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  1. 1. thebudget2013
  2. 2. 1BUDGET SUMMARY 2013welcomeThe Budget proposals may be subject to amendment in aFinance Act. You should contact us before taking any actionas a result of the contents of this summary.ContentsPagePersonal tax 2 - 4Business tax 5 - 8Employment taxes 9 - 11Capital taxes 12 - 13Other matters 14Rates and allowances 15 - 16Main Budget tax proposals•• Date set for increase in the personalallowance to £10,000.•• New scheme for tax free childcare.•• Further reduction in the main rate ofcorporation tax to 20% from 1 April 2015.•• Employee-shareholder contracts will beexempt from income tax and NIC for thefirst £2,000 of shares received.•• The introduction of an allowance of£2,000 per year for all businessesand charities to be offset against theiremployer Class 1 NIC liability from April2014.•• A capital gains tax re-investment relieffor gains made in the tax year 2013/14where the gain is invested in SeedEnterprise Investment Scheme shares.Significant non-tax measures have beenannounced to tackle long-term problems inthe housing market and are covered in theOther Matters section of this summary.Previous announcementsSome of the changes detailed in thissummary have been the subject of earlierannouncements. Here is a reminder ofsome of the more important ones:•• personal allowance substantiallyincreased for 2013/14•• restrictions in the higher age relatedpersonal allowances and their availability•• an increase in the Annual InvestmentAllowance limit from £25,000 to£250,000•• introduction of a cash basis for reportingprofit for the smaller unincorporatedbusiness.George Osborne presented his Budget onWednesday 20 March 2013.In his opening statement he set the scenefor some of the new measures announced,stating ‘this is a Budget for people whoaspire to work hard and get on’.Towards the end of last year theGovernment issued the majority of theclauses, in draft, of Finance Bill 2013together with updates on consultations.The publication of the draft FinanceBill clauses is now an establishedway in which tax policy is developed,communicated and legislated.The Budget updates some of theseprevious announcements and alsoproposes further measures. Some of thesechanges apply from April 2013 and sometake effect at a later date, so the timingneeds to be carefully considered.Our summary focuses on the issueslikely to affect you, your family and yourbusiness. To help you decipher what wassaid we have included our own comments.If you have any questions please do nothesitate to contact us for advice.
  3. 3. 2 BUDGET SUMMARY 2013PersonaltaxPERSONAL TAXThe personal allowance for2013/14For those aged under 65 the personalallowance will be increased from £8,105 to£9,440. This increase is part of the plan of theCoalition Government to ultimately raise theallowance to £10,000 which will be achievedfrom 2014/15.The reduction in the personal allowancefor those with ‘adjusted net income’ over£100,000 will continue. The reduction is £1 forevery £2 of income above £100,000. So, for2012/13, there is no allowance when adjustednet income exceeds £116,210. For 2013/14the allowance ceases when adjusted netincome exceeds £118,880.From 2013/14 the higher age related personalallowances will not be increased and theiravailability will be restricted to people who wereborn before 6 April 1948.CommentPlanning should be considered before 6 April2013 where adjusted net income is expectedto exceed £100,000. Broadly, adjusted netincome is taxable income from all sourcesreduced by specific reliefs such as GiftAid donations and pension contributions.Consider whether these could be madeto protect some or all of the personalallowance.Alternatively, for those running their owncompany, the timing of dividend receiptsfrom the company should be considered.Tax bands and rates for 2013/14The basic rate of tax is currently 20%. Theband of income taxable at this rate is beingreduced from £34,370 to £32,010 so that thethreshold at which the 40% band applies willfall from £42,475 to £41,450 for those who areentitled to the full basic personal allowance.The 50% band applies in 2012/13 wheretaxable income exceeds £150,000 but the ratewill fall to 45% in 2013/14.Dividend income is taxed at 10% where it fallswithin the basic rate band and 32.5% whereliable at the higher rate of tax. Where incomeexceeds £150,000, dividends are taxed at42.5% in 2012/13 and 37.5% in 2013/14.CommentPlanning should be considered before 6 April2013 where income is expected to exceed£150,000. Deferring income until 2013/14 orreducing income by specific reliefs such asGift Aid donations and pension contributionsshould be considered.The personal allowance for2014/15The personal allowance for people born after5 April 1948 will be increased to £10,000. Thepersonal allowance will then increase in linewith inflation.
