Personal tax and benefits
• The basic Personal Allowance, due to anyone born after 6 April 1948, will increase in April 2013 to £9,440 (2012-13 £8,105). The increase in the Personal Allowance is £235 more than expected and will save basic rate tax payers up to £267 in a full tax year.
• For those born between 6 April 1938 and 5 April 1948 the Personal Allowance is unchanged at £10,500 from April 2013. The equivalent allowance for those born before 5 April 1938 is unchanged at £10,660 from April 2013. The income limit, above which the increased allowance for the elderly are reduced, is increased to £26,100 (2012-13 £25,400) from April 2013.
• The basic rate of Income Tax remains at 20% and will apply to the first £32,010 of taxable income (2012-13 £34,370). If your taxable income exceeds £32,010 you will pay tax at the higher rate of 40% until your income exceeds £150,000 when the additional rate of 45% kicks in.
• The threshold for the 40% rate of Income Tax is to rise by 1% in 2014 and 2015 from £41,450 to £41,865 and then £42,285.
• Capital Gains Tax annual exempt amount will be increased by 1% in 2014-15 and a further 1% in 2015-16 reaching £11,100.
• Child Benefit rates are frozen for 2013-14 and will increase by 1% in 2014-15 and 2015-16.
• Tax credits disability elements are increased in line with Consumer Price Index (CPI). Other elements are either frozen or will increase by 1% in 2013-14. All rates are increased by 1% in 2014-15 and 2015-16.
• Guardian’s Allowance is increased in 2013-14 in line with the CPI.
• State pensions will increase by 2.5% to £110.15 per week from April 2013.
• For 2013-14, there are no changes to the percentage rate of contribution for Class 1 and Class 4 National Insurance Contributions (NICs) but there are changes to all of the thresholds and limits.
Pensions Savings – tax relief
The expected decrease in tax relief on pension contributions was confirmed. However, the change will not be applied until 6 April 2014. For the tax year 2014-15 onwards:
• The annual allowance for pensions tax relieved savings will be reduced from £50,000 to £40,000.
• The standard lifetime allowance for pensions tax relieved savings will be reduced from £1.5 million to £1.25 million.
• A transitional ‘fixed protection’ regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance.
The lifetime allowance is the maximum amount of pension contributions you can make that benefit from tax relief. If the lifetime allowance is exceeded, a lifetime allowance charge is levied on the excess. This is presently 55% if excess is paid as a lump sum and 25% is paid as a taxable pension.
Legislation will be introduced in Finance Bill 2013 to make these changes and will be published in draft on 11 December 2012.
This is one of the few measures introduced to increase the tax take from higher income earners.
In addition to the Budget 2012 announcement, the main Corporation Tax (CT) rate for Financial Year 2014 will be reduced by a further 1% to 21%. As already announced, the main CT rate for Financial Year 2013 is 23% and the Small Profit rate is 20%.
Annual Investment Allowance
In the hope that businesses will increase investment, the Annual Investment Allowance will be increased from £25,000 to £250,000 per annum for a 2 year period commencing 1 January 2013. This is a tenfold increase. The Annual Investment Allowance provides a 100% write off for purchases of qualifying equipment. This could include plant, computer equipment, furniture, vans and other fixtures and fittings. For profitable, self-employed business people, who need to invest in this type of asset, tax savings could be considerable as the relief will impact their higher and additional rate liabilities.
Simplified tax scheme for small unincorporated businesses
A simpler Income Tax scheme for small unincorporated businesses will be introduced for the tax year 2013-14 to allow:
• Eligible self-employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business. In essence, they will not have to distinguish between revenue and capital expenditure.
• All unincorporated businesses will be able to choose to deduct certain expenses on a flat rate basis.
Small Business Rate Relief
The present Small Business Rate Relief Scheme is to be extended for a further year to April 2014.
Other Taxes – Fuel Duty, Air Passenger Duty (APD), Inheritance Tax (IHT)
• In a move that will delight motorists the 3.02 pence per litre Fuel Duty increase that was due to take effect on 1 January 2013 will be cancelled and the increase that was planned for 1 April 2013 will be deferred until 1 September 2013.
• From the 1 April 2013 APD rates will increase based on the Retail Price Index increase for September 2012.
• The IHT nil-rate band was frozen at Budget 2010 at its current level of £325,000 until April 2015. For 2015-16 the band will be increased by 1% rounded up to £329,000.
Anti-Avoidance and tax evasion
The Government accepted the recommendations of the Aaronson report that a General Anti-Abuse Rule targeted at artificial and abusive tax avoidance schemes would improve the UK’s ability to tackle tax avoidance. The Government has committed to bringing forward legislation in Finance Bill 2013 to enact this measure.
Earlier this week, the Chancellor of the Exchequer and the Chief Secretary to the Treasury announced that the Government is investing a further £77 million in HMRC to increase revenues raised from tackling tax avoidance and evasion.
This investment will be used to:
• Accelerate resolution of avoidance schemes.
• Expand HMRC’s Affluent Unit to deal more effectively with taxpayers with a net worth of more than £1 million.
• Increase specialist resources to tackle offshore evasion and avoidance of inheritance tax.
• Improve HMRC’s risking technology, including increased use of third party data.
Additionally, five further measures have been announced in a Written Ministerial Statement. They are effective from 5 December 2012 and cover:
1. Foreign bank levies – there are no longer allowable deductions for Income Tax or Corporation Tax purposes.
2. Tax mismatch scheme – which reduces Corporation Tax liability by artificial tax treatment of loans or derivatives.
3. Property return swaps – which convert capital losses into income losses.
4. Manufactured payments – schemes involving stock lending arrangements.
5. Payments of patent royalties – relief for non-trade payments to be abolished.
Individual Savings Account (ISAs)
From 6 April 2013 the overall limit is increased to £11,520 (2012-13 £11,280), of which £5,760 can be invested in cash (2012-13 £5,640).
The junior ISA is increased to £3,720 (2012-13 £3,600).
Fuel benefit charge
From 6 April 2013 the car fuel benefit multiplier is increased to £21,100 (2012-13 £20,200). This figure is used to tax company car users whose employers pay for their private petrol usage. The charge can be legitimately avoided if the employee reimburses the cost of private fuel used. The equivalent van fuel benefit charge is increased from the same date to £564 (2012-13 £550).
Reducing tax credit error, fraud and debt
A number of initiatives have been announced aimed at reducing the levels of tax credit error and fraud and recovering tax credit debt. They include:
• Requiring claimants to provide more evidence to support certain claims for tax credits for children and childcare.
• Trialling the use of debt collection agencies to collect tax credit debt.
• The announcement of legislative changes to enable the collection of existing tax credit debt from a new tax credit award.
New initiatives aimed at recovering debt owed to central government include:
• Trials and pilots with the Department of Work & Pensions and Debt Collection Agencies.
• An increase to HMRC’s debt management resource for the rest of this year and for 2013-14.
Over the next three years, HMRC will significantly expand the range of digital services to include:
• 20 million taxpayers receiving a Personal Tax Statement, showing how their tax is calculated and spent by government, and
• A more joined-up digital experience for taxpayers providing an overview of their HMRC ‘account’. This will include: links to all their online transactions, a facility for accessing tailored help and asking HMRC questions.