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BUDGET REVIEW 2012

And yet another bumper Budget – Victoria Bishop, Tax Partner at robinson+co, provides a whistle stop tour…

Each year Victoria starts her review of the Budget by saying how much there is to discuss – and this year is no different. “Indeed,” says Victoria, “this year the announcements about Child Benefit, the higher allowances for people aged over 65, and not least the changes in tax rates in corporation and income tax, means that the 2012 Budget is perhaps even more relevant to our clients than many in the past.”

One thing in the Budget that will not help Cumbrians is the news that the 10 largest cities in the UK will receive funding to introduce “ultra fast” broadband – not the right thing to say when Victoria’s computer kept crashing with the error message that “Broadband width is not sufficient” to stream the TV coverage. Thank goodness for radio or Victoria’s screams of frustration would have been heard throughout the county.

Child Benefit

But, back to the serious stuff, and many people were waiting with baited breath to see what really was going to happen to the proposed withdrawal of Child Benefit for “higher” earners.
The revised proposal means that Child Benefit will be withdrawn at a rate of 1% of child benefit due for every £100 earned by at least one member of the household over £50,000.
This will commence on 7 January 2013 – which means the 2012/13 tax year.
H M Revenue & Customs will apparently be contacting all taxpayers potentially affected by this change; do not hesitate to bring this letter into our offices at either Lowther Street, Whitehaven or Oxford Street, Workington so the robinson+co team can help you
Here at robinson+co we will be reviewing as a matter of course the household finances of our clients with children to ensure that legal tax planning takes place to ensure that the household is as well off as possible.
This is a major improvement on the initial proposals but it is still a controversial move as it does mean that some people will be able to arrange their household finances to ensure both parents earn £49,999.99 whilst others will be stuck with no Child Benefit if one parent earns nil but the other £60,000.
If you have any queries about your position please do not hesitate to contact Victoria on 01900 603623 or victoriabishop@robinsonco.co.uk. Alternatively talk to the partner who deals with your accounts preparation.

Pensioners’ Tax Allowances

One of the few advantages of reaching the age of 65 was that you may get higher tax allowances, but the Chancellor has announced plans to cease this arrangement.
The higher tax allowances – at least £10,500 at the moment – are reduced if your total income is over £24,000 and this means that many pensioners have to complete tax returns just to ascertain the amount of tax allowance due.
Whilst abolishing the higher allowances is a simplification of the tax system it will undoubtedly increase the tax bill of many pensioners in the years to come – although it may also decrease their accountancy costs as annual tax returns will no longer be required!
Here at robinson+co we believe that doing our best for our clients is paramount. Accordingly the tax team will be reviewing the tax position of our pensioner clients and ensuring that we get them out of the onerous Self Assessment system as soon as possible.
The higher allowances remain in place if you were born before 6 April 1948.
For the rest of us the headline news sounds good with the announcement that the personal allowance will be increased to £9,205 in April 2013.
However, the news that the basic rate band will be decreased at the same time to £32,245 was hidden in the details and means that approximately 300,000 more people will be paying tax at 40% in 2013/14 than in 2012/13.
Again, do not hesitate to contact Victoria as necessary on 01900 603623 or victoriabishop@robinsonco.co.uk

Business Taxation

Once again the main rate of corporation tax has been reduced – this time to 24%, with further decreases in 2013 and 2014 when we will have a main corporation tax rate of 22%. This is a far cry from the days of 30% not that long ago.
In 2014 there will be just 2% difference between this main rate and the small companies’ corporation tax rate of 20% and the Chancellor hinted that at this point the two rates will be aligned. Is it just Victoria being cynical or can we agree that the small rate is more likely to be increased to 22% than the main rate reduced to 20%?
More good news for business people is the announcement that the government will consult with the professions to change the tax requirements of businesses with a turnover under the VAT registration limit – which goes up to £77,000 on 1 April 2012.
This would make it easier for these businesses to prepare their accounts as they would not be required to meet “GAAP” – accountancy jargon meaning you have to bring into the accounts your debtors, creditors and work-in-progress – which will be a big load off the bureaucratic burden if it comes to pass.
The consultation will also look at introducing standard rates of expenses which can be claimed by these businesses, again reducing complexity and bureaucracy for these businesses.
Another accountancy buzz phrase was also mentioned, this time “GAAR.” This means a “General Anti-Avoidance Rule” and it will be introduced into British tax legislation in 2013.
Whilst this will help the government keep on top of what Mr Osborne called “aggressive tax avoidance” which is “morally repugnant,” it is surprising that no specific mention was made of the arrangement of trading via a limited company to potentially reduce one’s tax liability. This has been in the news recently with various civil servants as well as Ken Livingstone attracting attention for using this arrangement.
This is linked with the infamous “IR35” rules, which did not get a mention in the speech, although the supporting press releases indicate that H M Revenue & Customs will continue to strengthen their compliance teams in this area and also look into ways of simplifying the operation of the rules.
If you have any queries about IR35 please do not hesitate to contact Peter Ellwood on 01900 603623 or peterellwood@robinsonco.co.uk

VAT

Since increasing the main VAT rate to 20%, the Chancellor has kept quiet on this subject, but this time he has decided to address some of the anomalies within the scheme – anomalies which famously led to a court case over whether Pringles are cake or a potato product!
So if you have any strong views on the VAT treatment of “sports nutrition drinks,” hot food sold by supermarkets, the sale of caravans not for year round occupation, and the rental of chairs by hairdressers, please contact our VAT expert Roger Troughton on 01900 603623 or rogertroughton@robinsonco.co.uk.
You should note that the VAT registration limit for 2012/13 is £77,000 and the deregistration limit £75,000.

