Following George Osborne’s Budget announcement, Group Tax Director GILL MOLLOY gives an overview of the key points….
Recent Economic Developments and Prospects
Three key challenges have been recognised as affecting the UK economy;
- The euro area crisis that has created increasing instability and uncertainty undermining confidence
- Higher inflation associated with the 40% rise in the oil price between 2010 and 2011 has reduced real incomes, increased business costs and restricted growth around the world
- The reduction in the size of the economy following the impact of the financial crisis
According to the ONS, in 2011 the UK economy grew by 0.8%, manufacturing output grew strongly by 2% and although GDP fell by 0.2% in the last quarter, the UK was broadly within the ONS forecasts. Many countries in Europe experienced negative growth.
The latest private sector business surveys points to a pick-up in UK output at the beginning of 2012. Both the OBR and Bank of England expect growth to resume in the first quarter of this year but to remain uneven through 2012
Personal Tax
Income Tax Rates for 2013/14:
- 50% tax rate reduced to 45% for people earning in excess of £150,000
- Dividend additional rate set at 37.5%
- Trust rate set at 45% and dividend trust rate 37.5%
Personal Allowance & Basic Rate Limit:
- For 2013/14 personal allowance increases to £9,025, basic rate limit reduced to £32,245
- The National Insurance Contributions Upper Earnings limit and Upper Profits limit will continue to be aligned with the level of the higher rate threshold.
Age related Allowances:
- From 2013/14 availability of age related allowances will be restricted.
- People born after 5 April 1948 will be entitled to a personal allowance of £9,205 for 2013/14.
- People born after 5 April 1938 but before 6 April 1948 will be entitled to £10,500
- People born before 6 April 1938 will be entitled to a personal allowance of £10,660
Enterprise Investment Scheme and Venture Capital Trusts: Simplification:
- Measures in place to relax the EIS rules defining when a person is connected through an interest in its capital.
- Widen the definition of shares which qualifies for relief
- Remove the £500 minimum investment limit
- Remove the £1 million limit on investment by a VCT in a single company
- Changes apply to EIS shares issued on or after 6 April 2012 and VCT shares issued on or after 1 April 2012
EIS and VCTs: Increase to thresholds:
- Increase the company size limits from fewer than 50 employees to fewer than 250 employees.
- Gross assets of no more than £15 million before investment and £16 million after (up from £7 and £8 million).
- Maximum annual amount that can be invested in an individual company increased to £5 million.
- The limit an individual can invest up from £500,000 to £1 million.
- Effective for shares issued on or after 6 April 2012.
Enterprise Management Incentives:
- Qualifying businesses can grant tax advantaged share options to their employees under EMI.
- The limit on the value of shares over which options may be held by an employee under EMI to be increased from £120,000 to £250,000 from a date to be confirmed.
Child Benefit:
- Measures come into effect from 7 January 2013.
- Taxpayers whose income exceeds £50,000 in a tax year will have a charge applied if they or their partner is in receipt of child benefit.
- For taxpayers earning between £50,000 and £60,000 the charge will be a proportion of the child benefit received. The charge will be 1% of the amount of child benefit for every £100 of income that exceeds £50,000.
- For people earning in excess of £60,000 the charge will equal the benefit received.
- The charge will apply only to the partner with the highest income.
Company Car Tax Rates & Fuel Benefit Charge:
- For 2014/15 the appropriate percentage to be increased by a further 1% to a maximum of 35% for cars emitting more than 75g of carbon dioxide per kilometre.
- For 2015/16 and 2016/17 there will be increases of a further 2 percentage points to a maximum of 37%
- From April 2016 the 3% supplement on diesel cars to be removed.
- From 2012/13 the multiplier to calculate the fuel benefit of free fuel provided to employees is to be increased from £18,800 to £20,200. Further increases to follow for 2013/14 once September 2012 inflation figure confirmed.
Business / Corporate
Rates of Corporation Tax (CT):
- Main rate of CT is now reduced by a further 1% from that previously announced, to 24% from 1 April 2012.
- The main rate will then reduce by 1% each year until it reaches 22% by the financial year beginning April 2014.
Controlled Foreign Companies (CFC’s):
- Currently, a UK resident company which has an overseas subsidiary which pays tax in that foreign country of less than 75% of the tax which it would have paid on its profits had it been UK resident, can be charged to UK corporation tax on the profits of its foreign subsidiary.
- New legislation is being introduced to exclude the profits of such CFC’s from UK corporation tax, if they meet specific conditions to prove that their profits are not artificially being diverted from the UK. These rules will take effect for CFC’s with accounting periods beginning on or after 1 January 2013.
Patent Box:
- Companies actively holding qualifying patents and some other forms of intellectual property will be allowed to elect to apply a 10% rate of corporation tax on all profits attributable to qualifying patents and other forms of IP from 1 April 2013.
Enhanced Capital Allowances Schemes:
- The list of technologies and products covered by the energy–saving and water efficient Enhanced Capital Allowances scheme, allowing 100% of the cost of qualifying items to be written off against taxable profits in the period in which the expenditure is incurred, has been revised removing certain items and tightening the criteria for others.
VAT
Hot Food and Premises:
- With effect on supplies made on or after 1 October 2012, the definition of “hot food” is clarified and confirms that the sale of all hot food, with the exception of freshly baked bread, is standard-rated. Also clarified is the meaning of “premises” confirming that the sale of all food sold for consumption in areas adjacent to a retailer (such as tables and chairs outside a café) or in areas that are shared with other retailers (such as food courts in shopping centres) is standard-rated.
Sports Nutritional Drinks:
- The sale of sports nutritional drinks (mainly carbohydrate, protein and/or creatine based drinks) that are marketed as products that enhance physical performance, accelerate recovery after exercise, or build bulk will be taxed at the VAT standard rate. This applies to supplies made on or after 1 October 2012.
Holiday Caravans:
- With effect on supplies made on or after 1 October 2012, the sale of holiday caravans, which will be defined as caravans that are not designed and constructed for continuous year round occupation, will be taxed a the standard rate of VAT. The sale of residential caravans will be preserved at zero rate.
Other:The supply of self storage will no longer be able to qualify for VAT exemption. This will apply to supplies made on or after 1 October 2012 and anti-forestalling legislation will apply to supplies made on or after 21 March 2012.
- With effect on supplies made on or after 1 October 2012, the rental of a chair by a salon to a hairdresser is taxable at the standard rate of VAT.
Stamp Duty Land Tax (SDLT)
High Value Residential Property:
- SDLT on the purchase of a residential property (freehold, lease premium or assignment) will be charged at 7% of the chargeable consideration where this is more than £2 million. This measure will have effect for transactions where completion is on or after 22 March 2012.
- A higher rate of SDLT will be charged on acquisitions of UK residential property where the consideration given exceeds £2 million and the person or persons acquiring the property are certain types of non-natural persons (including companies, for example). This higher rate of SDLT will be 15% and the effective date for this measure is 21 March 2012.
All Taxes / Other
Tobacco Products Duty Rates:From 6pm on 21 March 2012 the rates of duty on all tobacco products imported into, or manufactured in, the UK will increase by 5% above retail price inflation. This measure will add 37p to a packet of 20 cigarettes.
If you have any queries or require further clarification on any of these areas, please contact Group Tax Director GILL MOLLOY or another member of the Tax Planning team on 0161 7032500 or e-mail gill.molloy@championgroup.co.uk
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