Monthly Archives: March 2013

Budget 2013 – Summary

George Osborne presented the 2013 Budget on Wednesday 20 March 2013.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2013-14 tax year and beyond.

It concentrates on the issues likely to affect you, your family and your business. To help you decipher what was said I have included some comments too.

If you have any questions please do not hesitate to contact me for advice.

Main Budget proposals

Key announcements made previously

  • The personal allowance for tax will increase by £1,335 to £9,440 from April 2013.

 

The Budget proposals may be subject to amendment in the Finance Act. You should contact me before taking any action as a result of the contents of this summary.

This blog is published for the information of clients. It provides only an overview of the main proposals announced by the Chancellor of the Exchequer in his Budget Statement, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by the authors or the firm.

 

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Budget 2013 – Corporate and Business Tax

Corporation tax rates

As announced previously, the main rate of corporation tax, which applies to companies with profits of more than £1.5 million, will to fall to 23% from 1 April 2013 and 21% from 1 April 2014.

New in the Budget today was the news that from 1 April 2015, the rate will fall again to 20%.  This is the same as the small companies rate (which applies to companies with profits up to £300,000), and the two rates will be unified at that point, so the UK will have a single rate of corporation tax for the first time since 1973.

Until the rates are merged, companies with profits between £300,000 and £1.5 million pay a marginal rate of tax.

Capital allowances

No changes to capital allowances were announced in the Budget.

In the Autumn Statement last December, the Annual Investment Allowance (the amount that companies can spend on capital equipment and claim a full deduction in that year) was increased to £250,000 (from £25,000) from 1 January 2013 for a two year period.

Tax for small unincorporated businesses

As announced in Budget 2012, small unincorporated businesses will be able to use a cash basis for working out their taxable profits from 2013-14.

They will also be able to use simplified flat rates to calculate certain business expenses.

Businesses with receipts of less than the VAT registration threshold (which will be £79,000 from 1 April 2013), or twice that if they receive the Universal Credit, will be allowed to join the scheme.  They have to leave the scheme when receipts are more than twice the VAT registration threshold.

Loans to director/shareholders (s455 Loans to Participators)

The employer beneficial loan provisions are often used by small limited companies (‘close companies’) to loan money to director/shareholders to delay personal tax payments – as long as the loan is paid back within 9 months of the year end of the company, there is no tax charge. If the loan is not repaid, then a ‘s455’ charge kicks in, which means that 25% of the value of the loan must be paid to HMRC  by the company.  This charge is repayable to the company after the loan is repaid.

Hidden in the background documents to the Budget is the news that there will be restrictions where loans are repaid to the company and withdrawn again within a short period, or where there are arrangements or an intention to make further loans when the loan is repaid – so it may no longer be sufficient to repay the loan one day and draw it again a day or two later.  These restrictions come in to force today.

In more detail, a new rule (the “30 day rule”) will be introduced to deny the relief if within a 30 day period repayments of more than £5,000 are made to the close company in respect of amounts which have given rise to a charge to tax and amounts are then redrawn

In addition, even if the 30 day rule does not apply to deny relief, relief will be denied if there are amounts (loans, advances of money from the close company or through an extraction of value) outstanding amounting to at least £15,000 and at the time of a repayment there are arrangements, or an intention, to redraw an amount and an amount is subsequently redrawn

 

Budget 2013 – Personal Tax

Tax rates

There were no changes to rates of income tax announced in the Budget for 2013-14.

Allowances and tax bands

Already announced previously were the tax and NI bands for 2013-14.

The 2013-14 personal allowance will be £9,440, with the upper limit of the basic rate tax band (ie the level of income at which people start to pay tax at 40%) reduced to £32,010.

Comment: This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 940L taking effect in April 2013.

Other allowance levels can be found on the HMRC web site at http://www.hmrc.gov.uk/rates/it.htm

The Chancellor announced in the budget that the personal allowance for 2014-15 will increase to £10,000, bringing the threshold up to that promised in the Lib Dem manifesto at the last election.

The upper limit of the basic rate band will be £31,865 for 2014-15.

Tax relief of childcare

A new childcare scheme will be introduced to support working families with their childcare costs.

For childcare costs of up to £6,000 per year per child, support of 20% will be available worth up to £1,200. From the first year of operation, all children under 5 will be eligible and the scheme will build up over time to include children under 12.

The scheme will provide support for families where all parents are in work and not receiving support through the Childcare Element of Working Tax Credits/Universal Credit, or where one has an income over £150,000. Support will be provided through a childcare account redeemable at any registered childcare provider.

The new scheme offer will be phased in from Autumn 2015 as the current system of Employer Supported Childcare is phased out.

Tax Credits

There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.

There were no changes to tax credits announced in the Budget 2013.   Changes to the rates of payments were announced previously and can be found at http://www.hmrc.gov.uk/rates/taxcredits.htm

Child Benefit

Child Benefit changes announced previously came into effect from 7 January 2013.

These rules mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

The actual mechanics of the scheme is that Child Benefit will continue to be paid and an additional tax charge will be levied on the parent earning over £50,000.  Alternatively, the tax payer can elect not to receive Child Benefit.

