Budget summary 2012

Budget summary 2012

Published:

Author: Niall Murphy

The Chancellor delivered the 2012 Budget yesterday (21 March). The following is a summary of the main tax points of interest

The Finance Bill 2012 will be published on 29 March:

BUSINESS TAXES

Corporation Tax: from 1 April 2012, the main rate of corporation tax will be reduced by 2% to 24%. Planned decreases in April 2013 and 2014 remain so that the main rate will eventually be 22%.

Small companies' rate: this will remain at 20%.

Enterprise Management Incentives: the limit on qualifying EMI options an individual can hold will be increased to £250,000 as soon as possible, subject to State Aid approval. Legislation will be introduced in Finance Bill 2013 to allow gains made on shares acquired on or after 6 April 2012 through exercising EMI options to be eligible for entrepreneurs' relief.

Company Cars: the appropriate percentage for cars emitting more than 75g of CO2 per kilometre will be increased by one percentage point to a maximum of 35% in 2014/15. Further increases, to a maximum of 37%, are planned for 2015/16 and 2016/17. From April 2016, the three percentage point diesel supplement will be removed.

Car and Van Fuel Benefit Charge: the car fuel benefit charge multiplier will increase to £20,200 from 6 April 2012 and then by 2% above RPI for 2013/14. The van fuel benefit charge multiplier will be frozen at £550 for 2012/13 and then increase by RPI in 2013/14.

Employer asset-backed pension contributions: previously announced legislation will be introduced to ensure that excess tax relief in respect of such contributions cannot arise.

Controlled foreign companies (CFC): the Finance Bill 2012 will include legislation replacing the existing CFC regime with new rules effective for CFCs with accounting periods beginning on or after 1 January 2013. Profits will be outside the scope of the CFC rules if they meet the conditions set out in a 'gateway', which will include 'safe harbour' provisions. Exclusions will also apply to certain territories as well as low profits.

Patent Box: from 1 April 2013, companies will be able to elect to apply a 10% corporation tax rate to a proportion (60% initially, increasing to 100% by April 2017) of profits attributable to patents and certain other qualifying IP.

Capital allowances - fixtures: as announced at Budget 2011, from April 2012 the availability of capital allowances to a purchaser of a fixture will be conditional on businesses following a new mechanism for fixing a value for fixtures within two years of a sale.

Enhanced capital allowances: the energy saving enhanced capital allowance will, subject to State Aid approval, be updated to include heat pump driven air curtains. Certain other technologies will be excluded.

Capital allowances - cars: the 100% first-year allowance will be extended in Finance Bill 2013 until 31 March 2015 but the threshold for eligibility will be reduced to 95g of CO2 per kilometre and leased cars will no longer be eligible. From April 2015, the appropriate percentage will be 13% and will increase by two percentage points in 2016/17. The threshold for a main rate car will also be reduced to 130g/km.

Bank Levy: as announced in Autumn Statement 2011, this will be 0.088% from 1 January 2012. This will increase to 0.105% from 1 January 2013.

Climate change levy (CCL): from 1 April 2013, the CCL will be increased in line with RPI.

Landfill tax: for disposals made on or after 1 April 2013, the standard rate will be increased to £72 per tonne.

Air passenger duty (APD): Finance Bill 2013 will include measures to increase APD in line with RPI from 1 April 2013 and will be extended to flights taken on business jets.

Research and development (R&D) tax credits: as announced in Budget 2011, from 1 April 2012 the rate of R&D tax credits for SMEs will increase to 225%, the limit of SME payable credit will be removed and the £10,000 minimum expenditure requirement will be abolished. As announced in Autumn Statement 2011, an "above the line" R&D tax credit for larger companies, with a minimum rate of 9.1% before tax, will be introduced in Finance Bill 2013.

Corporation tax reliefs: the Government will consult on legislation to take effect from 1 April 2013 on corporation tax reliefs for the production of British video games, TV animation programmes and high-end TV productions.

