This blog post aims to summarise the main measures of the March 2012 Budget that affect our clients. If you need further assistance please let us know.

Individuals

Personal Allowances
The big news for individuals is that the personal allowance will increase to £9,205 from 6 April 2013, so you have to wait another year for that extra tax-free income. The personal allowance has already been increased by £630 from 6 April 2012 to £8,105, and the other allowances are increased as indicated below.

A source of complexity for older taxpayers is the application and withdrawal of age-related allowances, which are currently given when the taxpayer reaches age 65. These age-related allowances are withdrawn when the taxpayer's total income exceeds £25,400 (for 2012/13).

From 6 April 2013 those who reach age 65 on or after that date will not receive an age-related allowance, but will instead be entitled to the standard personal allowance of £9,205. This allowance is expected to rise to £10,000 in April 2014 or 2015. The existing age allowances given to people born before 6 April 1948, will be frozen at current rates as shown below.

Personal allowances for 2012/13...

Under 65 (standard allowance): £8,105 (2013/14 - £9,205)
65-74: £10,500 (2013/14 - £10,500)
75 and over: £10,660 (2013/14 - £10,660)
Minimum married couples allowance*: £2,960 (2013/14 - TBA)
Maximum married couples allowance*: £7,705 (2013/14 - TBA)
Blind person's allowance: £2,100 (2013/14 - TBA)
Income limit for allowances for age related allowances: £25,400 (2013/14 - TBA)
Income limit for standard allowances: £100,000 (2013/14 - £100,000)

* given where one partner was born before 6 /4/1935, as 10% reduction in tax.

Income Tax Rates
The tax rates for 2012/13 have not been changed from those applicable in 2011/12 (see below), but the threshold at which the 40% tax rate is applied is reduced to £34,370.

The reduction in the 40% threshold is balanced by the increase in personal allowance by £630. This means that in 2011/12 you start to pay 40% tax when your total income before allowances exceeds £42,475. In 2012/13 the 40% tax threshold is set at exactly the same amount: £42,475, before deduction of personal allowances. You can increase your own personal 40% threshold, by making donations under Gift Aid or paying personal pension contributions in the tax year.

Rates for 2012/13
Savings rate* (10%) - 0 to £2,710
Basic rate (20%) - 0 to £34,370
Higher rate (40%) - £34,371 to £150,000
Additional rate (50%) - over £150,000

* Only applies if non savings income is below this amount.

The rate on dividends remains at 10% for basic rate taxpayers, 32.5% for higher rate and 42.5% for additional rate. All come with a 10% tax credit.

Rates for 2013/14
There was much speculation before the Budget about the removal of the 50% rate that applies to taxable income above £150,000. This 50% additional rate remains in place for 2012/13, but will be reduced to 45% from 6 April 2013. The Government has also published most of the other tax rates and thresholds for 2013/14 as follows:

Savings rate* (10%) - 0 to £2,770 (estimate)
Basic rate (20%) - 0 to £32,245
Higher rate (40%) - £32,246 to £150,000
Additional rate (45%) - over £150,000

* Only applies if non savings income is below this amount

The rate on dividends will 10% for basic rate taxpayers, 32.5% for higher rate and 37.5% for additional rate. All come with a 10% tax credit.

Child Benefit
Another area of speculation was the withdrawal of child benefit from families where at least one parent pays tax at 40% or higher.

The Chancellor listened to reason and has decided to taper the withdrawal of child benefit where the higher earner's net income (after losses but before allowances), exceeds £50,000. For every £100 of income over £50,000, a tax charge will apply equivalent to 1% of the child benefit received by the family. This will lead to the complete withdrawal of child benefit at £60,000 of net income. This tax charge is to apply from 1 January 2013, and will be collected through PAYE and self-assessment from the higher earning partner in the family.

If you, or your partner, are currently in receipt of child benefit you don't have to do anything now. HMRC will be writing to all those affected by this change later in 2012. However, please discuss with us how you could re-arrange the distribution of income within your family, to reduce the affect of the withdrawal of child benefit. Any action in this area should be taken as soon as possible to ensure the new arrangements are in place for the full tax year 2012/13.

