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Budget 2012 – The impact on limited companies

Today’s Budget contained few surprises for limited companies, and was broadly pro-business, but will probably be remembered for the additional income tax rate cut than anything else.

Budget 2012
With the flatlining economy as a backdrop, George Osborne was never going to be handing out uncosted tax cuts or concessions today. The economy is predicted to grow at a mere 0.8% this year, although the outlook is (currently) more optimistic, with growth of 2% and 2.7% predicted for 2013 and 2014 respectively.

Personal tax measures

  • The 50% income tax rate will be cut to 45% from April 2013. The personal allowance will be increased by £1,100 from the same date, however the higher rate threshold will simultaneously be lowered to £41,450, as more and more taxpayers enter the higher rate band.
  • In the future, taxpayers will receive an annual statement telling them where their tax has been spent by the Government.
  • Tobacco duties have been raised significantly, and alcohol and vehicle duties rise roughly in line with inflation.
  • A new stamp duty rate of 7% will now apply to the purchase of properties worth £2m or more. A hefty 15% tax will apply to homes purchased via offshore companies.
  • No changes have been made to the current pension tax relief rules.
  • The child benefit changes have become even more complicated. The current plan is to gradually remove the amount of child benefits received by families where one individual earns £50,000 or more, and phased out entirely where one person earns £60,000. This measure has been attacked by most tax experts, who fail to see the benefit of creating another inefficient tapered tax, which is also impossible to monitor.

Business tax measures

  • The main rate of Corporation Tax (paid by companies with profits of £1.5m or more) will be cut from 26% to 24% from 1st April 2012, with further 1% cuts following over the next two years. The small profits’ rate, paid by smaller limited companies (with profits of £300,000 or less) remains unchanged at 20%.
  • No changes were announced to the pre-published National Insurance rates for 2012/13.
  • Younger people may be offered ‘enterprise loans’ following a consultation period.
  • The controversial IR35 rules remain in place, as expected, with further announcements on the way the legislation is administered should be published shortly.
  • A range of pro-business measures were announced, including extensions to the Enterprise Finance Guarantee and Finance Partnership schemes, encouragement for exporters, the creation of new Enterprise Zones, concessions for the film and TV industries, and funding for superfast broadband in many of the UK’s largest cities.
  • Patent Box – legislation will be introduced from 1st April 2013 to allow companies to apply a 10% Corporation Tax rate to a proportion of profits they can attribute to qualifying intellectual property.
  • Consultation will begin shortly on the way smaller business are taxed. This will only apply to non-incorporated businesses with a turnover of £77,000 or less.
  • The Annual Investment Allowance (AIA) has been reduced from £100,000 per year to £25,000, as previously announced.
  • A new GAAR (General Anti-Avoidance Rule) is high on the Chancellor’s agenda, aimed at overt tax avoidance schemes. Given how complex the UK tax system is, this may be harder to implement than in other countries.
  • The VAT registration threshold rises to £77,000 from 1st April 2012; the de-registration threshold rises to £75,000.

Further Information

Here are some useful external sites for further Budget details:

HM Treasury – for the fine print, and the official Budget document.

HMRC’s Budget pages – tax rates, allowances, and related information.

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