You may have heard the recent statement from the Chancellor George Osborne, which was in effect a mini-Budget. Here are the key points relating to tax which we have summarised for you:
Personal Tax 2013/14
For those aged under 65 years the personal allowance will be increased from £8,105 to £9,440 a year. This is part of the government’s intention to eventually raise the allowance to £10,000.
Tax Band and Rates 2013/14
The basic rate of tax is currently 20%. The band of income taxable at this rate is being reduced from £34,370 to £32,010. Therefore the threshold at which the 40% band applies will fall from £42,475 to £41,450.
Tax Bands for 2014/15 and 2015/16
The increase in the higher rate threshold will be capped at 1%.
From the tax year 2014/15 onwards:
- The annual allowance for pensions tax relieved savings will be reduced from £50,000 to £40,000.
- The standard lifetime allowance for pensions tax relieved savings will be reduced from £1.5 million to £1.25 million.
- A transitional ‘fixed protection’ regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance.
A Finance Bill 2013 will introduce this legislation.
The Chancellor announced that the government will raised the capped drawdown limit from 100% to 120%. This gives pensioners with these arrangements the option to increase their incomes.
Individual Savings Accounts (ISAs)
From April 2013 the overall ISA savings limit will be uprated to £11,520.
General Anti-Abuse Rule (GAAR)
The aim of this rules is to target artificial and abusive tax avoidance schemes, about which we have written recently for your information.
To summarise, the main points are:
- Legislation will counteract tax advantages from tax arrangements which are abusive on a just and reasonable basis.
- A GAAR Advisory Panel will give opinions on specific cases and approve HMRC guidance on GAAR.
- In the case of any dispute about whether HMRCs proposed counteraction is appropriate, on appeal a tribunal or court should be able to reach its own conclusion.
The government is investing a further £77 million in HMRC to increase revenues raised from tax avoidance and evasion. This is expected to raise additional revenues of £22 billion a year by the end of this parliament. This revenue will allow HMRC to accelerate the resolution of avoidance schemes, increase the specialist resources to investigate offshore evasion and avoidance of inheritance tax, and improve their risk analysis technology.
Largest Tax Evasion Settlement
The Chancellor has announced the ‘largest tax evasion settlement in British history’ in an agreement with Switzerland to recover unpaid UK tax on money hidden in Switzerland. This is with effect from 1 January 2013 and is expected to earn £5 billion over the next six years.
In addition, the government has signed an agreement with the United States to significantly increase the amount of information on potentially taxable income automatically exchanged between the two countries.
This is a new standard in tax transparency for tax evasion and could be carried over to other countries.
From 7 January 2013 a new tax charge is being introduced where a taxpayer has adjusted net income in excess of £50,000 where either they or their partner received child benefit. Where both partners have income in excess of £50,000 the charge will apply to the partner with the higher income.
Where income is £60,000 or more then the charge cancels out child benefit. There is a sliding scale between £50,000 and £60,000.
Cap on Income Tax Relief
The Budget 2012 announced the introduction of a limit on uncapped income tax reliefs from April 2013.
The cap will only apply to reliefs that are offset against general income and are not currently capped. Capital allowances and allowable expenses will not be affected. Trading losses will be capped to the extent that they can be relieved against general income. Gift Aid, payroll giving and relief for gifts of land and shares to charity are excluded.
The main rate of corporation tax is 24% from 1 April 1012 and 23% from 1 April 2013. The rate from 1 April 2014 was planned to be 22% and will now be reduced to 21%.
Annual Investment Allowance (AIA)
The AIA provides a 100% deduction for the cost of plant and machinery purchased by a business up to an annual limit of £25,000. This limit will rise to £250,000 for two years from 1 January 2012
Capital Allowances and Cars
A 100% first year allowance is available on new low emission cars purchased by a business where emissions do not exceed 110gm/km. This will continue for a further two years for purchases from 1 April 2013 where emissions do not exceed 95gm/km. This severely limits the models of cars which can be purchased.
Simplified Tax System for Small Businesses
The Chancellor will go ahead to simplify the tax system for small unincorporated businesses. A business with turnover up to £77,000 will be able to calculate its profits on a simplified cash basis. It will not have to distinguish between revenue expenditure and capital expenditure. This will continue until turnover reaches £154,000.
There are to be special corporation tax reliefs for companies involved in the production of animated films, high-end television programmes and video games. These will apply from 1 April 2013 and will allow an additional deduction of 100% of certain specific expenditure. Alternatively the business will be able to claim a payable tax credit at a rate of 25% of qualifying losses surrendered.
Gift Aid Small Donations Scheme
The Gift Aid Small Donations Scheme is intended to provide a subsidy for charities on cash donations of up to £5,000 a year which cannot be gift aided because the identify of the donor is not known or it would be additionally complex to capture that information at the time of donation. Charities will be able to claim top-up payments on the receipts.
The 100% full year allowance for the conversion of flats over shops is being withdrawn for expenditure on or after 6 April 2013 for income tax. The date is 1 April 2013 for companies.
Employer Provided Cars
Carbon Dioxide emissions bands used to calculate the taxable benefit for an employee who has use of an employer provided car will reduce by 5gm/km, with affect from 6 April 2013. This will increase the charge for each vehicle by 1% of the list price of the car unless the percentage is already 35% of list price.
Real Time Information
Most employers and pension providers will move to reporting PAYE information in real time from April 2013. If you are an employer you should have received a letter from HMRC letting you know what you need to do.
Employee Owner Contracts
This is a new type of employment contract in which an employee would be given shares in a company in exchange for giving up their rights in respect of unfair dismissal, redundancy, and the right the request flexible working and time off form training.
An employee who agrees to this will receive a minimum of £2,000 and a maximum of £50,000 of shares in the company. The gains on up to £50,000 will be exempt from capital gains tax from 6 April 2013.
The IHT nil rate band remains at £325,000 until 5 April 2015. This will rise to £329,000 from 2015/16.
VAT on Holiday Caravans
From 6 April 2013 there will be a 5% rate of VAT on static holiday caravans and touring caravans longer than 7 metres. Residential and holiday static caravans will be distinguished by British Standard BS3632. The sale of static caravans which meet this standard will remain zero rated.
Non-Tax Measures For SMEs
The Business Bank announced in September will deploy £1 billion of additional capital to address gaps in the supply of finance to SMEs.
In addition, a scheme will be established to provide up to £1.5 billion in loads to finance small company’s exports. Additional funding to UK Trade and Investment will be provided so the department can deliver more services to SME exporters.
The temporary doubling of the Small Business Rate Relief scheme is to be extend for 12 months from 1 April 2013. All new build commercial property completed between 1 October 2013 and 30 September 2016 will be exempt from empty property rates for the first 18 months.