Not a day goes by without another budget snippet being picked up by the press that was either glossed over during the actual budget speech or has just been unearthed from the small print of the Red Book.
The immediate headline grabbers were the reduction in top rate tax from 50p to 45p, new stamp duty legislation to capture multi million pound properties and the so called “granny tax” i.e. the freezing of the age allowance. At the time of writing the “pasty tax” is the big story i.e. VAT on heated pasties etc.
Whether any of the above is of major relevance to typical owner managed businesses is open to debate however I have set out what I feel are some of the more important areas that local businesses may find more useful and hopefully undertake suitable tax planning.
The Personal Allowance increases from £7,475 to £8,105 on 6 April 2012 and will increase to £9,205 from 6 April 2013. However, the basic rate limit, being the amount of income that is chargeable to tax at 20% reduces from £35,000 to £34,370 on 6 April 2012 and, more significantly, to £32,245 from 6 April 2013. Therefore, the level at which you start to pay tax of 40% remains at £42,475 for 2012/13 but reduces to just £41,450 for the tax year 2013/14.
The rate at which you will pay top rate tax remains at £150,000 but the rate will reduce from 50% to 45% for the 2013/14 tax year.
The hidden tax increase is however that the higher the personal allowance the more you will pay tax at the punitive rate of 60% if you earn over £100,000. This is because the personal allowance is withdrawn at a rate of £1 for every £2 of income once you earn £100,000. Therefore for 2013/14 a person earning say £130,000 will pay tax at an effective rate of 60% on earnings between £100,000 and £118,410.
The rates of Co2 emissions in respect of company cars reduce each year and an immediate increase in the car fuel multiplier from £18,800 to £20,000, which takes effect from 6 April 2012. The van benefit rate is frozen at £3,000.
Child benefit withdrawal will apply for individuals who have taxable income in excess of £50,000, all benefit withdrawn once £60,000 is reached.
The full rate of corporation tax is being reduced from 26% to 24% for the 2012 tax year i.e. 1 April 2012 to 31 March 2013 and a further 1% reduction to 23% for 2013 tax year.
However the small company rate remains at 20% so for limited companies with taxable profits below £300,000 there is no reduction. A marginal rate also remains for profits between £300,000 and £1.5m.
There are continued credit increases in respect of qualifying research and development expenditure and extensions to the capital allowances regime, which could be of help to relevant businesses.
The VAT threshold increased from £73,000 to £77,000 on 1 April 2012 and the deregistration limit form £71,000 to £75,000. With the VAT rate kept at 20% this could release many small traders from the requirement to be VAT registered.
Further, the Government are proposing to simplify the mechanics for small businesses to complete their accounts and tax returns with a view to base the taxable amount on a cash received basis and standardised expenses.
There are some clear planning opportunities from this budget, especially for owner managed limited company businesses. The budget was very much about encouraging large business investment, whilst clamping down on anti-avoidance. Once again however the squeeze appears to be in the middle.
Given the current economic climate it is essential that businesses have a thorough understanding of their accounting and tax obligations and consider a commercial and relevant strategy for the future.
If you would like to discuss your tax affairs please get in touch, or if you would like to receive a Macario Lewin 2012/13 Tax Tables booklet please request this via our contact page.
Martin Macario is director of Macario Lewin Ltd. The views expressed are his own.