Autumn Statement 2012 – Update
The personal allowance for 2013/14
The personal allowance will be increased from £8,105 to £9,440 for those aged under 65. The increase in the personal allowance is larger than the amount previously announced and is part of the plan of the Coalition Government to ultimately raise the allowance to £10,000.
For those with ‘adjusted net income’ over £100,000 the reduction in the personal allowance will continue. The reduction is £1 for every £2 of income above £100,000. Therefore, in the current year, there is no allowance when net adjusted income exceeds £116,210. For next year the allowance ceases when net adjusted income exceeds £118,880.
From next tax year, the higher age related personal allowances will not be increased and their availability will be restricted to people who were born before 6 April 1948.
Tax band and rates 2013/14
The band of income taxable at the basic rate (20%) will be reduced from £34,370 to £32,010 so that the threshold at which the 40% band applies will fall from £42,475 to £41,450.
Where taxable income exceeds £150,000 it is currently taxed 50%. This rate will fall to 45% next year.
Whilst dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax, where income exceeds £150,000, dividends are taxed at 42.5% this year and 37.5% next year.
Tax bands for 2014/15 and 2015/16
The increase in the higher rate threshold will be capped at 1% for 2014/15 and 2015/16
Individual Savings Accounts (ISAs)
From April 2013 the overall ISA savings limit will be increased to £11,520.
The Government will consult on allowing investment in SME equity markets like AIM to be held directly in stocks and shares ISAs, to encourage investment in growing businesses.
For tax year 2014/15 onwards:
- the annual maximum pension contributions allowed for tax relief will be reduced from £50,000 to £40,000
- the standard lifetime allowance for pensions tax relief 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
Legislation will be introduced in Finance Bill 2013 to make these changes.
It has also been announced that the Government will discuss with interested parties whether to offer a personalised protection regime in addition to a fixed protection regime.
It has been announced that the Government will raise the capped drawdown limit from 100% to 120% giving pensioners with these arrangements the option of increasing their incomes.
A cap on income tax relief
In the 2012 Budget, the Government announced the introduction of a limit on uncapped income tax reliefs from April 2013. Individuals will be able to claim reliefs worth up to £50,000 or 25% of their income, whichever is greater.
This cap will only apply to reliefs that are set against general income and are not currently capped. Reliefs that already have their own limits will not be affected by the cap. For example the Enterprise Investment Scheme (EIS) which gives income tax relief of 30% of the investment are excluded.
There have been some changes to what losses will be capped. Losses on shares purchased in certain unquoted trading companies may be claimed as a relief against income. These losses are currently unlimited and so will be included in the relief cap. However, these losses can include a loss on shares purchased under the EIS. The Government has now decided that such losses will not be capped.
General Anti-Abuse Rule (GAAR)
There has been consultation on the introduction of a GAAR into the UK tax system in an attempt to cut down on the use of ‘abusive arrangements’. The aim is to target artificial and abusive tax avoidance schemes.
The key points are:
- the legislation will counteract any tax advantages arising from tax arrangements that are abusive. Abusive tax advantages would be counteracted on a just and reasonable basis
- tax arrangements are abusive if they are arrangements which cannot ‘reasonably be regarded as a reasonable course of action’
- a GAAR Advisory Panel will be set up to give opinions on specific cases and to approve HMRC guidance on GAAR. HMRC will not be represented on the Advisory Panel
- if there is a dispute about whether HMRC’s proposed counteraction is appropriate, on appeal a Tribunal or court should be able to reach its own conclusion.
Previously Announced Changes
From 7 January 2013 a new tax charge is being introduced. The charge will apply to a taxpayer who has ‘adjusted net income’ in excess of £50,000, where either they or their partner is in receipt of Child Benefit. The effect of the charge is to claw back some or all of the Child Benefit paid. Where both partners have income in excess of £50,000 the charge will apply to the partner with the higher income.
Adjusted net income has the same meaning as for the withdrawal of the personal allowance for taxpayers with income above £100,000.
For a taxpayer who has adjusted net income of £60,000 or more then the charge has the effect of cancelling out the Child Benefit paid. A sliding scale charge operates where income is between £50,000 and £60,000.
Whilst the charge will apply to the Child Benefit paid from 7 January to the end of the tax year, the income taken into account will be the full income for 2012/13.
Corporation tax rates
The small company rate will remain at 20%.
From 1 April 2012 the main rate of corporation tax is 24% and 23% from 1 April 2013. The rate from 1 April 2014, which was planned to be 22%, will be reduced by an additional 1% 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 which is currently £25,000 (with effect from April 2012). This limit will rise to £250,000 for a period of two years from 1 January 2013.
What was not provided at the time of the announcement, was how the maximum amount of AIA would be calculated for an accounting period which straddles 1 January 2013.
The draft legislation now provides the details.
Where a business has an accounting period that straddles the date of change the allowances have to be apportioned on a time basis. It is therefore vital to speak to us before incurring substantial capital expenditure to ensure maximum relief is available where possible.
A simpler tax system for smaller businesses
In an attempt to simplify the substantial amounts of legislation that apply to smaller businesses, draft legislation has been issued on:
- a cash basis for computing profits where an unincorporated business has a turnover up to £77,000
- a range of expenses that many unincorporated businesses will be able to claim on a flat rate basis rather than having to identify actual amounts spent.
This cash basis will be available for the tax year 2013/14. A business will be able to continue to use the cash basis until its turnover reaches £154,000. Further draft legislation will be issued on the transition from and to the cash basis.
Claiming expenses on a flat rate basis will not be open to partnerships which include a corporate partner.
Flat rate expenses will be available for:
- Cars, vans and motorcycles. For cars or vans the rate for the first 10,000 business miles is 45p, after which the rate reduces to 25p. For motorcycles the rate is 24p
- Business use of a home. Provided certain conditions are satisfied, the following monthly rates will be allowed:
Business use in a month Deduction
25 hours or more £10
51 hours or more £18
101 hours or more £26
If you would like more information on any of the above please do get in touch.
John Elliott, Tax Partner / Sue Stephens, Personal Tax Consultant