Tax Credits
The following summarises the rates and thresholds that will be cut or frozen in 2012/13 compared to 2011/12.

Child Tax Credit
Family element - £545 (2011/12 - £545)
First income threshold - £15,860 (2011/12 - £15,860)
Second income threshold - withdrawn (2011/12 - £40,000)

Working Tax Credit
Basic element - £1,920 (2011/12 - £1,920)
Couple and lone parent £1,950 (2011/12 - £1,950)
30 hour element - £790 (2011/12 - £790)
Childcare element:
Maximum costs for one child - £175 per week (2011/12 - £175 per week)
Maximum cost for all children - £300 per week (2011/12 - £300 per week)
Percentage of costs covered - 70% (2011/12 - 70%)
First income threshold - £6,420 (2011/12 - £6,420)
Withdrawal rate - 41% (2011/12 - 41%)
Income rise disregard - £10,000 (2011/12 - £10,000)
Income fall disregard - £2,500 (2011/12 - N/A)

The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. This affects families with fluctuating incomes, such as the self-employed. If you are in this position you need to finalise your profit figures as close to the tax year end as possible and provide those figures to the Tax Credits office without delay.

There are also changes to the tax credit rules from April 2012, which affect the number of hours the adults in the family must work to qualify for working tax credits. Lone parents are not affected by these changes.

Cap on Tax Reliefs
The Chancellor wants to deal with wealthy individuals who take advantage of tax reliefs that have no annual limits, such as relief for trading losses, charitable donations, and capital allowances. He is proposing that from April 2013 all such tax reliefs will be capped at the greater of £50,000 per year or 25% of the taxpayer's gross income. If this idea becomes law it could significantly affect loss-making businesses that are not conducted through a company.

Savings and Investments

Enterprise Investment Schemes
From 6 April 2012 there are two schemes which you can use to achieve tax relief for investing in small unquoted companies: the seed enterprise investment scheme (SEIS) and the enterprise investment scheme (EIS). The tax relief given under each scheme is shown below for 2012/13:

Rate of income tax relief: SEIS - 50%, EIS - 30%
Annual maximum investment qualifying for income tax relief: SEIS - £100,000, EIS - £1,000,000
Capital gains tax relief on investment: SEIS - 18% or 28%, EIS - deferred relief

Both the company and the investor have to qualify in order to receive tax relief under SEIS or EIS. The rules for both schemes are very complicated, so please talk to us before deciding to use either scheme.

Pension Contributions
In spite of much speculation about a reduction in tax relief for contributions to registered pension schemes, there has been no change in the tax relief rates or annual allowance for 2012/13. The annual allowance is the limit on pension contributions that attract tax relief, whether those contributions are paid by the individual, his employer, or calculated as a deemed rise in the value of a final salary scheme.

Each individual has a personal annual allowance of £50,000, plus unused annual allowance brought forward from the previous three tax years. If the value of the contributions made to the pension scheme exceed the taxpayer's annual allowance, an annual allowance tax charge applies on the excess contributions, set at the taxpayer's highest rate of income tax.

Annual allowance: 2012/13 - £50,000 (2011/12 - £50,000)
Lifetime Allowance: 2012/13 - £1,500,000 (2011/12 - £1,800,000)

Independent Savings Accounts (ISAs)
The ISA savings limits applicable in 2012/13 for those over 18 are:
Overall limit - £10,680
Cash up to - £5,340
Balance in stocks and shares up to - £10,680

For those aged 16 & 17:
Overall limit - £5,340
Cash up to - £5,340
Balance in stocks and shares up to - nil

For Junior ISA:
Overall limit - £3,600
Cash up to - £3,600
Balance in stocks and shares up to - £3,600

Capital Taxes

CGT
There has been no change in the rates or thresholds for capital gains tax (CGT):

The rates for 2012/13 are...

