Summary
The Chancellor presented his third full Budget since the coalition Government took power on Wednesday, 21st March.
Billed as ‘the budget for working people’ with a promise to ‘back business’, Mr Osborne highlighted the Government’s commitment to three specific areas: a stable economy, a fairer, more efficient and simpler tax system and reforms to support growth.
As the Budget was announced, the Office for Budget Responsibility (OBR) increased its forecast for UK GDP growth in 2012 from 0.7% to 0.8%. It predicted future growth of 2% in 2013, 2.7% in 2014 and 3% in 2015.
Although the Chancellor expects inflation to fall from the current 3.7% to 1.9% by the end of the year, he has reaffirmed the Consumer Prices Index (CPI) inflation target of 2%.
The Government views businesses as the catalyst for economic recovery and the budget reflects this, with a number of announcements supporting business growth. In particular, a reduction on the headline rate of corporation tax to 24% from April this year. Further reductions are planned that will take the rate to 22% in 2014. Mr Osborne highlighted that Britain has moved into being one of the top ten places to do business globally and highlighted his intention to more than double annual exports to £1 trillion by 2020.
Some of the headline announcements affecting individuals include a hike in the personal allowance, a reduction in the top rate of tax from 50p to 45p, age-related allowances for pensioners being reduced or axed and a new stamp duty rate of 7% for properties worth over £2 million.
Over the coming weeks and months, updates and further information on budget proposals, including consultations, will be announced. We will keep you updated on any change in legislation which may affect you.
If you have any questions or queries arising from this budget, then please do not hesitate to contact us.
Tax overview
A key theme in this year’s Budget was the Government’s commitment to making a fairer, more efficient and simpler tax system. A number of wide-ranging reforms to the tax system were announced in addition to a clampdown on tax evasion.
The Government have accepted the recommendation of the Aaronsen Report that a General Anti-Avoidance Rule (GAAR) targeted at abusive schemes would improve the UK’s ability to tackle tax avoidance – a practice which Mr Osborne highlighted as being ‘morally repugnant’. These measures will reportedly increase Treasury revenues by £1bn.
Income Tax
| What | The Government will increase the personal allowance by £1,100, taking it to £9,205 in total. |
| When | 6th April 2013 |
| Comments | This is a significant increase in the basic rate tax allowance and will be a welcome announcement to low and middle earners. Mr Osborne claimed this would make 24 million people £220 per year better off. The full allowance is only available to those earning under £100,000. |
| What | Freezing Age Related Allowances. |
| When | 6th April 2013 |
| Comments | Pensioners currently have higher personal allowances and these additional allowances will be frozen and reduced over time, bringing them in line with the standard personal allowance. Those currently receiving the higher allowances won’t see them reduced, although inflation will reduce pensioner income in real terms. |
| What | Introduction of a new cap on income tax reliefs to ensure that those on higher incomes cannot use income tax reliefs excessively. |
| When | 6th April 2013 |
| Comments | For anyone seeking to claim more than £50,000 of relief, a cap will be set at 25 per cent of income (or £50,000, whichever is greater). |
| What | A reduction from 50p to 45p on the top rate of tax on incomes above 150,000. |
| When | 6th April 2013 |
| Comments | No surprises here. George Osborne had already announced that this tax initiative was generating less revenue for the public purse than originally forecast. |
| What | Introduction of a Personal Tax Statement. |
| When | 2014-2015 |
| Comments | Supporting the Government’s initiative to make the taxation system more transparent, these statements will allow taxpayers to see a breakdown of where their taxes are being spent. |
| What | Launch of a detailed consultation on integrating the operation of income tax and NICs. |
| When | Published after the Budget |
| Comments | This builds on extensive work already undertaken and further underpins the Government’s commitment to a simpler and more transparent tax system. For most of us, and in particular those in business, a simpler tax system would be welcomed. |
| What | The high rate tax allowance will be reduced from £34,370 to £32,245. |
| When | April 2013 |
Corporation Tax
| What | Reduction in the main rate of corporation tax by an additional 1% from April 2012 with further reductions in subsequent years. |
| When | April 2012 – 24%, April 2013 – 23%, April 2014 – 22% |
| Comments | A welcome boost for business where the headline corporation tax rate has been reduced further than expected. The headline rate was already set to be reduced to 25% in April 2012. |
| What | A reduced corporation tax rate of 10% on profits derived from patents. |
| When | April 2013 |
| Comments | A move welcomed by business and entrepreneurs supporting manufacturing and the growth of business in the UK. This will apply to profits attributed to patents and similar types of intellectual property. |
| What | Introduction of corporation tax reliefs for the video games, animation and high-end television industries, subject to State aid approval and following consultation. |
| When | 1st April 2013 |
| Comments | Another initiative giving a welcome boost to business, should give rise to increased levels of investment in technology led industries. It is part of a new ambition to make the UK the technology hub of Europe. |
| What | The bank levy is being increased to 0.105% to prevent banks from benefiting from this cut in corporation tax. |
| When | January 1st 2013 |
| Comments | This increased banking levy is expected to net the Treasury around £2.5bn a year. Time will only tell on this one. |
Housing
| What | Increase in Stamp Duty for houses worth over £2m to 7%. |
| When | 22nd March 2012 |
| Comments | The ‘mansion tax’ that was widely reported prior to the Budget equates to a £140,000 tax bill on a £2m property. The Chancellor has also put in place measures to stop individuals paying stamp duty by purchasing a residential property through a company. Such purchases will now incur a 15% tax charge. |
| What | The Government has announced a reinvigorated Right To Buy for the two million tenants in council housing. |