  4. 4. 3BUDGET SUMMARY 2013PersonaltaxTax bands and rates for 2014/15The basic rate of tax is currently 20%. Theband of income taxable at this rate is beingreduced from £32,010 to £31,865 so that thethreshold at which the 40% band applies willrise from £41,450 to £41,865 for those whoare entitled to the full basic personal allowance.The additional rate of tax of 45% is payable ontaxable income above £150,000.New scheme for tax freechildcareNew tax incentives for childcare have beenannounced. To be eligible, families will have tohave all parents in work, with each earning lessthan £150,000 a year and not already receivingsupport through Tax Credits or UniversalCredit.The relief will be 20% of the costs of childcareup to a total of childcare costs of £6,000 perchild per year. The scheme will therefore beworth a maximum of £1,200 per child.The scheme will be phased in from autumn2015. For the first year of operation, all childrenunder five will be eligible and the scheme willbuild up over time to include children under 12.The current system of employer supportedchildcare will continue to be available forcurrent members if they wish to remain in it orthey can switch to the new scheme. Employersupported childcare will continue to be open tonew joiners until the new scheme is available.The Government will consult on the detailof the new scheme but it is expected thatparents will be able to open an online voucheraccount with a voucher provider and havetheir payments topped up by the Government.Parents will be able to use the vouchers forany Ofsted regulated childcare in England andthe equivalent bodies in Scotland, Wales andNorthern Ireland.CommentThe existing system of employer supportedchildcare is offered by less than 5% ofemployers and used by around 450,000families. It provides an income tax andNational Insurance Contributions (NIC) relief.The maximum relief is an exemption fromincome tax and NIC on £55 a week. Thisrelief is per employee so if both parents arein employment the maximum exemption is£110 per week. In the new scheme the limitis per child.Pensions savingThe annual allowance is an annual limit forgiving tax relief on pension contributions.Contributions can be paid in excess of the limitbut may give rise to an income tax charge onthe member of the pension scheme. For taxyear 2014/15 onwards the annual allowancewill be reduced from £50,000 to £40,000.There is also an overall limit, known as thelifetime allowance, on the total amount of taxrelieved pension savings that an individual canhave over their lifetime. For tax year 2014/15onwards:•• the standard lifetime allowance will bereduced from £1.5 million to £1.25 million•• a transitional ‘fixed protection’ regime will beintroduced for those who believe they maybe affected by the reduction in the lifetimeallowance.Legislation will be introduced in Finance Bill2013 to make these changes.The Government has also announced that anindividual protection regime will be offered inaddition to fixed protection and consultation onthe detail of this regime will be undertaken in2013 and legislation in 2014.
  5. 5. 4 BUDGET SUMMARY 2013PersonaltaxCommentThe Government considers that thesemeasures are expected to affect onlythe wealthiest pension savers as 98% ofindividuals currently approaching retirementhave a pension pot worth less than£1.25 million which will be the revised levelof the lifetime limit from 2014/15.However the measures may well affectemployees in a defined benefit pensionscheme as the annual increase in the capitalworth of their accrued pension rights canbe significant. If this increase exceeds theannual allowance, an income tax charge canarise.Drawdown limitsThe Government has listened to concernsabout drawdown limits. The Chancellor hasannounced that the Government will raise thecapped drawdown limit from 100% to 120%giving pensioners with these arrangementsthe option of increasing their incomes from 26March 2013.Individual Savings Accounts(ISAs)From April 2013 the overall ISA savings limitwill be increased to £11,520.The Government will consult on allowinginvestment in SME equity markets such asthe Alternative Investment Market (AIM) tobe held directly in stocks and shares ISAs, toencourage investment in growing businesses.To further support these companies, theGovernment will abolish stamp tax on sharesfor companies listed on growth marketsincluding AIM and the ISDX Growth Market,from April 2014.
  6. 6. 5BUDGET SUMMARY 2013businessTaxBUSINESS TAXCorporation tax ratesThe main rate of corporation tax is 23% from1 April 2013. The Chancellor announced inDecember that the rate from 1 April 2014,which was planned to be 22%, will be reducedby an additional 1% to 21%.The Chancellor has now announced that themain rate of corporation tax will be reducedto 20% from 1 April 2015 and unified with thesmall company rate.The small company rate will therefore remainat 20%.Annual Investment Allowance(AIA)The AIA provides a 100% deduction for thecost of plant and machinery purchased by abusiness up to an annual limit. The Chancellorannounced in December an increase in thelimit from £25,000 to £250,000 for a period oftwo years from 1 January 2013.Complex legislation provides details oftransitional provisions where a business hasan accounting period that straddles 1 January2013:•• the overall AIA limit for the transitional periodhas to be calculated by reference to old andnew annual limits•• there are potential further constraints forthe maximum AIA relief in the sub-periodsending before or after 1 January 2013.ExampleA company has a 12 month accountingperiod ending on 30 June 2013 (which startson 1 July 2012). The AIA will be £137,500(£25,000 x ½ + £250,000 x ½).However for expenditure incurred before1 January 2013 the maximum allowance willbe the AIA that would have been due for thewhole of the accounting period to 30 June2013 if the increase in the AIA had nottaken place. This would have meant that thecompany would have been entitled to £25,000for the 12 months and so this is the limit for thesix months to 31 December 2012.On 1 January 2015, the AIA will revert backto £25,000. This will mean that the samecompany will have an AIA in later periods asfollows:Accounting period to 30 June 2014 £250,000Accounting period to 30 June 2015 £137,500CommentThe rules for accounting periods straddling1 January 2013 are complex and thisis without the additional complicationsthat arise if part of the accounting periodcommences prior to April 2012 (as yetanother AIA limit needs to be factored in).Action pointThe main point to appreciate is thatexpenditure incurred after 31 December2012 may give a full tax write off butexpenditure incurred before 1 January 2013may not give this result.Also note that it may pay to defer theexpenditure until after the end of your currentaccounting period as the full £250,000 AIAmay be available.Please contact us before capital expenditure