Annual exemption - £10,600
Annual exemption for most trustees - £5,300
Rate for gains in basic rate band - 18%
Rate for gains above basic rate band - 28%
Rate for gains subject to entrepreneurs' relief - 10%
Lifetime limit for entrepreneurs' relief - £10,000,000

Overseas Owners
Currently only UK resident individuals pay CGT on gains, even when the property is located in the UK. The Government is considering how CGT can be applied to gains made on residential property in the UK, when the owner is resident in another country. Any changes will apply from April 2013 at the earliest.

Employee Shares
If you acquire shares through an approved share option scheme run by your employer, you must pay CGT on gains made when you sell those shares, after deduction of your annual exemption. The CGT will be charged at 18% or 28%, as the conditions for the entrepreneurs' relief rate of 10% are unlikely to be met. The Government is considering changing the rules for approved share option schemes so the 10% rate can apply to shares acquired by employees. Any changes will apply from 6 April 2013 or later.

Inheritance Tax
The inheritance tax (IHT) nil rate band remains frozen until 2014/15. This is the amount of a person's estate that is free of inheritance tax. However, for deaths occurring on and after 6 April 2012, when at least 10% of their estate has been left to charity, a reduced rate of IHT applies to the chargeable estate. Gifts made to charities are exempt from IHT.

The limits and rates for 2012/13 are...

Nil rate band: £325,000 (2011/12 - £325,000)
Rate payable on death: 40% (2011/12 - 40%)
Rate payable when 10% of estate left to charity: 36% (2011/12 - 40%)
Rate payable on lifetime gifts to certain trusts: 20% (2011/12 - 20%)

Stamp Duty
You pay stamp duty when you purchase a property in the UK. There has been a lot of talk about how some people have avoided paying SDLT on high value homes. The tax avoidance scheme usual involves an off-shore company.

To deal with such schemes the Government has introduced new rates of SDLT on purchases of residential property valued at £2 million or more:

- 7% charge on purchases by individuals from 22 March 2012; and
- 15% charge on purchases made on or after 21 March 2012, by companies, collective investment schemes, or partnerships where a member is a company or a collective investment scheme

An annual tax charge may also be applied to the value of residential property held by certain companies, where each property is worth £2 million or more. Any such charge will apply from April 2013.

Business Tax

Simplification
The Government wants to simplify the accounts small businesses (partnerships and sole-traders) have to prepare for tax purposes. It is consulting on whether preparing accounts on a cash basis would be easier, and standard allowances could be used for the business use of vehicles and the proprietor's home. Any changes are likely to apply from April 2013 or later.

Corporation Tax
The small profits corporation tax rate remains the same at 20% for the year from 1 April 2012.

However the main rate for large companies is reducing from 26% to 24% and will be 22% by the year from 1 April 2014.

Capital Allowances
The rates and thresholds of the main capital allowances will apply as follows for 2012/13...

Main pool: writing down allowance: 18% (2011/12 - 20%)
Special rate pool: writing down allowance: 8% (2011/12 - 10%)
Annual Investment Allowance (AIA) cap: £25,000 (2011/12 - £100,000)

Employers

NI
For 2012/13 the main rates and thresholds for NI contributions are:

Lower Earnings Limit (LEL) for Class 1 NICs - £107/week
Employer's class 1 above £144/week not contracted out - 13.8%
Employee's class 1 not contracted out from £146 to £817/week - 12%
Employee's additional class 1 above £817/week - 2%
Self-employed class 4 from £7,605 to £42,475 per annum - 9%
Self-employed class 4 additional rate above £42,475 per annum - 2%
Self-employed class 2 - £2.65 per week
Voluntary contributions class 3 - £13.25 per week

The Government is consulting on how to integrate the administration of income tax and NI for employers and the self-employed. Any changes are unlikely to take effect until 2014 or later.

Share Schemes
The Government wants to encourage more employees to acquire shares in the companies that employ them. Small and medium sized companies can use the Enterprise Management Incentive share option scheme (EMI) to grant share options to employees, but there is a £120,000 cap on the value of share options each employee can acquire. The Government plans to raise this cap to £250,000 as soon as possible.

