to £34,370. The higher rate threshold, which equals the sum of the personal allowance and the basic rate limit, will therefore remain unchanged in 2012-13 at £42,475. Legislation will be in Finance Bill 2012.

For 2013-14, the main rates of income tax will be the 20% basic rate, the 40 per cent higher rate and the additional rate will be reduced from 50% in 2012/13 to 45%.

For 2013-14 the personal allowance for those aged under 65 will be set at £9,205 and the basic rate limit at £32,245.

The Class 1 Upper Earnings Limit and the Class 4 Upper Profits

Limit for National Insurance contributions will be aligned with the point at which the higher rate tax becomes payable (£41,450).

From 2013-14, the age-related personal allowances will not be increased and their availability will be restricted to people born on or before:

  • 5 April 1948 for the allowance worth £10,500; and
  • 5 April 1938 for the allowance worth £10,660.

Legislation will be included in Finance Bill 2012. People born on or after 6 April 1948 will be entitled to the personal allowance of £9,205 for 2013-14.

Cap on unlimited tax reliefs

Legislation will be introduced in Finance Bill 2013 to apply a cap on income tax reliefs claimed by individuals from 6 April 2013. The cap will apply only to reliefs which are currently unlimited. For anyone seeking to claim more than £50,000 in reliefs, a cap will be set at 25 per cent of income (or £50,000, whichever is greater) Draft legislation will be published for consultation later this year.

Child Benefit income tax charge

Legislation will be introduced in Finance Bill 2012 that imposes a new charge on a taxpayer who has adjusted net income over £50,000 in a tax year, where either they, or their partner, is in receipt of Child Benefit for the year. This will have effect from 7th January 2013.If both partners have adjusted net income over £50,000, the partner with the higher income is liable for the charge.

The income tax charge will apply at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid.

Child Benefit claimants will be able to decide not to receive Child Benefit if they or their partner do not wish to pay the new charge.

For the tax year 2012-13, the first year of the charge, the amount of income taken into account will be the full amount of income for 2012-13 and the amount of Child Benefit will be that paid in the period from 7 January 2013 to the end of the tax year. For subsequent years, the full amount of Child Benefit and the income for the year will be taken into account.

For more detailed information visit – https://www.hmrc.gov.uk/budget2012/cb-income-tax.htm

Car and van fuel benefit charge 2012-13 & 2013-14. Car tax rates 2014-15 to 2016-17

A statutory instrument laid after Budget 2012 will increase the car fuel benefit charge multiplier from £18,800 to £20,200 from 6 April 2012. The multiplier will increase by 2% above the rate of inflation (based on RPI) in 2013-14.

The van fuel benefit charge multiplier will be frozen at £550, and will increase by inflation in 2013-14.

The 2013-14 changes will be made by statutory instrument in autumn 2012.

Legislation will be introduced in Finance Bill 2012 to increase the appropriate percentage for company cars emitting more than 75g of carbon dioxide per kilometre by one percentage point to a maximum of 35 per cent in 2014-15.

In both 2015-16 and 2016-17, the appropriate percentages of the list price subject to tax will increase by two percentage points, to a maximum of 37 per cent.

From April 2016, the Government will remove the three percentage point diesel supplement so that diesel cars will be subject to the same level of tax as petrol cars.

From April 2015, the five year exemption for zero carbon cars and the lower rate for ultra low emission cars will come to an end as legislated in Finance Act 2009.

The appropriate percentage for zero emission and all low carbon cars emitting less than 95g of carbon dioxide per kilometre will be 13 per cent in 2015-16, and will increase by two percentage points in 2016-17.

Corporate and Business Taxes

The main announcements for all businesses are shown below. These are followed by a list of all announcements which may be of interest to businesses.

