Financial & Legal News

The Budget 2012

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George Osborne promised a Budget that rewards work, backs business and is on the side of aspiration. Although this year's Budget was limited in the number of tax cuts that were made, those that we have seen will be welcome news to businesses and the entrepreneur.

Income Tax

Personal Allowance

For individuals, the previously announced increase of £630 in the personal allowance will take effect from 6 April 2012, taking the basic personal allowance to £8,105 with a further increase of £1,100 announced and will be £9,205 from 6 April 2013.

Higher Rate Threshold

The higher rate threshold, at which the 40% rate starts to bite, will be reduced from £42,475 in 2012/13 to £41,450 in 2013/14.

Top Rate of Tax

The Chancellor confirmed that the 50% income tax rate for individuals with income over £150,000 per annum will reduce to 45% from 6 April 2013. 

Child Benefit

Child Benefit will be effectively tapered away when one individual in a household earns more than £50,000 from 2013/14. The Benefit will be gradually reduced to nil as income reaches £60,000. The Benefit payment itself will not reduce, but will be clawed back through an additional income tax charge.

Company Taxation

Corporate Tax Rate

Further reductions will be made to the main rate of corporation tax, as follows:

- from 1 April 2012 – 24% (an additional 1% reduction on the rate previously announced)

- from 1 April 2013 – 23%

- from 1 April 2014 – 22%

The small profits rate will remain at 20% from 1 April 2012.

Patent Box

Patent Box will allow companies to elect to apply a 10% rate of corporation tax to profits derived from qualifying patents.

The reduced rate will apply to licence fees and royalties, income from the sale of a patented item, or of a product incorporating it, as well as to profits from the sale or disposal of a patent.

Patent Box will apply to existing as well as new patents.

The regime will be phased in over a five year period beginning on 1 April 2013.

Employment tax

Company Cars

The scale charges for company cars will be increased by one percentage point from 2012/13, subject to a maximum of 35%, and by a further two percentage points from 2015/16, subject to a maximum of 37%

The fuel benefit charge will be increased to £20,200 x the car benefit percentage from 2012/13.

Share Option Schemes – Enterprise Management Incentives (EMI)

From 6 April 2012, the limit on the value of shares that can be awarded through an EMI share option will be increased from £120,000 to £250,000.

Shares acquired after 6 April 2012 will qualify for Entrepreneur’s Relief, and benefit from the 10% rate of Capital Gains Tax

Indirect taxes

VAT

From 1 April 2012, the VAT registration threshold will increase from £73,000 to £77,000 and the VAT deregistration threshold will increase from £71,000 to £75,000.

Changes will be introduced with effect from 1 October 2012 to address current anomalies in a number of areas, including alterations to listed buildings, self-storage, hot food and sports drinks.

Stamp Duty Land Tax on Residential Property

From 22 March 2012, SDLT on the purchase of a residential property exceeding £2 million will be charged at a rate of 7%.

Additionally, SDLT on the purchase of such property by certain types of companies, collective investment schemes and partnerships will be charged at a higher rate of 15%. This measure will take effect from 21 March 2012.

In the latter case, the government will also consult on the introduction of an annual charge on such properties with a view to introducing new legislation from April 2013.

Other Budget announcements

Tax Simplification

The government is proposing to allow small unincorporated businesses to use the cash basis of accounting. This will apply from April 2013 to businesses operating below the VAT threshold.

Tax Avoidance

General Anti Avoidance Rule

A General Anti Avoidance Rule will be introduced in April 2013 to tackle ‘artificial and abusive tax avoidance schemes’. Draft legislation will be published as to what this means in practice, and a consultation process will follow.

IR35

The so-called ‘IR35’ rules will be clarified and tightened up. These rules apply to individuals providing their services through limited companies. The updated rules will be published later this year and will apply from April 2013.

Cap on Tax Reliefs

From 2013, the maximum saving from certain types of tax relief will be capped. This will not apply to pension contributions or Enterprise Investment Scheme investments. The cap will be the greater of £50,000 and 25% of income.

 

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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