Cars and Car Fuel
Car Benefit

The tax charge for the private use of a company car is based on a percentage of the list price of that car when new, the percentage being based on the vehicle's CO2 emissions.

From 6 April 2012 cars with CO2 emissions in the band 76-99g/km will be taxed at 10% of list price. Those with CO2 emissions of 100g/km will be taxed at 11% of list price, with the percentage increasing in 1% steps for each additional 5g/km. From 6 April 2013 the 10% list price band will reduce again to 76-94g/km. A car with CO2 emissions of just 115g/km will then be taxed at 15% of list price.

From 6 April 2014 the 11% of list price will apply to cars with CO2 emissions in the band 76-94g/km, with a 1% step up for every addition 5g/km of CO2. From 6 April 2015 the minimum percentage of list price will be 13%, and from 2016 the minimum percentage of list price increases to 15%.

Fuel Benefit

Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to a set value, currently £18,800. This will rise to £20,200 from 6 April 2012. The maximum taxable benefit of receiving free road fuel for private use will increase from £6,580 (for 2011/12) to £7,070.

The taxable benefit when fuel is provided for private use in a company van is frozen at £550 for 2012/13.

VAT

The VAT rates remain unchanged at...

Lower rate: 0%
Reduced rate: 5%
Standard rate: 20%

The registration and deregistration limits from 1 April 2012 are...

Registration turnover: £77,000 (1 April 2011 - £73,000)
Deregistration turnover: £75,000 (1 April 2011 - £71,000)

Changes from 2013
The following changes to the VAT rules will be made in 2013...

- The standard rate of VAT will apply to the supply and installation of energy saving materials in non-residential buildings used for non-business purposes by charities. Currently the lower rate of VAT applies
- The invoicing rules will be simplified
- Exemptions will be introduced for commercial Universities
- Cable-car rides will attract the reduced rate of VAT, where each cable car holds fewer than 10 passengers.

Proposals
The Government is consulting on the existing VAT law in the following areas, so expect changes in the future...

- Hot take-away food
- Sports nutrition drinks
- Self storage
- Hair-dressers' chair-rental and
- Alterations to listed buildings.

Most allowances for tax efficient investments are fixed for each tax year and cannot be carried over to the next year if not used. If you have money to invest you may want use your allowance for 2011/12, or in some cases wait until 2012/13 when new rules and new limits apply.

Here is a brief summary of the 2011/12 and 2012/13 investment limits:

EIS
Investors who subscribe for shares under the Enterprise Investment Scheme (EIS) can currently receive income tax relief at 30% of up to £500,000 invested in one year. This annual cap will rise to £1 million from 6 April 2012. However, any amount can be invested in EIS shares to defer tax due on a capital gain made in the period up to three years before the EIS shares were acquired, or to up to one year later. An investment in EIS shares can be treated as if it was made in the previous tax year, to apply the income tax relief against the taxpayer's tax due for the earlier year.

The conditions companies need to meet to raise funds using EIS are also being relaxed from April 2012. These conditions are still very complex so talk to us first before making a decision to use the EIS scheme.

SEIS
The Seed Enterprise Investment Scheme (SEIS) is a new scheme due to start from 6 April 2012, subject to the law being passed by Parliament. This will operate like a mini version of the EIS, but the scheme will only be available for five years. The maximum investment by a taxpayer in one tax year will be £100,000, with income tax relief given at 50% of the invested amount. Any gains made on the SEIS shares will also be tax free as long as the investment conditions are not broken and the shares are held for at least three years. In addition if you make a capital gain in 2012/13 (on any asset), you can invest that gain in SEIS shares and achieve 100% tax exemption on that gain. Thus the maximum tax relief for investing in SEIS shares could be 78% of the amount invested.

VCT
Investing in shares issued by a Venture Capital Trust (VCT) will give you 30% income tax relief on the amount invested, capped at £200,000 per tax year. This investment limit is not expected to increase in 2012/13. Dividends and gains from the VCT are tax free if the VCT shares are held for at least five years.