  7. 7. 6 BUDGET SUMMARY 2013businessTaxis incurred for your business in a currentaccounting period so that we can help youto maximise the AIA available.Capital allowances and carsA 100% first year allowance (FYA) is availableon new low emission cars purchased by abusiness. The current rule is that a 100% FYAis generally available where a car’s emissionsdo not exceed 110gm/km. The availability ofa 100% FYA is to continue for purchases asfollows:•• for the two years from 1 April 2013 to 31March 2015 but only where emissions donot exceed 95gm/km and then•• for a further three years from 1 April 2015 to31 March 2018 but only where emissions donot exceed 75gm/km.Cars with emissions between 111-160gm/kminclusive currently qualify for main rate WritingDown Allowance (18%). The threshold is to berevised down to 130gm/km for additions from6 April 2013 for income tax (1 April 2013 forcompanies).CommentThere are over 150 models that can bepurchased in 2012/13 which qualify for a100% FYA. If the purchase is deferred to2013/14, the number falls to less than 30.100% Capital allowances100% FYAs on capital expenditure areavailable for certain classes of assets butexclusions apply. Expenditure on ships andrailway assets is currently excluded but thisexclusion is removed for expenditure on orafter 1 April 2013.Enhanced capital allowances of 100% are alsoavailable on qualifying plant and machineryexpenditure under the energy-saving andwater efficient technology schemes. Each yearthe qualifying technologies and products arereviewed and additions and deletions made. Allamendments are subject to State aid approvaland the lists will be updated by Treasury Orderin summer 2013.The main changes are the inclusion of twonew technologies: carbon dioxide heat pumpsfor water heating and grey water re-usetechnology. In addition five technologies will beremoved and certain criteria for a number oftechnologies in both schemes will be revised.Computing taxable profits on acash basis for smaller businessesAn optional basis for computing taxable profitsis to be introduced for small unincorporatedbusinesses for the 2013/14 tax year onwards.The key aspects of the cash basis are that:•• small businesses would be taxed on theircash receipts less cash payments ofallowable expenses, subject to a number oftax adjustments•• it is only available to unincorporatedbusinesses•• it is an optional scheme and requires anelection by the owner(s) of a business•• businesses can enter the cash basis iftheir receipts for the year are less than theamount of the VAT registration threshold(currently £77,000) or twice that (currently£154,000) for recipients of Universal Credit.In response to feedback on the draft legislationthat was issued for consultation in December2012, HMRC has made some design changesto the legislation including:•• businesses using the cash basis willcontinue to do so until their circumstanceschange so that the cash basis is no longersuitable for them•• businesses using the cash basis will nothave to use flat rate expense rates for theircars.No detail has been provided on thecircumstances in which a business will nolonger be able to use the cash basis.
  8. 8. 7BUDGET SUMMARY 2013businessTaxSpecial rules apply on the transition to andfrom the cash basis.CommentThe cash basis is being introduced bythe Government under the banner of ‘taxsimplification’. However, the main driver forthe cash basis is the introduction of UniversalCredit. Universal Credit is being introducedby the Government from 2013 and willeventually replace the Tax Credits systemand other state benefits. The Governmenthas been clear that income reporting forself-employed claimants must be reportedmonthly and will therefore be aligned with the‘simple’ new cash income reporting systemthat HMRC are introducing.Under current proposals, the cash basis maybe more complicated than the conventionalbasis. While the actual accounting treatmentmay be simpler it will still be necessary tohave regard to tax rules for the deductibilityof some expenses. There are also thetransitional rules to consider for existingbusinesses wishing to opt into the newsystem.Flat rate expensesAs part of the simplification for unincorporatedbusinesses, legislation is being introduced toallow two deductions to be based on fixedrates, rather than actual costs. The rules applyfrom 2013/14 onwards.Flat rate expenses will be available for:•• cars, vans and motorcycles. For cars or vansthe rate for the first 10,000 business miles is45p, after which the rate reduces to 25p. Formotorcycles the rate is 24p•• business use of a home. Provided certainconditions are satisfied, the followingmonthly rates will be allowed:Business use in a month Deduction25 hours or more £1051 hours or more £18101 hours or more £26Where a person uses premises both as ahome and as business premises, for example apub, the total expenses of the property need tobe adjusted for the private use. Legislation willintroduce a fixed scale which can be used forthe private use so that the business element ofthe expenses will be relieved.Claiming expenses on a flat rate basis willnot be open to partnerships which include acorporate partner.Research and development (R&D)reliefFollowing consultation, legislation will beintroduced to provide an ‘Above the Line’(ATL) credit scheme to further encourage