Main announcements

  1. Corporation Tax rates Financial Years 2012, 2013 and 2014

Legislation will be introduced in Finance Bill 2012 to reduce:

–       the main rate of Corporation Tax for non ring fence profits to 24% for the Financial Year commencing 1st April 2012

–       the main rate of Corporation Tax for non ring fence profits to 23% for the Financial Year commencing 1st April 2013

Finance Bill 2012 also sets the small profit rates at 20% for the Financial Year commencing 1st April 2012.

Legislation will be introduced in Finance Bill 2013 to reduce the main rate of Corporation Tax for non ring fence profits to 22% for the Financial Year commencing 1st April 2014.

  1. Tax simplification for small businesses

Following the Office of Tax Simplification review of small business taxation, the government will consult on introducing a voluntary cash basis for unincorporated businesses up to the VAT registration threshold, with a view to introducing legislation in Finance Bill 2013. It will also consult on a simplified expenses system for business use of cars, motorcycles and home. Finally, the government will also consult on proposals to introduce a disincorporation relief. The consultation will look at the potential demand for such a relief as well as the practicalities of how it would work.

  1. Making tax easier, quicker and simpler for small business

Small businesses make a vital contribution to the UK economy. A document published today entitled ‘Making tax easier, quicker and simpler for small businesses’, sets out how the Government and HMRC are making the tax system easier for small businesses to understand and simpler to deal with. It responds to the Office of Tax Simplification’s recent report on small business taxation, and sets out proposed changes to the tax rules and a number of HMRC initiatives that will make the tax system easier, quicker and simpler for SMEs.

  1. Seed Enterprise Investment Scheme (SEIS)

As announced in the Autumn Statement 2011, legislation will be included in Finance Bill 2012 to introduce a new Seed Enterprise Investment Scheme. Following consultation, changes have been made to the legislation to allow companies:

–       to qualify if they have subsidiaries

–       to determine eligibility by reference to the age of any trade rather than to the age of the company

–       to remove reference to the holdings of other entities in calculating asset and employee tests

–       to allow previous (but not current) employees to qualify

–       to allow directors who have qualified under SEIS to continue to qualify under EIS, subject to time limits

  1. 5.    Patent box

Legislation will be introduced in Finance Bill 2012 to allow companies to elect to apply a 10% Corporation Tax rate to a proportion of profits attributable to patent and certain other qualifying intellectual property from 1st April 2013. In the first year this proportion will be 60% and increase annually to 100% from April 2017.

  1. Corporation Tax reliefs for the creative sector

The government will introduce Corporation Tax reliefs for the production of culturally British video games, television animation programmes and high-end television productions. Consultation on the design will take place over the summer. Legislation will be in Finance Bill 2013 and will take effect from 1st April 2013, subject to State aid approval.

Indirect Taxes including VAT

The main announcements for all indirect taxes, including duty rates and VAT, are shown below. These are followed by a list of all announcements which may be of interest to both individuals and businesses.

Main announcements

  1. Stamp duty land tax (SDLT): rate in respect of residential property where consideration over £2 million

Legislation will be introduced in Finance Bill 2012 to charge SDLT at 7% of the chargeable consideration where this is more than £2 million. The measure takes effect for transactions where the effective date (normally the date of completion) is on or after 22nd March 2012.

  1. Stamp duty land tax: enveloping of high value residential properties

The government will introduce legislation in Finance Bill 2012 to apply a 15% rate of SDLT to residential properties over £2 million purchased by certain non-natural persons. This will take effect from 21st March 2012. In addition, the government will introduce paving legislation for an annual charge.

  1. Alcohol and Tobacco duty rates

Legislation will be introduced in Finance Bill 2012 to increase the duty rates for all alcoholic drinks by 2% above the rate of inflation (based on RPI) with effect from 26th March 2012. This will add 3 pence to the price of a pint of beer, 2 pence to the price of a litre of cider, 11 pence to the price of a bottle of wine, and 41 pence to the price of a bottle of spirits.

