2012 Autumn Statement - Victoria Bishop, robinson+co's Tax Partner, provides her unique take on the announcements
The Chancellor’s 2012 Autumn Statement was quite short for once, being only 50 minutes long – and part of that was the Speaker having to take time to admonish the unruly House of Commons! However, Mr Osborne “packed quite a lot into that 50 minutes,” says Victoria.
Writing immediately after the speech, the measure that was making the headlines is that the fuel duty rise of 3p per litre due to take place in January 2013 has been cancelled – not “postponed” as has happened with previous increases but cancelled completely. This will please anyone with a road vehicle, but particularly robinson+co’s clients in haulage.
Annual Investment Allowance
A surprise announcement was that the Annual Investment Allowance (“AIA”) is to be increased from £25,000 per annum to a whopping £250,000 per annum from 1 January 2013. AIA is part of the tax relief given when a business makes investment into fixtures and fittings, and plant and machinery.
This measure will affect the tax position of all businesses, as it means that any appropriate expenditure will decrease the taxable profit pound for pound up to £250,000. The Chancellor pointed out that this covers 99% of business capital expenditure.
However, two words of warning:
• Firstly, this allowance will be in place for two years only. After that we can expect the AIA to revert to its current level of £25,000
• Secondly, it will come into play on 1 January 2013 – an unusual implementation date rather than the new tax year on 6 April 2013 which probably means that every accountant and tax adviser in the country will be advising their clients to postpone large capital expenditure for at least 20 days!
Please contact Victoria on 01900 603623 or firstname.lastname@example.org if you wish to discuss this or any other measure announced in the Statement.
The main rate corporation tax which is paid (effectively) by companies with a taxable profit over £300,000 is decreasing even more than previously advised. Come April 2014 the rate will be 21% - one of the lowest rates in the industrialised world and only one per cent more than the rate for companies with profits below £300,000.
Surely the next announcement will be that the two rates are to be merged; the question is only whether the rate will be 21% or 20%.
From 2013/14 unincorporated business with a turnover under £77,000 (the VAT registration limit) will be able to calculate their taxable profit on what is called the “cash basis.” This was first mooted in the 2012 Budget (click here to see Victoria’s commentary) and this announcement merely confirms the government’s intention as some details are still be ironed out.
HM Revenue & Customs will also accept some simplified calculation of some expenditure - whether this is to the taxpayer’s advantage remains to be seen.
Where these measures will be of advantage to our clients, we at robinson+co will be adopting it as appropriate, but please do not hesitate to get in touch with your normal contact on 01900 603623, 01946 692423, or 019467 25808 if you wish to discuss the matter.
Avoidance or Evasion?
One of the first lessons learnt by accountants and tax advisers is that tax avoidance is legal whereas tax evasion is illegal. In a famous tax case the judge, Lord Tomlins, said that “every man is entitled to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”.
However the Chancellor came up with an apt phrase to describe the moral repugnance which many people are feeling at the tax arrangements of some multinational companies – “legal evasion.” Whilst logically a contradiction in terms, the phrase does do what it says on the tin!
The Chancellor alluded to the measure previously announced on 3 September that H M Revenue & Customs is to receive a further £77million to fund anti avoidance as well as anti evasion work. There will be 2,500 more tax inspectors working in this area, and in addition HMRC alone of all government departments is to have its budget maintained at its current level rather than reduced by 1% in 2013 and 2% in 2014.
And the “GAAR” announced in the 2012 Budget will be introduced in 2013. (See Victoria’s Budget article here for further information.)
The balancing act of encouraging people to save for a private pension, whilst not costing the government too much in tax relief continues.
The limits for annual or lifetime pension saving are to be decreased again from 2014/15. The Lifetime Allowance is reducing to £1.25million (currently £1.5m) whilst the Annual Allowance is reducing to £40,000 (currently £50,000).
Whilst these figures may seem large and irrelevant to many people, there are those who may be almost inadvertently caught. These are those people in “defined benefits” arrangements and include such employers as the NHS, Sellafield and the Civil Service.
The problem arises as the Annual Allowance does not apply to what you actually pay into your scheme but rather by how much your fund has increased in value from one year to another. The calculation to establish the position is consequently far from straightforward!
There will be a transitional protection available in certain circumstances.
Better news is that the maximum drawdown allowed is to increase to 120%, although with drawdown rates so low this may be of scant comfort.
If you require any further information on these matters please contact Jenny Armstrong, Chartered Financial Planner at robinson+co on 01900 603623 or email@example.com, or your usual contact at the firm.
As ever there was a myriad of other measures thrown into the mix, with more detail in the notes published immediately after the Statement.
Pertinent to us are:
• The Personal Allowance for 2013/14 is to be £9,440 – more than previously announced
• Inheritance Tax Nil Rate Band will increase on 5 April 2015 to £329,000
• Basic state pension will increase by 2.5% for 2013/14 giving a basic weekly amount of £110.15
• The 2013/14 ISA limit will be £11,520, of which £5,760 can be invested in cash
• Small Business Rate Relief will be extended until April 2014
• Certain tax reliefs and state benefits will next be increased by 1% only
• Following an agreement with Switzerland, the government expects an additional tax take of £5billion over the next 5 years in respect of funds invested there.
• The VAT changes announced in the 2012 Budget (including the infamous “pasty tax”) have either been operative since 1 October or will be operative from 6 April 2013.
And lastly, a year ago Victoria was delighted at the news that the Humber Bridge toll would be halved but now she is worried: with more improvements to the A1 at Leeming she will soon have no excuse to stay in beautiful Cumbria rather than visit boring, flat, Lincolnshire.....
• These notes are not a full resumé of the Autumn Statement issued on 5 December 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