R&Dinvestment by large companies. The aim ofthe ATL scheme is to increase the visibility oflarge company R&D relief and provide greatercashflow support to companies with nocorporation tax liability.The taxable credit will be 10% of qualifyingexpenditure incurred on or after 1 April 2013with the credit, net of tax, being fully payable tocompanies with no corporation tax liability.The ATL scheme will initially be optional butwill become mandatory on 1 April 2016.Until this time eligible companies that do notelect to claim the ATL credit will be able tocontinue to claim R&D relief under the currentscheme which provides for an additional 30%deduction of any qualifying expenditure toreduce chargeable profits (or increase a loss)but which does not permit a payable credit.Close company loans toparticipatorsA close company (which generally includes anowner managed company) may be charged totax in certain circumstances where it has madea loan or advance to individuals who have aninterest or shares in the company (known asparticipators). Loans and advances are alsocaught where they are made to an associateof the individual such as a family member. Thecorporation tax charge is 25% where the loanis outstanding nine months after the end of the
  9. 9. 8 BUDGET SUMMARY 2013businessTaxaccounting period. Three changes to the rulesare proposed to tackle avoidance.•• The first change is to put beyond doubtthat the charge applies where loans aremade via intermediaries such as LimitedLiability Partnerships, partnerships andtrusts. The charge will apply where at leastone participator in the close company is amember, partner or trustee.•• The second change will impose the 25%charge on certain arrangements where valueis extracted from a close company and anuntaxed benefit is conferred on an individualparticipator (or associate) other than by wayof a loan or advance.•• The third change is to prevent the practiseof avoiding the payment of the tax chargeby repaying the loan before the tax is due(nine months after the end of the accountingperiod) and then effectively withdrawing thesame money shortly after. This change mayalso prevent refunds of the 25% tax alreadypaid where loans are redrawn shortly after.The changes have effect from Budget day.Action pointThese changes may affect a number ofowner managed companies so do pleasecontact us if you consider these changeswill have an impact on your currentarrangements so that the corporation taxposition can be accurately reported.Corporation tax deductions foremployee sharesCorporation tax relief may be available inconnection with share options and awardsgranted to employees. The relief is based onthe amount that is chargeable to income taxwhen the shares are acquired by the employeeor the amount that would be chargeable if theemployee was UK resident or if any relevanttax advantages did not apply. Legislation is tobe introduced to clarify the rules that wherethat relief is claimed any other corporation taxrelief cannot be claimed in connection withthe same provision of shares other than wherespecifically stated. The legislation will generallyhave effect for accounting periods ending on orafter Budget day.Corporation tax exit chargesCertain corporation tax charges known as exitcharges can arise on unrealised profits andgains when a company ceases to be UK taxresident or as a consequence of a transfer oftheir place of management to another EU orEEA member state. The rules also apply whena non UK resident company ceases all or partof its trading operation in the UK. A measureis to be introduced to allow the deferredpayment of such charges subject to certainconditions to ensure that HMRC will receivethe full payment over time. The deferment is byelection and can apply to exit charges arisingon or after 11 December 2012.Closure of ‘loss loopholes’Legislation is to be introduced to preventcertain arrangements for the relief of certaincompany losses for accounting periodsending on or after Budget day. There are twoobjectives of the proposals. One is to prevent‘loss buying’ where companies seek to passcertain unused losses to unconnected thirdparties on a change of company ownership.The other relates to a specific aspect of thesurrender of losses for group relief.
  10. 10. 9BUDGET SUMMARY 2013EMPLOYMENTTaxesEMPLOYMENTTAXESEmployer-provided carsFrom 6 April 2013 the CO2 emissions bandsused to work out the taxable benefit for anemployee who has use of an employer-provided car will generally be reduced by5gm/km. This will have the effect of increasingthe charge for many vehicles by 1% of thelist price of the car unless the percentage isalready 35% of list price. Zero emission carsremain at 0% and ultra-low emissions cars withemissions up to 75gm/km remain at 5%. Thefull rates for 2013/14 are included at the end ofthis booklet.From 6 April 2014 the percentage for cars withCO2 emissions of more than 75gm/km will beincreased by 1% up to a maximum of 35%in 2014/15 so cars from 76-94gm/km will be11%, 95-99gm/km will be 12%, etc.Further changes are proposed in 2015/16 and2016/17 whereby the appropriate percentagesof the list price subject to tax will increase by2% per annum up to a maximum of 37% inboth years.From April 2015 the five year exemption forzero emission cars and the lower rate of 5% forultra-low emission (1-75gm/km) cars will cometo an end.However, two new bands will provide for a 5%rate for cars with CO2 emissions of 0-50gm/kmand a 9% band for cars with CO2 emissionsof 51-75gm/km. The rate will be 13% for carswith CO2 emissions of between 76-94 gm/km,14% for 95-99gm/km, etc.The existing 3% diesel supplement will beremoved from 2016/17.Furthermore the Budget provides acommitment that in 2017/18 there will be a3% point differential between the 0-50 and 51-75gm/km bands and the 51-75 and 76-94gm/km bands.In 2018/19 and 2019/20 there will be a 2%point differential between the 0-50 and 51-75gm/km bands and the 51-75 and 76-94gm/km bands.Car fuel benefit chargeFor 2013/14 where fuel is provided for privatepurposes in a company car a benefit isassessed on the employee based on a flatrate multiplier of £21,200 multiplied