The Chancellor, George Osborne, has delivered his fourth Budget statement to a particularly raucous House of Commons. As we all expected the Chancellor stated that the economic recovery of the UK is taking longer than originally anticipated with growth forecasts down and borrowing levels up.
Several of the most interesting proposals will not take effect until 2014 or later with the rates and allowances for the forthcoming tax year 2013/14 already previously announced, such as the reduction in the top rate of income tax from 50% to 45%.
The £10,000 tax free personal allowance promised for this parliament will now take effect from April 2014. He also announced that the 10% starting rate applicable only to savings income is to be reduced to 0%.
There was good news for large companies with the main rate of corporation tax being reduced to 20% from April 2015, unifying it with the small profits rate and thereby simplifying the corporate tax system. By 2015/16 the UK will have the lowest main corporate tax rate in the commercial world.
From April 2014, a new ‘Employment Allowance’ will provide all businesses and charities with a saving of £2,000 in their National Insurance bill which will particularly help small businesses who wish to hire their first employee or expand their workforce.
His statement also contained some interesting proposals concerning stamp duty on certain growth market shares and a ‘Help to Buy’ package of measures that will increase the supply of low-deposit mortgages for credit-worthy households.
As far as duties are concerned, the Chancellor has cancelled the 3p fuel duty rise planned for September 2013 and the April 2013 rise in beer duty has been scrapped, with a reduction of 1p per pint from this coming weekend.
- The promised personal tax free allowance of £10,000 will now be available from April 2014, one year earlier than expected.
- The personal tax allowance for the forthcoming 2013/14 tax year is to be increased by £1,335 to £9,440.
- From 2013/14, only those individuals born before 6 April 1948 qualify for an age-related personal allowance ~ and even these are frozen at their 2012/13 levels.
- The basic rate band for 2013/14 is to be reduced to £32,010 (from £34,370). With the enhanced personal allowance, this means that individuals will not be assessed to the 40% higher rate tax until their total taxable income exceeds £41,450.
- The top rate of tax applicable to income above £150,000 is to be reduced to 45% (down from 50%) from 6 April 2013.
- From April 2014 it is proposed to double the employee low or interest free loan exemption threshold from the current £5,000 to £10,000.
Capital Gains Tax
- The capital gains tax annual exemption for 2013/14 is to be increased to £10,900. The annual exemption will rise to £11,000 in April 2014 and £11,100 in April 2015.
- There is to be a 50 per cent relief against CGT chargeable on gains realised in 2013-14 which are reinvested in the Seed Enterprise Investment Scheme (SEIS) in 2013-14 or 2014-15.
- There are no changes to the general rates of capital gains tax, with 18% applying to gains within the basic rate band and 28% thereafter.
- A special CGT rate of 10% rate continues to apply to business gains qualifying for Entrepreneurs’ Relief.
- The Inheritance Tax nil rate band of £325,000 is to be frozen until 2019 to meet part of the costs of changes to social care funding.
- There are no proposed changes to the various Inheritance Tax allowances and reliefs. Most business property, subject to qualifying conditions, continues to enjoy 100% relief.
- For the two year period 1 January 2013 to 31 December 2014 the Annual Investment Allowance, which provides 100% tax relief on plant, equipment and commercial vehicles, has been increased from £25,000 to £250,000 (as previously announced in the Chancellor’s Autumn Statement).
- The main rate of corporation tax, applicable where annual profits are above £1.5m is reduced to 23% from April 2013 and will reduce further to 21% from April 2014.
- The main rate of corporation tax is being reduced to 20% from April 2015, unifying it with the ‘small profits’ rate and thereby simplifying the corporate tax system.
- No changes are proposed to the ‘small profits’ corporate tax rate of 20% which applies to annual profits up to £300,000.
National Insurance Contributions
- A new ‘Employment Allowance’ of £2,000 per year from April 2014 is to be available for all businesses and charities to be offset against their employer NIC bill.
- From 2016-17 the lower NIC contracted-out rates will be abolished so that all employees will pay the same rate of contributions. This means that those who are contracted out in 2016-17 will contribute more in National Insurance but in return they will be entitled to a more generous State Pension.
- Employee Class 1 primary National Insurance Contributions (NICs) will remain at 12% for 2013/14 on income between £7,755 and £41,450 in line with the higher rate income tax threshold. A rate of 2% applies on income above £41,450
- Employer Class 1 secondary NICs will remain at 13.8% on income above £7,696 (with no ceiling)
- Employer Class 1A NIC will remain at 13.8% on the taxable value of any employee benefits
- Self-Employed Class 4 NICs for 2013/14 remain at 9% on profits between £7,755 and £41,450 in line with the higher rate income tax threshold. A rate of 2% applies on profits above £41,450.
- Self-Employed Class 2 NICs increase to £2.70 per week for 2013/14
- The Government is to consult on options to simplify the administrative process for the self-employed by using Self Assessment to collect Class 2 NICs alongside income tax and Class 4 NICs.
Tax Simplication for Small Businesses
- From 2013/14 unincorporated businesses with turnover below the VAT registration threshold of £79,000 will have the option of using the cash basis when calculating their taxable profits.
- Although this may appear to be attractive to many small businesses, there is little advantage to be gained for those businesses that use a qualified accountant to prepare their accounts and tax returns and provide tax planning advice. Although cash accounting is meant to simplify accounts preparation the actual rules are complex and strewn with pitfalls.
- A separate option for all unincorporated businesses will allow them to claim fixed-rate deductions in relation to motoring expenses, use of home as office and private use of business premises rather than the actual expenses incurred.
- The 3p per litre fuel duty increase planned for January 2013 has been cancelled completely.
Pensions Tax Relief
- The maximum annual pension contribution on which tax relief is available is to be reduced to £40,000pa from April 2014 (down by £10,000 from the current £50,000).
- The lifetime allowance is to be reduced to £1.25 million from the current £1.5 million.
- A set of simple financial products designed to help consumers navigate the financial services market more easily is a step closer, following publication of final recommendations by the Government.
- The Individual Savings Account (ISA) annual investment limit is to be increased to £11,520 from April 2013, although only £5,760 of the limit can be invested in a cash ISA. The Junior ISA investment allowance will be raised to £3,720.
Value Added Tax
- No changes were announced to the current rates of VAT.
- The VAT registration turnover threshold is to be increased to £79,000 from 1 April 2013. The de-registration threshold is to be increased to £77,000 from the same date.
- Britain is to close a loophole from April 2014 that allows employers to avoid paying payroll taxes by routing wages through offshore tax haven intermediaries. In many cases the workers – mainly temporary agency staff such as teachers, nurses, and oil and gas crews – are apparently unaware the taxes were not being paid or that as a result they could lose their entitlement to state sickness or maternity benefits.
- From 2013/14 a first ever General Anti-Abuse Rule (GAAR) relating to tax avoidance is to be introduced.
- From April 2014 it is proposed to abolish stamp duty and Stamp Duty Reserve Tax on share transactions in UK companies quoted on Small Company Growth Markets such as the Alternative Investment Market (AIM).
- A new universal credit system is to be introduced from September 2013.
- A new single-tier state pension, worth around £144 per week, will now be introduced in 2016 ~ a year earlier than previously planned.
- The cap on social care costs, originally set at £75,000 and due for introduction in 2017, will also now start in 2016 with a reduced cap of £72,000.
- A new childcare scheme will be introduced from autumn 2015 to support working families with their childcare costs. For childcare costs of up to £6,000 per year per child, support of 20% will be available worth up to £1,200.
- Child Benefit, which is currently frozen, will increase by only 1% per year for two years from April 2014