Company Cars

At robinson+co we have tended to act on the basis that the provision of company cars is often no longer a tax efficient perk but rather – depending on the precise personal situation of the person concerned – a tax expensive way of travel.
And buried in the Budget press releases is news that they will become even more expensive, especially if the employer also pays for private fuel.
The taxable benefit is based on the car’s list price multiplied by a figure dependent on the CO2 emissions but capped at 35%. In 2015 this cap will increase to 37%, a big difference for drivers of the least fuel efficient vehicles.
Good news for diesel vehicles though as the 3% supplement will disappear in 2016.
These are a few years in the future which gives us at robinson+co time to advise appropriately those of our clients who do find company cars effective.

Unfortunately there is less time to advise the self employed with business cars about a change effective in April 2013. From this date capital allowances at 18% will only be available if the CO2 emissions of the vehicle are under 130. Over this amount capital allowances will be given at 8% only. This is a penal change - the rate at which allowances decrease is currently 160 g/km.
Other transport news was that the VED for vehicles with CO2 emissions over 120 will increase by inflation only, whilst VED rates for HGVs will be frozen – good news for our haulier clients. The rates for cars with emissions under 120 have not increased.
The fuel duty rise of 3p per litre is going ahead on 1 August 2012.
If you have any queries please do not hesitate to contact Peter Ellwood on 01900 603623 or peterellwood@robinsonco.co.uk

Cap on unlimited tax reliefs

An ambiguous, rather strange announcement concerned a “cap on income tax reliefs claimed by individuals” which are currently unlimited. This will mean that an individual will only be able to claim the larger of one quarter of his income or £50,000. “I think this must be aimed at loss relief or gift aid,” said Victoria, “but until further announcements are made later in 2012, it is not clear which tax reliefs are targeted.” As soon as more details are available, further information will appear on www.robinsonco.co.uk

Important figures:

 

2012/13

2013/14

 

£

£

Personal Allowance

8,105

9,205

Basic Rate Band

34,370

32,245

Capital Gains Tax Annual Exemption

10,600

*

Pensions Saving – Annual allowance

50,000

*

Pensions Saving – Lifetime allowance

1,500,000

*

Inheritance Tax Nil Rate Band

325,000

325,000

ISA limit

11,280

*

Small Companies Corporation Tax Rate

20

20

Corporation Tax Rate

24

23

VAT Registration Threshold

77,000

*

VAT Deregistration Threshold

75,000

*

*Amounts to be announced in 2013

robinson+co’s annual Tax Data Card will be posted out to our clients and professional contacts shortly; please contact Philip Allison on 01900 603623 or philipallison@robinsonco.co.uk if you will require more than one card.

What else?

Perhaps it is now time to mention the big headline arising from this Budget: the reduction in the top income tax rate from 50% to 45%. This had been leaked ahead of the speech and so was not a surprise. Delaying the reduction for one year until April 2013 does, however, mean that the team at robinson+co may be able to help you to plan your household income so as to reduce your exposure to tax at 50%.
If you have any queries about this contact David Plaskett on 01900 603623 or davidplaskett@robinsonco.co.uk for further advice.
Another headline grabber is the increases to Stamp Duty Land Tax for residential properties sold for £2million or more, although as the number of such properties in Cumbria is relatively low, its impact here is unlikely to be significant.
The Budget documents - as ever - extend to hundreds of pages, although some measures have been announced previously.
Buried in the notes is, however, one very important measure: MPs will continue to be exempt from tax on “resettlement payments”!

Other measures include, inter alia:
• New statutory residence test to be introduced in April 2013
• An increase to the limit of share options which can be held within the Enterprise Management Incentive scheme.
• A consultation on simplifying the periodic and exit tax charges of trusts
• Continuing the consultation on the alignment of income tax and national insurance contributions
• Corporation tax reliefs for the creative sector
• Further Research & Development reliefs
• Consultation on a “disincorporation” relief for businesses which no longer wish to trade via a limited company
• Changes to the taxation of remote gambling operators
• The “Seed Enterprise Investment Scheme” to go ahead as announced in the Autumn Statement 2011 subject to minor changes
• Community Amateur Sports Relief will be able to claim Gift Aid relief on a statutory basis.

If you require further information on any of these matters please contact Victoria.

A successful Budget?

At one point in his speech the Chancellor quoted Adam Smith’s four principles of a taxation system: simplicity, predictability, support work, and fairness.
“I think some of the proposals do support the principles of simplicity and predictability,” says Victoria, “but only if they are carried through and are not amended by political pressures. However,” she continues, “I remain to be convinced about fairness and supporting work. Rest assured though that I and the rest of the team at robinson+co will be working hard to ensure our clients continue to benefit from the tax breaks afforded by our tax system and help them to maximise their household income.”

Please contact Victoria Bishop on 01900 603623 or victoriabishop@robinsonco.co.uk for further information on any matter arising from the 2012 Budget.


• These notes are not a full resume of the Budget Report issued on 21 March 2012
• All care has been taken in preparing this material. However no responsibility can be accepted for any losses arising to any person acting or refraining from acting as a result of this material
• Any comments are those of Victoria Bishop and do not necessarily reflect the views of robinson+co 

This article was amended on 22 March 2012

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