by theappropriate percentage used to calculate thetaxable benefit for the car.VansFor 2013/14 the private use of a companyvan will result in a benefit assessable on theemployee of £3,000. The charge will not applyto vans which cannot emit CO2 or if a restrictedprivate use condition is met throughoutthe year. If fuel for private purposes is alsoprovided, a benefit of £564 will be assessableon the employee.The benefit charge for the private use of acompany van, the fuel benefit charge for acompany van and the multiplier for the fuelbenefit charge for company cars, will allincrease in line with inflation (based on RPI) for2014/15. The increase will be based on theSeptember 2013 RPI figure.Enterprise ManagementIncentives (EMI)EMI schemes are share option schemes whichallow small and medium-sized businessesto grant tax-advantaged share options toemployees. In broad terms, a gain made byan employee on the exercise of an option andsubsequent sale of shares is subject to capitalgains tax (CGT) rather than income tax. The
  11. 11. 10 BUDGET SUMMARY 2013EMPLOYMENTTaxesCGT rate however is often 28% and thus cannegate much of the tax advantage of EMIschemes.Legislation will therefore be introduced toextend the 10% CGT rate given to gainsqualifying for Entrepreneurs’ Relief to EMIshares by removing the 5% minimumshareholding requirement required to obtainEntrepreneurs’ Relief.The options will need to have been granted tothe employee at least 12 months before thedisposal of shares obtained on the exercise ofthe option.Generally, the new rules apply to disposals ofshares on or after 6 April 2013.Employee-shareholder contractsThe Government announced in October 2012that it intended to introduce a new type ofemployment contract called an employee-shareholder contract. Under this contractan employee would be given shares in acompany in exchange for giving up their rightsin respect of unfair dismissal, redundancy, andthe right to request flexible working and timeoff for training. They would also be requiredto provide 16 weeks’ notice of a firm date ofreturn from maternity leave, instead of theusual eight.Each employee who agrees to this status willreceive a minimum of £2,000 and a maximumof £50,000 of shares in the company.Gains on up to £50,000 of shares acquired byemployee-shareholders will be exempt.The Government has been looking at optionsto reduce the potential income tax and NICliabilities which would arise when the sharesare issued in the first place. This includeda possible exemption from income tax andNIC for the first £2,000 of shares received.The decision to proceed with this option ofan exemption for the first £2,000 of sharesreceived was confirmed in Budget 2013.These tax changes will apply to sharesreceived through the adoption of the newemployee-shareholder status on or after 1September 2013.The tax advantages will be subject to anti-abuse rules.Tax avoidance involving offshoreemployment intermediariesThe Government will strengthen legislationto block the avoidance of PAYE and NIC byUK businesses using offshore employmentintermediaries. The intention is thatemployment taxes will be payable for allemployees in the UK, irrespective of wheretheir payroll is located.Exemption threshold foremployment-related loansWhere an employer provides an employee witha cheap or interest free loan they have to reportnotional interest on the loan at 4% per annumon the form P11D. Where the balance of theloan is no more than £5,000 throughout the taxyear no benefit is reportable.The exemption applies if the total balance, atany point in the tax year, does not exceed thelimit of £5,000 and includes the total of lowcost, or interest free, loans or notional loansarising from the provision of employment-related securities.From 6 April 2014 where the total outstandingbalances on all such loans do not exceed£10,000 at any time in the tax year there willnot be a tax charge and employers will nolonger be required to report the benefit toHMRC.CommentThe Chancellor said in his statement ‘weare going to double to £10,000 the size ofthe loans that employers can offer tax freeto pay for items such as season tickets forcommuters’.
  12. 12. 11BUDGET SUMMARY 2013EMPLOYMENTTaxesNational Insurance - £2,000employment allowanceThe Government will introduce an allowance of£2,000 per year for all businesses and charitiesto be offset against their employer Class 1 NICliability from April 2014. The allowance will beclaimed as part of the normal payroll processthrough Real Time Information (RTI).The Government will engage with stakeholderson the implementation of the measure after theBudget and is seeking to introduce legislationlater in the year.RTI late filing and late paymentpenaltiesRTI, which is compulsory for the majority ofemployers from April 2013, requires employersoperating PAYE to report information onemployees’ pay and deductions in real time toHMRC. Under RTI employers are obliged totell HMRC about payments they make to theiremployees on or before the date paymentsare made. Employers will continue to payover to HMRC the sums deducted from theiremployees under the PAYE system generallymonthly or quarterly.HMRC are introducing a penalty regime for RTIwhich is designed to encourage compliancewith the information and payment obligations,whilst ensuring those who do not comply donot gain a significant advantage. The penaltyregime will apply from 6 April 2014.In essence penalties will apply to each PAYEscheme, with the size of the penalty based onthe number of employees in the scheme, sothat different sized penalties will apply to micro,small, medium and large employers.Each scheme will be subject to only one latefiling penalty each month, regardless of thenumber of returns due in the month. Therewill be one unpenalised default each year withall subsequent defaults attracting a penalty.Penalties will be charged quarterly and subjectto the usual reasonable excuse and appealprovisions. Regulations will be used to set thepenalty rates.Changes will be made to the late paymentpenalty regime which will be based on thenumber of late payments relating to each taxyear.
