The Chancellor of the Exchequer, George Osborne delivered his third Budget to a packed House of Commons on Wednesday 21 March 2012.
The Chancellor stated that one of the main aims of the Budget will be to create a “simpler tax system” but also one where the tax revenues from the wealthiest will increase as a result of his measures to clamp down on tax evasion and aggressive tax avoidance which he described as “morally repugnant”.
The main points of tax interest from the Budget Speech were as follows:
The basic personal tax allowance will rise from £8,105 (effective from April 2012) to £9,205 in April 2013.
In April 2013 the top rate of tax for individuals will fall to 45% from 50%. The Chancellor stated that there is now clear evidence that the differential of 5% did not raise any significant revenues and therefore there is no justification in keeping it at 50%.
The basic rate tax band will fall from £34,370 to £32,245 from April 2013 in line with the increase in the personal tax allowance.
Age related allowances for individuals over 65 will not be increased in April 2013 and will not be available to anyone who reaches 65 after 6 April 2013.
The main rate of corporation tax will be reduced by a further 1% from 1 April 2012, resulting in a 2% reduction to 24%. By April 2014 the headline rate will be down to 22%.
There are no cuts in the small companies’ rate of corporation tax which remains at 20%.
Tax simplification for small businesses
The government will consult on introducing a voluntary cash basis for unincorporated businesses up to the VAT registration threshold. Presumably this will allow small businesses to declare annual turnover based on money received and not amounts invoiced.
They are also considering a simplified expenses system for business use of cars, motorcycles and home.
Capital Gains Tax (CGT)
The annual exemption for CGT will remain at £10,600 and the lifetime limit for Entrepreneurs Relief will stay at £10 million from 6 April 2012. The rates of CGT will remain at 18% and 28% for individuals.
The threshold for compulsory registration will increase from £73,000 taxable turnover to £77,000 from 1 April 2012. The deregistration threshold will increase from £71,000 to £75,000.
The changes to Child Benefit for high earners will come into effect on 7 January 2013. A new income tax charge will apply to taxpayers affected to reduce or remove the financial benefit of receiving Child Benefit. In essence anyone earning over £50,000 but below £60,000 will lose part of their benefit whilst those earning over £60,000 will lose it entirely.
Car Fuel benefit will increase from 6 April 2012 resulting in an additional £14 for each 1% of the charge based on the Co2 emissions of the vehicle. Van Fuel benefit will stay at £550 per annum with an inflation only increase in April 2013.
In both 2015 and 2016 the Company Car Benefit ceiling, which is based on a percentage of the car’s list price, will increase from a maximum charge of 35% to 37%. However, the 3% supplement on diesel cars will be removed from April 2016.
Legislation will be introduced in next year’s Finance Bill to apply a cap on income tax reliefs claimed by individuals. The cap will only apply to reliefs which are currently unlimited. For anyone seeking to claim more than £50,000 in reliefs, a cap will be set at 25 % of income or £50,000, whichever is greater.
Stamp Duty Land Tax in respect of residential property over £2 million will be charged at 7% with effect from 22 March 2012. The Government will also introduce legislation to target avoidance of the tax through the use of offshore structures. They will also seek to remove the principal private residence relief from Capital Gains Tax on residential properties held in overseas envelopes.
There was very little change to the Capital Allowances regime with the annual investment allowance remaining at £25,000 for qualifying purchases of plant and machinery for the year commencing 1 April 2013.
Patent Box legislation will be introduced to allow companies to elect to apply a 10% corporation tax rate to a proportion of profits attributable to patent and certain other qualifying intellectual property from 1 April 2013.