| When | From April 2nd 2012 |
| Comments | The current range of regional caps on discounts will be replaced by a higher single cap of £75,000. |
Tax Credits and Benefits
| What | Child Benefit to be withdrawn for higher earners. |
| When | April 2013 |
| Comments | Only households where someone has an income in excess of £60,000 a year will no longer gain from child benefit. There will be a tapering of the benefits received from £50,000-£60,000. There remains some concern as the benefit cap is applied to single income; a couple each earning £49,000 will still be entitled to the full amount of child benefit. |
Savings, Pensions and Investments
| What | Tax reliefs capped at 25% for high earners (see Income Tax). |
| When | April 2013 |
| Comments | Individuals will be restricted to claiming tax relief on the higher of £50,000 or 25% of earnings. This will not affect ISAs, pensions or enterprise investment schemes which are subject to existing caps. A welcome note to see that there is no change to pension tax relief. |
| What | Introduction of initial flat-rate pension of £140 per week for those with 30-year national insurance record. |
| When | 2016 |
| Comments | This long awaited measure to simplify the pension system is welcome news. Those that will lose out are higher earners who may have seen higher levels of state benefits; some low earners will see an increase in their pension entitlement. |
| What | Auto review of state pension age. |
| When | Proposals will be published at the time of the Office for Budget Responsibility’s (OBR) 2012 Fiscal sustainability report. |
| Comments | The Government will commit to ensuring the state pension age is increased in future to take into account increases in longevity. |
| What | VCT and EIS rules changed. |
| When | 6th April 2012 |
| Comments | The rule changes were mostly previously approved and widen the opportunity for investment. Amongst other changes, the EIS annual investment limit for individuals will be increased to £1 million and the qualifying company limits will be increased to companies with fewer than 250 employees. |
Business
- The introduction of a new cash basis for calculating tax for small businesses – the aim is to create a simpler tax system for smaller firms with a turnover of less than £77,000. Consultation will take place before the proposed implementation from April 2013.
- The Government will improve and reform the Enterprise Management Incentive Scheme (EMI), which helps SMEs recruit and retain talent, by providing additional support to help start-ups access the scheme.
- From 1 October 2012, VAT will be extended to close loopholes, including applying it to hairdressers’ chairs (to make clear that their rental is already subject to VAT), static holiday caravans (to bring in line with mobile caravans) and certain hot food (because most hot food is already subject to VAT).
- The introduction of an ‘above the line’ Research & Development tax credit from April 2013 with a minimum rate of 9.1 per cent before tax. Loss making companies will be able to claim a payable credit. The R&D incentives for small and medium sized companies will not be affected as part of this change.
- The Government has confirmed that the Asset Purchase Facility will remain in place for the Financial year 2012-13.
- There will be a consultation around simplifying the Carbon Reduction Commitment (CRC) energy efficiency scheme to reduce administrative burdens on business. The Government will bring forward proposals in Autumn 2012 to replace CRC revenues with an alternative environmental tax, and will engage with business before then to identify potential options.
- An internal review will be conducted to examine the role of employee ownership in supporting growth and will also examine options to remove barriers, including tax barriers, to its wider take-up.
- The Government is increasing the funds available to invest through the Business Finance Partnership to £1.2 billion.
- There will be a drive to expand the overseas role of UK Export Finance to enable it to develop finance packages that could help UK exporters secure opportunities identified through UK Trade and Investment’s High Value Opportunities programme.
- There will be a move to incentivise lenders to lend more to smaller businesses under the Enterprise Finance Guarantee (EFG) scheme, by raising the level of lenders’ EFG portfolios (to which the Government guarantee applies) from 13 per cent to 20 per cent.
- 84 per cent of health and safety regulation will be scrapped or improved, including legislating in 2012 so that ‘strict liability’ provisions in health and safety law will no longer hold employers to be in breach of their duties when they have done everything that is reasonably practicable and foreseeable to protect their employees.
- The Government will pilot the best way to introduce a programme of enterprise loans to help young people set up and grow their own business.
- Company car tax rates from 2014–15 to 2016–17 have been set out, including the removal of the diesel supplement in 2016. Changes have also been announced to the capital allowance regime for business cars.
Miscellaneous
- Vehicle excise duty (VED) rates will increase in line with the Retail Price Index (RPI) and rates for heavy goods vehicles will be frozen. The Government also aims to develop a direct debit system to allow motorists to spread their VED payments.
- The Debt Management Office will consult on the case for issuance of gilts with maturities significantly longer than those currently in issue (in excess of 50 years) and/or perpetual gilts. An initiative to manage Government debt over the long term, securing borrowing whilst interest rates are at record lows.
- The Government will extend the Capital Gains Tax regime to gains on disposals by non-resident non-natural persons of UK residential property and shares or interests in such property. This will commence from April 2013 following a consultation.
- There are no further changes to fuel and excise duty.
- Smokers to pay extra duty by 5% above inflation from 6pm on Wednesday, 21st March.
- Alcohol duty unchanged.
- The ten largest cities in the UK will receive funding for superfast broadband. There will also be investment for smaller cities to develop their broadband infrastructure.
Note: This document contains a summary of some of the main points covered in George Osborne’s recent Budget announcement. If you would like any further information on any aspect of this year’s Budget, please do not hesitate to get in touch.