  13. 13. 12 BUDGET SUMMARY 2013CAPITALTAXESCAPITAL TAXESCGT ratesThe current rates of CGT are 18% to the extentthat any income tax basic rate band is availableand 28% thereafter. The rate for disposalsqualifying for Entrepreneurs’ Relief is 10% witha lifetime limit of £10 million for each individual.CommentThe Entrepreneurs’ Relief limit is verygenerous and owners of businesses shouldensure that they meet all the conditionsnecessary to secure the relief throughout thetwelve months up to the date of a disposal.CGT annual exemptionThe CGT annual exemption will be £10,900 for2013/14 and will be increased to £11,000 for2014/15 and £11,100 for 2015/16.Seed Enterprise InvestmentScheme - reinvestment reliefThe Seed Enterprise Investment Scheme(SEIS) was introduced in 2012 as a wayof encouraging equity investment in smallcompanies. As an extra incentive, an investorwho re-invested a capital gain of up to£100,000 made in 2012/13 in SEIS sharesin that year is able to claim CGT exemptionon that gain. The exemption can be removedretrospectively if the SEIS shares cease tomeet qualifying conditions.It is now proposed to extend this re-investmentrelief for gains made in the tax year 2013/14.Reinvestment relief of 50% of the matchedgain will be available where the proceeds areinvested in SEIS shares in either 2013/14 or2014/15.IHT nil rate bandIt had been intended to leave the IHT nil rateband frozen at £325,000 until 5 April 2015.The band will now remain at that level until5 April 2018.CommentThe freezing of the nil rate band will meanthat even basic inflationary growth in thevalue of assets in an estate will increase IHTliabilities. Consideration should be given tomaking lifetime gifts to reduce liability.Spouse exemption for non-domiciled individualsThe IHT exemption available to spouses andcivil partners is limited in situations in whicha UK domiciled individual transfers assets totheir non-domiciled spouse or civil partner.The current limit is £55,000 over the lifetime ofthe transferor. This limit will be increased from6 April 2013 to £325,000 and will be linked tofuture increases in the nil rate band.As an alternative, it will be possible for the non-domiciled spouse to make an election to betreated as domiciled in the UK. This will bringthe full spouse exemption into play but at thecost of the worldwide assets of that spousecoming within the scope of IHT (currently onlyUK assets would be liable). It will be possibleto make the election at any time and for itseffects to be backdated for up to seven years(although not earlier than 6 April 2013). Theelection can be made by the executors withintwo years of the date of death of a non-domiciled individual.
  14. 14. 13BUDGET SUMMARY 2013CAPITALTAXESCommentThe election will be particularly beneficialwhere a non-domiciled spouse does nothave significant assets outside the UK.IHT relief for liabilities on anestateIn calculating the IHT liability on an estate thevalue of assets is reduced by any liabilitiesowed by the deceased at the date of death.These provisions are being abused by sometax avoidance schemes and so the rules will betightened to prevent this abuse.Taxation of high-value residentialproperty held by non-naturalpersonsThe Government is proceeding with plans tointroduce a new annual tax on the value ofresidential property held by what are termed‘non-natural persons’. These are primarilycompanies. The charge will apply from 1 April2013 where the value of the property is over£2 million. The basic charge for a propertyworth up to £5 million will be £15,000 pa.A range of reliefs will be available where theproperty is being used for specified purposessuch as to provide residential accommodationfor employees, or as an asset in a genuineproperty development or rental business. Reliefwill be available for charities where the propertyis held for charitable purposes.In addition to the annual charge there will bea capital gains tax charge at 28% on any gainmade after 6 April 2013. Where the propertywas acquired before that date only the gainfrom that date will be charged.CommentThe stated purpose of this new tax is toencourage those who currently own theirproperties through corporate vehicles toremove them from such entities.
  15. 15. 14 BUDGET SUMMARY 2013Tackling offshore tax evasionIn recent years HMRC has been devotinggreater resources to tackling offshore taxevasion. Various disclosure initiatives haveallowed evaders to settle past liabilities with acapped level of penalty. Agreements to obtaininformation from Liechtenstein and Switzerlandhave yielded significant results in terms of taxcollected.The Government has now announced thatagreement has been reached with Jersey,Guernsey and the Isle of Man for the automaticdisclosure of information which will furtherstrengthen the hand of HMRC. A newdisclosure initiative for investors with accountsin those islands is expected to yield over£1 billion.HMRC are also committing extra resources inpersonnel and analytical support to target thisarea of evasion.General Anti-Abuse RuleLegislation is being included in Finance Bill2013 to introduce a General Anti-AbuseRule (GAAR). This will provide an additionalweapon for HMRC in tackling tax avoidance.At the heart of the GAAR will be a so-called‘double reasonableness test’. Under this testan arrangement would be ‘abusive’ if enteringinto or carrying out arrangements ‘cannotreasonably be regarded as a reasonablecourse of action, having regard to all thecircumstances.’HMRC will be able to counter sucharrangements on a ‘just and reasonable’ basisbut must follow designated procedures whichwill include reference to an Advisory Panel.Other measures on tax avoidanceschemesConsultation will take place on specificmeasures to counter avoidance in certain LLPstructures aimed at disguising