ISA
Individual Savings Accounts (ISAs) can be taken out as cash only accounts (maximum £5,340) or stocks and shares accounts up to £10,680. These limits are for 2011/12. The investment limits for 2012/13 are £5,640 for cash only accounts and £11,280 for stocks and shares.

You can now open a Junior ISA (up to £3,600 per year) for children aged under 18, who do not already have a child trust fund account in their name. Individuals who are aged 16 or 17 can also open a standard cash only ISA in addition to the Junior ISA.

If you are in the process of closing down your company, or are thinking of doing so, you need to know about the change in the tax law from 1 March 2012.

If your company contains significant value, you will want to extract the cash and assets in the most tax efficient manner. Until now you could ask the Taxman to apply concession C16 to the payments made during an informal winding-up up of the company. Concession C16 allows the payments made to shareholders (known as distributions) to be taxed as capital gains. Shareholders who were also officers or employees of the company may be able to claim entrepreneurs' relief on those gains, which means the gain is taxed at just 10%.

Concession C16 is generally granted when the company has paid all its creditors, including the Taxman, and the owners promise not to start-up the same business in a different company. Concession C16 will cease to apply from 1 March 2012, and will be replaced by a new law as follows:

- Where the distributions are more than £25,000 in total, all those distributions will be subject to income tax (at rates of 25% or 36.11%), in the hands of the shareholders.
- Where the total value of the distributions to the shareholders of the company is no more than £25,000, the entire amount will be taxed as capital gains (at 10% where entrepreneurs' relief applies, or at 18% or 28% otherwise).
- Payments made as part of an informal winding-up on or after 1 March 2012, will be subject to the new law even if permission to use concession C16 was previously given.
- It doesn't matter on what date the company is finally dissolved or struck-off, it is the date on which the distribution is made that counts.

If your company holds significant value and you want to close it down, you can opt to use a formal liquidation. This will allow all the distributions to be treated as capital gains and for the lower tax rates to apply. However, a registered liquidator may charge a fee of £5000 or more to undertake the liquidation.

PAYE and other payroll deductions need to clear Taxman's bank account by 19th of the month, if paid by cheque. Electronic payments can arrive by 22nd of the month, or the last banking day before that date.

If you use the faster payments service (FPS) to make your PAYE payment, the amount transferred will clear the Taxman's bank account the same or next day. However, there are limits on the amounts that can be transferred per day and per transaction using FPS, which vary from bank to bank. So check what limit your bank applies.

Late payments of PAYE will result in an automatic penalty of up to 4% of the PAYE that was paid late. You are permitted to make one late payment of PAYE during the tax year, but two or more late payments will mean that a penalty will be charged after the end of the year.

In addition, if you have still not paid after six months you may have to pay a further penalty of 5 per cent. A further penalty of 5 per cent may be charged if you have not paid after 12 months. These apply where only one payment in the tax year is late.

The Taxman has already issued many penalties for late payment of PAYE in 2010/11, and some of these penalties have been calculated incorrectly. If you receive a penalty notice, please ask us to check it as soon as it arrives. Any appeal must be submitted within 30 days.

If your business is registered for VAT in the UK and you sell to VAT registered customers in other EU countries you are required to submit an EC sales list (known as ECSL or form VAT 101), to HMRC. If you move your own goods to a branch or subsidiary of your business in another EU country, you may also have to complete an ECSL for that period.

The ECSL is generally submitted quarterly, but businesses that export goods totalling more than £35,000 (excluding VAT) per quarter must complete an ECSL every month. If your business only sells services to other EU countries you can continue to submit a quarterly ECSL, but you can opt to submit monthly ECSL forms.

When you complete box 8 on your VAT return, the Tax Office will automatically send you an ECSL form to complete. The paper ECSL form must be submitted within 14 days of the end of the reporting period. You can complete the ECSL online, in which case you have 21 days from the end of the period to submit the form. Note that this deadline is well before the deadline for your regular quarterly VAT return.

We can help you submit ECSL forms, either on paper or online. Talk to us about the work involved.