PERSONAL TAXES

Income Tax - rates: income tax rates for 2012/13 will remain unchanged but the additional rate of income tax will be reduced to 45% from April 2013 with the dividend additional rate and the dividend trust rate being reduced to 37.5% and the trust rate to 45%.

Income Tax - personal allowance: as announced in Budget 2011, the personal allowance will increase for those aged under 65 to £8,105 for 2012/13 along with a corresponding decrease in the basic rate limit, to £34,370. The personal allowance will increase by a further £1,100 in April 2013 to £9,205 with the basic rate limit dropping to £32,245. The age-related allowances will not be increased and will be restricted to people born on or before 5 April 1948 for the £10,550 allowance and to people born on or before 5 April 1938 for the £10,660 allowance.

Income Tax Reliefs: from 6 April 2013, any individual seeking to claim more than £50,000 of currently uncapped income tax reliefs in any one tax year will be subject to a cap of the greater of (i) £50,000 and (ii) 25% of the individual's income.

National Insurance: the Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit will be aligned with the point at which higher rate income tax becomes payable, i.e. £41,450.

Capital gains tax (CGT): the annual exempt amount will remain at £10,600 for 2012/13 and increase in line with the CPI from 6 April 2013.

Seed Enterprise Investment Scheme (SEIS): as announced in the Autumn Statement 2011, the SEIS will be introduced giving 50% income tax relief for individuals making qualifying investments. Following consultation, certain changes to the proposed legislation have been made to allow companies to qualify if they have subsidiaries, to allow previous employees to qualify, to allow directors who have qualified under SEIS to continue to qualify under EIS, to remove reference to the holdings of other entities in calculating asset and employee tests, and to determine eligibility by reference to the age of the trade rather than age of the company. A capital gains tax exemption will also be introduced for gains realised in 2012/13 and invested through the SEIS in the same year.

Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT): as announced in Budget 2011, Finance Bill 2012 will simplify the EIS and VCT regimes, including disregarding loan capital when determining if a person is 'connected' with a company, allowing certain preferential shares to qualify, removing the £500 minimum investment limit and remove the £1m limit on investment by a VCT in a single company not in partnership. A new 'disqualifying arrangements' test will be introduced to exclude companies set up for the purposes of accessing the relief; monies used to acquire shares in another company will not be regarded as being 'employed' for the purposes of a qualifying business activity.

EIS and VCT - thresholds: as announced in Budget 2011, the EIS annual investment limit will be increased to £1 million from 6 April 2012; the employee limit will be raised to fewer than 250 employees; the size threshold increased to gross assets of no more than £15m before and £16m after investment; the annual investment limit for qualifying companies will increase to £5m. All these changes, bar the first, are subject to State Aid approval.

Statutory residence test: as previously announced, this will not now take effect until 6 April 2013.

Ordinary residence: this concept for tax purposes will be abolished from 6 April 2013.

Non-domiciled individuals (non-doms): from 6 April 2012 non-doms will be able to bring overseas income and gains to the UK tax-free in order to make a commercial investment in a qualifying business. Also, the £30,000 annual charge will increase to £50,000 for those resident in the UK in 12 or more of the last 14 years. Some aspects of the existing remittance basis rules will also be simplified.

Inheritance tax (IHT): as previously announced the nil-rate band will be frozen until April 2015 and then rise in line with the CPI. From 6 April 2012, where 10% or more of a deceased's net estate is left to charity, the rate of IHT will be reduced to 36%.

IHT - trusts: the Government will consult on simplifying the calculation of IHT periodic and exit charges for trusts with legislation being included in Finance Bill 2013.

Non-domiciled spouses and civil partners: the current IHT-exempt amount of £55,000 that a UK domiciled individuals can transfer to their non-UK domiciled spouse or civil partner will be increased in the Finance Bill 2013.

Personal service companies and IR35: the Government will consult on proposals to require office holders or controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source.

PROPERTY

SDLT: a new 7% rate for purchases of residential property over £2m will apply for transactions with an effective date of on or after 22 March 2012.