employmentrelationships. HMRC will also be consultingon countering artificial allocation of profits topartners in all types of partnership to achieve atax advantage.HMRC also have the promoters of aggressivetax schemes in their sights with plans toimprove disclosure of schemes and to ‘nameand shame’ promoters.Support for the housing marketMajor reforms have been announced, includingover £5.4 billion of financial help, to tacklelong-term problems in the housing marketand to support those who want to get on ormove up the housing ladder, including theintroduction of a new housing scheme, Helpto Buy.From April 2013, the Government will extendFirst Buy to provide an equity loan worth upto 20% of the value of a new build home,repayable once the home is sold, and widenthe eligibility criteria, including increasingthe maximum home value to £600,000 andremoving the income cap constraint.The Government will also create a mortgageguarantee for lenders who offer mortgagesto people with a deposit of between 5% and20% on homes with a value of up to £600,000,increasing the availability of mortgages onnew or existing properties for those with smalldeposits.OTHER MATTERSOTHERMATTERS
  16. 16. 15BUDGET SUMMARY 2013RATESANDALLOWANCES2013/14RATES ANDALLOWANCES 2013/14INCOME TAX Reliefs2013/14£2012/13£Personal allowance - born after 5 April 1948 / under 65 9,440 8,105- born after 5 April 1938 and before 6 April 1948* / 65 - 74*10,500 10,500- born before 6 April 1938* / 75 and over*10,660 10,660(Reduce personal allowance by £1 for every £2 of adjusted net income over £100,000.)Married couple’s allowance (relief at 10%)*(Either partner 75 or over and born before 6 April 1935.)7,915 7,705- min. amount 3,040 2,960*Age allowance income limit 26,100 25,400(Reduce age allowance by £1 for every £2 of adjusted net income over £26,100 (£25,400).)Blind person’s allowance 2,160 2,100INCOME TAX RATES2013/14 2012/13Band £ Rate % Band £ Rate %0 - 2,790 10* 0 - 2,710 10*0 - 32,010 20** 0 - 34,370 20**32,011 - 150,000 4034,371 - 150,000 40Over 150,000 45lOver 150,000 50l*Only applicable to dividends and savings income.The 10% rate is not available if taxable non-savings income exceeds £2,790 (£2,710).**Except dividends (10%). Except dividends (32.5%).lExcept dividends (37.5% for 2013/14 and 42.5% for 2012/13).Other income taxed first, then savings income and finally dividends.Pension premiums2013/14 and 2012/13• Tax relief available for personalcontributions: higher of £3,600(gross) or 100% of relevantearnings.• Any contributions in excess of£50,000, whether personal or bythe employer, may be subject toincome tax on the individual.• Where the £50,000 limit is notfully used it may be possible tocarry the unused amount forwardfor three years.• Employers will obtain tax reliefon employer contributions if theyare paid and made ‘wholly andexclusively’. Tax relief for largecontributions may be spread overseveral credits2013/14£2012/13£Working Tax CreditBasic element- max. 1,920 1,920Childcare element70% of eligible costs up to £175 per week (£300 iftwo or more children).Child Tax Credit (CTC)Child elementper child - max. 2,720 2,690Family element 545 545Reductions in maximum rates41% of income above £6,420* p.a.*If only CTC is claimed, the threshold is £15,910(£15,860) p.a.The family element of CTC tapersimmediately after the child element from April 2012.The withdrawal rate is 41%.mileage allowance payments2013/14 and 2012/13Cars and vansUp to 10,000 milesOver 10,000 milesRate per mile45p25pThese rates represent the maximumtax free mileage allowances foremployees using their own vehiclesfor business.Any excess is taxable.If the employee receives less thanthe statutory rate, tax relief can beclaimed on the difference.Bicycles 20pMotorcycles 24pcar, VAN and fuel benefits2013/14CO2 emissions(gm/km)(round downto nearest5gm/km)% ofcar’slistpricetaxedup to 94 1095 11100 12105 13110 14115 15120 16125 17130 18135 19140 20145 21150 22155 23160 24165 25170 26175 27180 28185 29190 30195 31200 32205 33210 34215 and above 35individual savings accounts (ISAs)2013/14 2012/13£ £Overall annual investment limit £11,520 £11,280Comprising - cash up to £5,760 max. £5,640 max.- balance in stocks and shares £11,520 max. £11,280 max.Company cars• For diesel cars add a 3% supplement but maximumstill 35%.• A 0% rate applies to cars which cannot emit CO2 whendriven.• A 5% rate applies to cars with emissions which do notexceed 75gm/km when driven. The diesel supplementcan apply to 75gm/km cars.• For cars registered before 1 January 1998 the charge isbased on engine size.• The list price includes accessories and is not subjectto an upper limit.• The list price is reduced for capital contributions madeby the employee up to £5,000.• Special rules may apply to cars provided for disabledemployees.Car fuel benefit 2013/14£21,100 x ‘appropriate percentage’**Percentage used to calculate the taxable benefit of the car forwhich the fuel is provided.The charge does not apply to certain environmentallyfriendly cars.The charge is proportionately reduced if provision of privatefuel ceases part way through the year. The fuel benefit isreduced to nil only if the employee pays for all private fuel.Van benefit per vehicle2013/14Van benefit £3,000 Fuel benefit £564The charges do not apply to vans which cannot emit CO2when driven or if a ‘restricted private use condition’ is metthroughout the gains taxIndividuals2013/14£2012/13£Exemption 10,900 10,600Standard rate 18% 18%Higher rate* 28% 28%TrustsExemption 5,450 5,300Rate 28% 28%*For higher and additional rate taxpayers.Entrepreneurs’ ReliefFor disposals on or after 6 April 2011 the first £10m (£5m for disposals on orafter 23 June 2010 and before 6 April 2011) of qualifying gains are charged at10%. Gains in excess of the limit are charged at the rates detailed above.
