Following our successful Budget Update events today, I’ve been asked to post some of the headline tax changes announced by George Osborne. The full list of rates and allowances is available to download elsewhere on our web site and on the FREE Burgis & Bullock mobile APP at the following link.
Personal tax allowance 2014-15
The coalition election promise, to increase the basic personal tax allowance to £10,000, is to be achieved a year early, from April 2014. This will be available to those born after 5 April 1948. At the same time the basic limit will be reduced to £31,865.
As set out in the Budget 2011, once the £10,000 limit is reached the personal allowance will be raised in line with the Consumer Price Index starting from 2015-16.
A quick summary of Income Tax thresholds
Personal allowance (those born after 5 April 1948) £9,440 £10,000
Basic rate limit £32,010 £31,865
Higher rate threshold £41,450 £41,865
Pension’s tax allowances reduction confirmed
As announced last year the lifetime pensions savings allowance is being reduced from £1.5m to £1.25m and annual pension contributions that qualify for tax relief reduced from £50,000 to £40,000. These changes will apply from April 2014.
Inheritance Tax: nil rate band freeze
The present freeze on the nil rate band at £325,000 is being extended until 2017-18. This measure partly funds the cap on reasonable care costs of £72,000 for older people from April 2016.
Seed Enterprise Investment Scheme (SEIS) – CGT re-investment relief
It has been proposed to extend the present Capital Gains Tax (CGT) relief for reinvesting gains in SEIS shares to 2013-14. The extension of the relief is for half the qualifying reinvested amount. This measure will apply to reinvested gains accruing to individuals in 2013-14 that are reinvested in 2013-14 or 2014-15.
Employee shareholder status: tax treatment clarified
The Budget clarifies tax incentives to be made available to individuals who have taken up the new ‘employee shareholder’ employment status. On 8 October 2012, the Government announced its intention to introduce a new ’employee shareholder’ employment status. Individuals adopting the status will receive between £2,000 and £50,000 of CGT-exempt shares. This measure is intended to reduce regulatory burdens on business and to promote employment growth. The tax incentives to apply are quoted from HMRC’s Budget notes:
‘Legislation will be introduced in Finance Bill 2013 to exempt any capital gains on the disposal of up to £50,000 of shares acquired by an employee shareholder under their employee shareholder agreement from CGT…
Finance Bill 2013 will also include provisions that will amend the Income Tax (Earnings and Pensions) Act 2003 to reduce the Income Tax due when employee shareholders acquire shares under their employee shareholder agreement, by deeming that they have paid £2,000 for these shares. Consequential changes will also be made to the Corporation Tax Act 2009 so that where appropriate businesses can claim relief against the acquisition of shares by employee shareholders.
Following Royal Assent to Finance Bill 2013, amendments will be made to the Social Security (Contributions) Regulations 2001. These will ensure that when an employee shareholder acquires shares, the same amount counts as earnings for Class 1 NICs purposes and counts as employment income for Income Tax purposes and that the first £2,000 of the value of the shares also remain NICs free…’
Tax exempt limit raised for employment related loans
Presently, businesses are required to disclose the benefit to employees who take out cheap loans with their employer in excess of £5,000. Usually this is done at the end of the fiscal year when forms P11D are submitted.
To reduce this administrative burden and to ease the tax charge to employees this ceiling of £5,000 is to be raised to £10,000 from 6 April 2014. To qualify, the total amount outstanding on all such loans must not exceed the threshold at any time during a tax year.
Company car tax rates
In order to promote the manufacture and purchase of low-emission cars the Budget includes a number of changes to company car tax rates. These include, for the tax year 2015-16, the introduction of two new appropriate percentage bands for company cars emitting 0-50g of carbon dioxide (CO2) per km (5%) and 51-75g CO2 per km (9%). In addition, as announced at Budget 2012, the remaining appropriate percentages are increased by two percentage points for cars emitting more than 75g CO2 per km, to a new maximum of 37%, again from 2015-16.
Simplified accounting for smaller businesses
With effect for the tax year 2013-14, legislation will be introduced that will offer smaller businesses the option to be taxed on a simpler basis. The features of the ‘simpler system’ will include:
• Income will be based on a receipts basis
• Expenses will be amounts paid in a trading period
• No adjustment will be necessary to account for movements in debtors (money owed to the business), creditors (money owed by the business) and stock
• Generally, traders using this scheme will not have to distinguish between capital and revenue payments
• Capital allowances will remain available for expenditure on cars only
Additionally, legislation will be introduced that will allow unincorporated businesses to choose flat rate expenses from 2013-14 to cover:
• Motoring expenses for cars, motorcycles and goods vehicles
• Business use of home, and
• Private use of business premises
The simplified system aims to cut down accounting for smaller enterprises. Generally, businesses whose receipts are below the VAT registration threshold will be eligible to use the scheme.
Corporation Tax (CT) unified rate
Presently we have two rates of Corporation Tax (CT), one for smaller companies and one for larger concerns. Historically the small company rate has been lower than the main CT rate. The current small company rate is 20%. From 1 April 2013 the main rate is 23% reducing to 21% from 1 April 2014.
In the Budget it was announced that from 1 April 2015 the main rate and small company rate will be the same, 20%. This will simplify the calculation of CT due and further the resolve of the Government to present the UK as a low tax business jurisdiction.
R & D tax credit reform
In an effort to provide greater cash flow support to larger companies involved in significant R & D activity the ‘Above the line’ tax credit is being increased to 10%. This will benefit companies with no Corporation Tax liability.
General Anti-Abuse Rule (GAAR)
This new measure will provide HMRC with the means to combat abusive tax avoidance schemes. It will be applied to arrangements entered into on or after Royal Assent to Finance Bill 2013.
The GAAR supports the Government’s objective of promoting fairness in the tax system by deterring taxpayers from entering into abusive schemes that might succeed under current law.
VAT registration thresholds changed
The Government has announced that the VAT registration and deregistration thresholds will be increased in line with inflation so that:
the taxable turnover threshold which determines whether a person must be registered for VAT, will be increased from £77,000 to £79,000;
the taxable turnover threshold which determines whether a person may apply for deregistration will be increased from £75,000 to £77,000; and
the registration and deregistration threshold for relevant acquisitions from other EU Member States will also be increased from £77,000 to £79,000.
A statutory instrument will apply the revised thresholds with effect from 1 April 2013.
As always, the team here at Burgis & Bullock are ready to answer any questions on the 2013 Budget and Taxation in general. Call us on 0845 1775500 or contact us online.