SDLT: a new 15% rate for purchases of residential property over £2m purchased by certain non-natural persons including companies, collective investment schemes and partnerships in which a non-natural person is a partner, will take effect from 21 March 2012. There are transitional rules where the contract was completed and signed by all parties on or before 21 March 2012.

SDLT - annual charge: the Government will consult on introducing an annual charge from April 2013 for residential properties over £2m owned by certain non-natural persons.

SDLT - sub-sales: with effect from 21 March 2012, legislation will be introduced which makes it clear that the grant or assignment of an option cannot be a 'transfer of rights' for sub-sale purposes.

SDLT - leases: the Government will explore through the SDLT working group, with a view to including in Finance Bill 2013, ways to simplify the SDLT rules around abnormal rent increases, substantial performance of an agreement for lease or a lease that continues after a fixed term.

CGT - non-resident non-natural persons: the Government will consult on introducing a CGT charge on the disposal of UK residential property, and shares or interests in such property, owned by non-resident non-natural persons with the aim of it coming into force in April 2013.

Business Premises Renovation Allowance (BPRA): as previously announced the BPRA scheme will be extended until April 2017.

Enterprise Zones (EZs): as announced in Autumn Statement 2011, 100% first-year allowances for trading companies investing in plant and machinery for use primarily in designated assisted areas within EZs will be available.

VAT

Thresholds: the registration threshold will be increased to £77,000 and the deregistration threshold to £75,000. The registration and deregistration threshold for relevant acquisitions from other EU Member States will be increased to £77,000.

Threshold - overseas businesses: the VAT registration threshold for businesses not established in the UK will be removed from 1 December 2012.

Low value consignment relief (LVCR): as previously announced, LVCR for goods sent to the UK from the Channel Islands will be abolished from 1 April 2012.

Cost-sharing exemption: as previously announced, a VAT exemption for services shared between VAT exempt bodies including universities, charities and banks will be introduced.

Online filing: this will be introduced in relation to registration, deregistration and changes to business details, with effect from 31 October 2012.

Education providers: the Government will consult and review the VAT treatment of education to ensure that commercial universities are treated fairly.

Correcting anomalies and closing loopholes: secondary legislation will be introduced in summer 2012 to take effect from 1 October 2012 to address anomalies relating to alterations to listed and non-listed buildings, and self-storage and other forms of storage. A number of loopholes will also be closed by applying VAT, where it does not already apply, to hot food and sports drinks; by making it clear that VAT applies to the rental of hairdressers' chairs and the sale of cold food for consumption on the supplier's premises; and ensuring that the purchase of holiday caravans is taxed consistently at the standard rate.

HMRC and TAX ADMINISTRATION

General anti-abuse rule (GAAR): the Government will consult in summer 2012 with a view to introducing legislation in Finance Bill 2013 to implement a GAAR based on the recommendations of the Aaronson Report.

Disclosure of tax avoidance schemes (DOTAS): there will be a formal consultation over summer 2012 on extending the 'hallmarks' so as to capture avoidance schemes that do not have to currently be notified. Draft regulations will follow later in the year.

UK/Switzerland agreement: legislation will be introduced to give effect to the agreement between the UK and Switzerland signed on 6 October 2011 on cooperation in tax matters.

Tax agents: dishonest conduct: from 1 April 2013, legislation will be introduced which provides for a civil penalty against dishonest tax agents, Tribunal approved access to an agent's working papers and the power to publish the details of agents that have been penalised.

Tax simplification for small businesses: the Government will consult on introducing a voluntary cash accounting basis for unincorporated businesses with turnover of up to £77,000 per annum with a view to legislation in Finance Bill 2013. It will also consult on proposals to introduce a disincorporation relief.

Penalties: Finance Bill 2013 will include the power to increase fixed penalties in line with inflation.

Personal Tax Statement: from 2014/15, taxpayers will be provided with a new Personal Tax Statement which will detail the income tax and national insurance contributions they have paid, their average tax rates, and how this contributes to public spending.

Integration of Income Tax and National Insurance: a detailed consultation will be launched setting out a broad range of possible options.