  17. 17. 16 BUDGET SUMMARY 2013RATESANDALLOWANCES2013/14This summary is published for the information of clients. It provides only an overview of the main proposals announced by the Chancellor of the Exchequer in his Budget Statement, and no action shouldbe taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the materialcontained in this summary can be accepted by the authors or the firm.Stamp duty AND stamp duty land taxLand and buildings (on full consideration paid)Rate Residential property Non-residentialDisadvantaged areas* Other££ £Nil1%3%4%5%7%0 - 150,000*150,001* - 250,000250,001 - 500,000500,001 - 1,000,0001,000,001 - 2,000,000Over 2,000,0000 - 125,000125,001 - 250,000250,001 - 500,000500,001 - 1,000,0001,000,001 - 2,000,000Over 2,000,0000 - 150,000150,001 - 250,000250,001 - 500,000Over 500,000--*The rules for disadvantaged areas are withdrawn for transactions with an effective date on orafter 6 April 2013.Shares and securities - rate 0.5%.national insurance2013/14 Class 1 (employed) contracted in ratesEmployee EmployerEarnings per week % Earnings per week %Up to £149 Nil* Up to £148 Nil£149.01 - £797 12 Over £148 13.8Over £797 2*Entitlement to contribution-based benefits retained for earnings between £109 and £149 per week.Class 1A (employers) 13.8% on employee taxable benefitsClass 1B (employers) 13.8% on PAYE Settlement AgreementsClass 2 (self-employed) flat rate per week £2.70small earnings exception £5,725 p.a.Class 3 (voluntary) flat rate per week £13.55Class 4 (self-employed) 9% on profits between £7,755 and £41,450plus 2% on profits over £41,450self assessment: key dates 2013/1431 July 2013 - Second payment on account for 2012/13.5 October 2013 - Deadline for notifying HMRC of new sources of income (includingthe new Child Benefit charge) if no tax return has been issued for 2012/13.31 October 2013 - Deadline for submission of 2012/13 non-electronic returns.31 January 2014 - Deadline for filing electronic tax returns for 2012/13.Balancing payment due for 2012/13. First payment on account due for 2013/14.main social security benefitsWeekly benefit 2013/14 2012/13Basic retirement pension - single person £110.15 £107.45- married couple £176.15 £171.85Statutory pay rates - average weekly earnings £109 (£107) or overStatutory Sick Pay £86.70 £85.85Statutory Maternity Pay First six weeks 90% of weekly earningsNext 33 weeks £136.78* £135.45*Statutory Paternity Pay - two weeks £136.78* £135.45*Statutory Adoption Pay - 39 weeks £136.78* £135.45**Or 90% of weekly earnings if lower.Additional Paternity Pay and Leave may be available for a child due oradoptions matched on or after 3 April 2011.Inheritance taxDeathrate%Lifetimerate%Chargeable transfers2013/14 and 2012/13£’000Nil Nil 0 - 325*40 20 Over 325**Potentially increased for surviving spouses or civil partners who die on or after 9 October 2007.ReliefsAnnual exemption £3,000 Marriage - parent £5,000Small gifts £250 - grandparent £2,500- bride/groom £2,500- other £1,000Reduced charge on gifts within seven years of deathYears before death 0-3 3-4 4-5 5-6 6-7% of death charge 100 80 60 40 20corporation taxYear to 31.3.14 Year to 31.3.13Profits band£Rate%Profits band£Rate%Small profits rate 0 - 300,000 20* 0 - 300,000 20*Marginal (smallprofits) rate 300,001 - 1,500,000 23.75* 300,001 - 1,500,000 25*Main rate Over 1,500,000 23* Over 1,500,000 24*Standard fraction 3/400* 1/100*The profits limits are reduced for accounting periods of less than 12 months and for a company withassociated companies.*Different rates apply for ring-fenced (broadly oil industry) allowancesPlant and machinery - Annual Investment Allowance (AIA)The AIA gives a 100% write-off on most types of plant and machinery costs,including integral features and long life assets but not cars, of up to£250,000 p.a. for expenditure incurred on or after 1 January 2013 (£25,000 forexpenditure incurred on or after 6 April 2012 (1 April 2012 for companies)).Special rules apply to accounting periods straddling these dates.Any costs over the AIA fall into the normal capital allowance pools below.The AIA may need to be shared between certain businesses under commonownership.Other plant and machinery allowancesThe annual rate of allowance is 18%. An 8% rate applies to expenditureincurred on integral features and on long life assets.A 100% first year allowance may be available on certain energy efficient plantand cars, including expenditure incurred on new and unused zero emissiongoods vehicles.CarsFor expenditure incurred on cars, costs are generally allocated to one of thetwo plant and machinery pools. For expenditure incurred on or after 6 April2013 (1 April 2013 for companies) cars with CO2 emissions not exceeding130gm/km (previously 160gm/km) receive an 18% allowance p.a. Cars withCO2 emissions over 130gm/km (160gm/km) receive an 8% allowance p.a.value added taxStandard rate 20%Reduced rate 5%Annual Registration Limit - from 1.4.13 (1.4.12 - 31.3.13 £77,000) £79,000Annual Deregistration Limit - from 1.4.13 (1.4.12 - 31.3.13 £75,000) £77,000
  18. 18. WINDOVER HOUSE  ST ANN STREET SALISBURY WILTSHIRE SP1 2DRTEL: 01722 420920 FAX: 01722 411375Website: AUSTRENG CTA   RICHARD ALLEN   SIMON ELLINGHAM NICK JONESRegistered to carry on audit work and regulated for a range of investment business activitiesby the Institute of Chartered Accountants in England and Wales