Legislation will be introduced in Finance Bill 2012 to increase the duty rates for all tobacco products by 5% above the rate of inflation (based on RPI) from 6pm on 21st March 2012. This will add 37 pence to the price of 20 cigarettes, 12 pence to the price of a pack of five small cigars, 37 pence to the price of a 25g pouch of hand-rolling tobacco, and 20 pence to the price of a 25g pouch of pipe tobacco.

  1. VAT: revalorisation of registration and deregistration thresholds

The government has announced that the VAT registration and deregistration thresholds will be changed so that:

–       the taxable turnover threshold, which determines whether a person must be registered for VAT, will be increased from £73,000 to £77,000

–       the taxable turnover threshold which determines whether a person may apply for deregistration will be increased from £71,000 to £75,000

–       the registration and deregistration threshold for relevant acquisitions from other EU Member States will also be increased from £73,000 to £77,000

A statutory instrument laid on 21st March 2011 will apply the revised thresholds with effect from 1st April 2012. The simplified reporting requirement (three line accounts) for the income tax Self Assessment return will continue to be aligned with the VAT registration threshold

  1. VAT: revalorisation of fuel scale charges

A statutory instrument laid on 21st March 2012 will revalorise the VAT fuel scale charges with effect from 1st May 2012.

  1. VAT: Addressing Borderline Anomalies

The government has announced changes to address some anomalous VAT borderlines. The changes either marginally extend VAT at the standard rate to these areas or confirm the current standard rated treatment.

Anti-Avoidance, Tax Administration, Tax Simplification

The main announcements for individuals and businesses are shown below. These are followed by a list of all announcements which may be of interest to individuals or businesses.

Headline announcements

Anti avoidance

A package of measures effective from Budget Day, 21st March 2012 have been announced by the government. Further information can be found in the Overview of Tax Legislation and Rates (OOTLAR) and the Tax Information and Impact Notes (TIINs) These measures include:

  • Employer asset-backed pension contributions
  • Solvency II and the taxation of life insurance companies
  • Stamp duty land tax (SDLT): rate in respect of residential property where consideration over £2 million
  • Stamp duty land tax: enveloping of high value residential properties
  • Stamp duty land tax: sub-sales rules
  • Site restoration payments
  • Inheritance tax: offshore trusts
  • Income tax: corporate settlor-interested trusts
  • Sale of lessor companies
  • Plant or machinery leasing
  • Life insurance: income tax avoidance

Tax Administration

Budget 2012 confirmed that legislation will be introduced in Finance Bill 2012 to give effect to the Agreement between the UK and Switzerland on cooperation in tax matters that was signed on 6th October 2011. As a result of the Protocol signed on 20th March 2012, two changes have been made to the Agreement which will be reflected in the legislation.

Tax Simplification

Tax Transparency

The government wants all taxpayers to benefit from greater transparency in the tax system, so they understand what taxes they pay and how much. HMRC will provide more accessible information to all taxpayers on their tax affairs. In April, it will launch an online Business Tax Dashboard, which will offer a quick and easy way for businesses to see how much tax they have already paid and how much they still owe. And from 2014-15, HMRC will also improve transparency for individual taxpayers.

A new Personal Tax Statement will be available to all individuals who file their Self Assessment return online (and some taxpayers in PAYE). It will detail how much tax and National Insurance they have paid, average tax rates and show them how those deductions contribute to public expenditure.

In March 2011, the Office of Tax Simplification (OTS) published their interim report on simplifying tax for the smallest businesses, which recommended that the government look at integrating income tax and National Insurance. In response to this recommendation, the government announced at Budget 2011 that it would consult on the issue.

Following consultation with a wide range of different stakeholders, the government has announced a detailed consultation on integrating the operation of income tax and National Insurance which will be published shortly after Budget. It will set out a broad range of options for the operation of employee, employer and self employed National Insurance Contributions. The government will continue to engage with representatives from small business during the forthcoming consultation.

For full details of the 2012 Budget visit – www.hm-treasury.gov.uk

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