None of us could escape the coverage across the media last week of the 2012 Budget – but with so much information disclosed, it can be hard to know exactly what changes might affect you directly. As professional accountants and business advisors, we have a responsibility to keep our clients up to date with any changes that might be relevant to their situation, so here’s our Budget 2012 breakdown and advice to help you manage the changes.
Budget 2012 headlines
- From April 2013, the 50% highest rate of tax will be cut to 45%
- For people who earn over £100,000 the effective tax rate for the income between £100,000 and £116,000 remains a swinging 60%
- Personal income tax allowance raised to £9,205 from April 2013, making 24 million people £220 a year better off, including higher rate earners
- 300,000 more people will be drawn into the higher rate – 40% – tax band from 2013/14 as the threshold is reduced from £42,475 to £41,450
- Age-related income tax allowances to be removed for new pensioners from April 2013, and replaced with the same personal allowance as the rest of the population. Allowances for those already of pension age to be frozen
- Child Benefit will be phased out when someone in a household has an income of more than £50,000. It will fall by 1% for every £100 earned over £50,000
- A new stamp duty of 7% for homes worth more than £2m. If you buy a house in UK through a foreign registered company the rate of stamp duty is 15%
Personal Taxation and National Insurance Contributions (NIC) Advice for the 2012 Budget
1. If your income is currently over £100,000, or you are expecting it to increase over £100,000 before April 2013, then we need to do some active tax planning on your behalf to minimise the amount of tax you will be paying. We are currently looking through our client lists to identify people who would benefit from this tax planning. If you have any doubt as to whether this will affect you please be sure to contact us as soon as possible.
2. If your income fluctuates over/under £100,000 between tax years (April to March) then consider ways of moving income between years in order to flatten income and keep adjusted income below £100,000 if possible. For example – PAYE, defer bonus or bring forward; Self employed, put off job till next year or bring forward work if possible; Shareholders of own companies, bring forward or defer dividends to minimise personal tax bill. Also, consider timing of lump sum pension or gift aid payments to achieve maximum tax relief.
3. If you earn over £42,475 and are already making personal pension contributions, then carry on making them.
In summary, the main changes in the Budget 2012 that will have an impact on your tax situation are:
1. Personal Allowance increased to £9,205 in 2013/2014 up from £8,105 in 2012/2013
2. Top rate of income tax cut from 50% to 45% from April 2013
3. Age-related allowances for pensioners to be frozen, starting in April 2013
Post Budget 2012 VAT advice
There were no major VAT changes announced in the Budget 2012, but if you’re not currently VAT registered but earn over £14,000 then we recommend you voluntarily become VAT registered under the Flat Rate Scheme – so please contact us to discuss the benefits for you. If you’re already VAT registered, then you should be putting aside 17% of your income into a separate VAT account.
Post Budget 2012 business accounts and taxation advice
1. If you have a limited company you should still not purchase and run cars through it UNLESS it is an environmentally friendly car; currently below 110g/km is considered environmentally friendly. From April 2013 it reduces to 95g/km. No change to rules regarding vans/pickups run through a company. These tax advantages of an environmentally friendly car also apply if you’re self employed.
2. From April 2013, if you have a limited company and have no other income (e.g. from PAYE, letting rentals, etc), and assuming that the company has made enough profit, you can take £38,900 (£3,241 per month) out of company without paying any personal tax.
Announcements made in the Budget 2012 pertaining to business accounts and taxation includes:
- The Government will reduce the main rate of corporation tax to 24% from April 2012, however the small companies rate of 20% will stay the same (a “small company” has annual profits under £300,000). This main rate will then be reduced by a further 1% in each of the following two years, and as a result will be 22% from April 2014. The 18/28% rates for Capital Gains Tax remain unchanged
- Cash accounting for tax purposes on small unincorporated businesses with income up to the VAT registration limit of £77,000 from April 2013 if no serious concerns are raised following the Government consultation. This could mean that businesses falling into this income threshold can prepare accounts based on the date they got paid rather than the date you actually did the work. The detail on how this will work will be published in due course
- The Government is consulting on standardising expenses for unincorporated businesses to allow a fixed amount to be claimed rather than recording actual amounts
- CO2 emissions for 100% Capital allowances on green cars as long as cars are under 95g/km from April 2013, currently 110g/km.
- Main rate for cars drops from 160 g/km to 130 g/km from April 2013 – so for any car bought after April 2013 with CO2 > 130 g/km = 10% capital allowances
Budget 2012 Tax Credits and allowances advice
From January 2013 Child Benefit will be phased out when someone in a household has an income of more than £50,000. It will fall by 1% for every £100 earned over £50,000. Only those earning more than £60,000 will lose Child Benefit entirely.
Our accountants advise you to contact the Child Benefit Office on 08453 021 444 or go to Child Benefit: Directgov – Money, tax and benefits if you don’t currently receive Child Benefit and have children under 16, or under 20 and still in education.
Other Budget 2012 changes
- If you employ anyone, then be aware that the National Minimum Wage will be increased again from October 2012
- From the 2014-15 tax year HMRC will introduce a new Personal Tax Statement with details of tax paid and how it was spent by the government
- The Government will introduce a new stamp duty land tax rate of 7 per cent for residential properties over £2 million.
If you have any questions regarding the outcome of the 2012 Budget, please feel free to contact our accountants here at Blue Skies, and we’ll do everything we can to help.