Individual Savings Accounts (ISAs)

The ISA threshold for 2013/14 will be £11,520, of which £5,760 may be in cash.

As of Budget day 2013, you still have a couple of weeks to use your 2012-13 allowance of £11,280 (of which £5,640 may be in cash) – the deadline is 5 April 2013.

Junior ISAs will have an investment limit of £3,720 (previously £3,600) per annum.

 

Budget 2013 – Employment issues

National Insurance Contributions (NI)

No changes to the rates of NI contributions were announced in the Budget.

The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) have been increased to £148 and £149 per week respectively.

The upper earnings (or profits for the self employed) limit is £41,450, aligned with the point at which 40% tax becomes payable.

Comment: For those of you paying yourselves the National Insurance limit, this means that you should increase your pay to £7,696 per annum (£641.33 per month) from April.

Details of the rates of NI for 2013-14 can be found at http://www.hmrc.gov.uk/rates/nic.htm


Employer’s Employment Allowance

An allowance of £2,000 per annum will be introduced for all businesses and charities to be offset against their employer NI liability from April 2014 – this effectively takes away the first £2,000 of the employer’s NI bill of every company.

This is being funded by the extra NI that will be due from employers with employees formerly contracting out of the second state pension – employer’s previously paid a reduced rate of NI to reflect the fact that employees were not entitled to second state pension.  With the introduction of the single tier pension, contracting out is no longer relevant and their NI will revert to the standard rate.

Exemption threshold for employer provided beneficial loans

The threshold for employment-related taxable cheap loans to be treated as earnings of the employment will increase from the current threshold of £5,000 to £10,000 from 6 April 2014.  As long as the total outstanding balances on all such loans do not exceed the threshold at any time in a tax year, there is no tax charge.

 

Budget 2013 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits have been increased with effect from 1 April 2012 to £79,000 and £77,000 respectively

 

Budget 2013 – Capital Gains Tax

There were no changes to capital gains tax in the Budget.

The capital gains tax (CGT) annual exempt amount will be £10,900 for 2013-14 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is £5,450.

For capital gains above the annual exempt amount the CGT rate for basic and higher rate tax payers will remain at 18 and 28 per cent respectively.

Entrepreneurs’ relief

Gains made in respect of certain business assets may qualify for entrepreneurs’ relief.

The amount of an individual’s gains that can qualify for entrepreneurs’ relief remains at £10 million.

Gains qualifying for the relief will continue to be taxed at a 10% rate.

Budget 2013 – Motoring Costs

Fuel prices

The Chancellor announced that the increase in fuel duty due on 1 September 2013 would be cancelled.

Business mileage payments

HMRC sets an approved mileage allowance payment (AMAP) rate. This is the rate at which employers may reimburse business mileage tax free.

Businesses with a turnover of less than the VAT registration threshold (£79,000 from April 2013) can also choose to claim a tax deduction for their vehicle costs at the AMAP rate, rather than recording all vehicle expenditure and claiming the actual costs.

The AMAP rate will remain at 45p for the first 10,000 miles per annum and 25p per mile for any excess.

Company Cars

Car benefit

As announced in Budget 2012, the percentages for calculating company car benefits will increase by 1% from April 2014 for all vehicles with carbon emissions of over 75g, up to a maximum of 35%.

In addition in both 2015/16 and 2016/17 the percentages will be increased by two percentage points and the maximum percentage of the list price subject to tax will increase to 37%.

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

It was announced in Budget 2013 that two new percentage bands for company cars emitting 0-50g of carbon dioxide per kilometre (with appropriate percentage set at 5 per cent) and 51-75g CO­2 per km (with the appropriate percentage set at 9 per cent) will be introduced from 2015-16.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase to £21,100 (from £20,200) with effect from 6 April 2013.

The van fuel benefit charge multiplier will be £564 (increased from £550) for 2013-14.

 

Budget 2013 – Other matters

Inheritance tax

It was announced in the June 2010 budget that the inheritance tax nil rate band would remain frozen at £325,000 until 2014-15.  It had been announced in the Autumn Statement that, for 2015-16, the band would be increased to £329,000, however the freeze at £325,000 has now been extended for another three years (until 2017-18) as part of the package to cap social care costs.

Help to Buy for homes

Two schemes were announced to help people to buy homes.

The first is a government loan of up to 20% of the value of a new home, interest free for the first five years and repayable when the house is sold.  This will be open to all buyers, not just those buying for the first time and has no income limits.  A 5% deposit will be needed, and the house cannot cost more than £600,000.  This scheme will be available from 1 April 2013.

The second is aimed at helping those buying any home, not just a new one, and provides lenders with the option to purchase a government guarantee, effectively for 14.25% of the value of the loan for seven years.  This will be available for three years from the start of 2014.

Pensions

The new single tier pension will be introduced from 2016.

 

This summary is published for the information of clients. It provides only an overview of the main proposals announced by the Chancellor of the Exchequer in his Budget Statement, and no action should be taken without consulting the detailed legislation or seeking professional advice.