Walker Accountancy

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documents to the Budget is the news that there will be restrictions where loans are repaid to the company and withdrawn again within a short period, or where there are arrangements or an intention to make further loans when the loan is repaid – so it may no longer be sufficient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

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.

George Osborne presented the 2012 Budget on Wednesday 21 March 2012.

These blogs focus on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2012-13 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

• The personal allowance for tax will increase by £1,100 to £9,205 from April 2013. There will be a decrease in the 40% threshold by £2,125 to £32,245 so that 40% tax payers only gain a quarter of the benefit compared to 20% tax payers.

• The age related personal allowance will be withdrawn for those born after 6 April 1948.  This means that those reaching 65 after 6 April next year will no longer receive the age allowance.  The age allowance for those who do qualify will be frozen until it is the same as the normal personal allowance.

• The main rate of corporation tax rate (ie for larger companies) will decrease by 2% (to 24%) from 1 April 2012. This is 1% more than previously announced. It will then continue to fall by 1% per annum until it reaches 22%.

Key announcements made previously

• The personal allowance for tax will increase by £630 to £8,105 from April 2012. There will be a decrease in the 40% threshold by the same amount so that 40% tax payers only gain the same benefit as those paying at 20%.

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.

Cath Walker

Corporation tax rates

The main rate of corporation tax which applies to companies with profits of more than £1.5 million was due to fall by 1% to 25% from 1 April 2011. The Chancellor announced that this will now decrease by 2% to 24%.

The further annual decreases of 1% previously announced with eventually bring the rate to 22% (rather than 23%) by 1 April 2014.

The small companies’ corporation tax rate which applies to companies with up to £300,000 will remain at 20%.

Companies with profits between £300,000 and £1.5 million pay tax at a marginal rate to bring their overall rate to the main rate by the time they have profits of £1.5 million.

Capital allowances

In 2010, the Chancellor announced a decrease in the rate of Annual Investment Allowance (AIA – the value of fixed asset additions for which a 100% relief can be claimed in the year of purchase) from £100,000 to £25,000 with effect from April 2012.

The annual writing down allowances also be reduce, from 20% to 18% for the main rate pool and from 10% to 8% for the special rate pool this April.

Tax for small unincorporated businesses

The chancellor announced that the Government will consult on introducing a voluntary cash accounting 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, motorcyles 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.

Tax rates

There were no changes to rates of income tax announced in the Budget for 2012-13.

The Chancellor did, however, announce a reduction in the additional rate of tax (that payable on income over £150,000) from 50% to 45% with effect from 6 April 2013.

Allowances and tax bands

Already announced previously were the tax and NI bands for 2012/13.

The 2012/13 personal allowance will be £8,105, with the upper limit of the basic rate tax band (ie the level of income at which people start to pay tax at 40%) is reduced to £34,370 so that 40% tax payers only benefit by the same amount as 20% tax payers.

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 810L taking effect in April 2012.

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 2013/14 will increase to £9,205.  This continues the plan to increase the threshold to £10,000, as set out in the Lib Dem manifesto.

The the upper limit of the basic rate band will reduce to £32,245 for 2013/14, meaning that higher rate tax payers will only receive a quarter of the benefit received by a basic rate tax payer.

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 2012.   Changes to the rates of payments were announced previously and can be found at http://www.hmrc.gov.uk/rates/taxcredits.htm

A number of changes announced back as far as 2010 take effect from 6 April 2012:

• The removal of the one-off payment to new workers over 50;
• The introduction of an income disregard for income falls;
• The withdrawal of the second income threshold for child tax credits;
• A reduction in the period for back-dating from three months to one month from April 2012.

Comment: The withdrawal of the second income threshold means that many of the households receiving just the basic family element of the child tax credit of £545 per annum will no longer receive any tax credits.

Child Benefit

It was announced in June 2010 that Child Benefit levels would be frozen for the next three years, so it remains at the same level as last year for 2012/13.

In October 2010, it was also announced that Child Benefit will be withdrawn from 2013 for families where at least one of the parents pays tax at 40%.  This announcement was, however, modified in Budget 2012 due to uproar over the fact that a very small increase in salary tipping a tax payer into the 40% band would have resulted in the loss of the whole of their child benefit.

New rules were announced in the Budget so that no Child Benefit is lost until the income of one of the parents reaches £50,000.  At that point, 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.

These changes will come in from 7 January 2013.

Comment: This all seems rather complicated to me and it will be interesting to see how it actually works!

Individual Savings Accounts (ISAs)

The ISA threshold for 2012/13 will be £11,280, of which £5,640 may be in cash.

As of Budget day 2012, you still have a couple of weeks to use your 2011/12 allowance of £10,680 (of which £5,340 may be in cash) – the deadline is 5 April 2012.

Junior ISAs  were introduced last Autumn with an investment limit of £3,600 per annum. No changes have been announced to this limit.

National Insurance Contributions (NI)

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

The primary and secondary thresholds (that at which employees and employers, respectively, start to pay NI) have been increased to £144 and £146 per week respectively.

The upper earnings (or profits for the self employed) limit remains at £42,475, aligned with the higher rate tax threshold (ie the total of the personal allowance for those under 65 and the basic rate tax limit).

Comment: For those of you paying yourselves the National Insurance limit, this means that you should increase your pay to £7,488 per annum (£624 per month) from April.

It was announced in the Budget that the upper earnings limit for 2013/14 will be reduced to £41,450, again aligned with the point at which 40% tax becomes payable.

Details of the rates of NI for 2012/13 can be found at http://www.hmrc.gov.uk/rates/nic.htm

The capital gains tax (CGT) annual exempt amount will remain at £10,600 for 2012/13 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is £5,300.

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 for gains arising on or after 6 April 2012.

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

Fuel prices

The Chancellor announced that the increase in fuel duty announced in the Autumn Statement 2011 of 3.03 p per litre will still take place on 1 August 2012 as planned.

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 (£73,000 from April 2011) 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

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.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase to £20,200 (from £18,800) with effect from 6 April 2012.  The multiplier will increase by two per cent 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.

Stamp Duty

The Chancellor announced a new 7% rate of stamp duty on properties sold for more than £2 million.

There was also some anti-avoidance provisions, including a rate of 15% for the purchase of residential properties valued at over £2 million via a limited company.

IR35

IR35 rears its ugly head again!

To quote the Treasury Budget document: “The Government is bringing forward a package of measures to tighten up on avoidance through the use of personal service companies and to make the existing IR35 legislation easier to understand. This will include HMRC strengthening specialist compliance teams, simplifying the way IR35 is administered, and consulting on proposals which would require office holders/controlling persons who are integral to the running of an organisation, to have PAYE and NICs deducted at source.”

It will be interesting to see what they are planning!

Inheritance tax

As announced in the June 2010 budget, the inheritance tax nil rate band will remain frozen at £325,000 until 2014/5.

As previously announced, from April 2012, a reduced rate of IHT of 36% comes in where 10 per cent of more of the net estate is left to charity.

Sunday Trading

As widely reported, the Chancellor announced that there will be a relaxation of the Sunday trading laws due to the Olympic Games for eight weeks starting on 22 July 2012.

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).

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. 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.