George Osborne chose budget day for his twitter debut. His first tweet promised to ‘tackle the economy’s problems head on’ and help those who want to ‘work hard and get on’. It will remain to be seen if the changes will help the UK to return to growth!
We have looked closely at the budget and extracted the highlights we believe are most relevant to our clients:
Personal Tax Summary
Good news – The personal allowance will rise to £9,440 from April 2013 and £10,000 from April 2014. This means in 2013/14, the first £9,440 of your income will be tax free, equally, in 2014/15 £10,000 of your income will be tax-free.
However, they give with one hand and take with the other, as the threshold before your income is taxed at higher rate is dropping to £32,010 in 2013/14 and £31,865 in 2014/15. This change means that you can receive £41,450 in 2013/14 and £41,865 in 2014/15 before you will start to be taxed at higher rate. This is very important to keep an eye on for tax planning purposes and withdrawing dividends.
Those who earn over £150,000 and pay tax at the upper rate will see this drop from 50% to 45% from 6th April 2013.
Entitlement to Child Benefit changed in January 2013 with lots of working families losing out. In a bid to redress this, a new scheme is being brought in to help with the ever increasing childcare costs.
The scheme will start at the end of 2015 and working parents will receive up to £1,200 per child each year to go towards child care. To qualify, both parents must work, earn under £150,000 a year each and don’t already receive help from tax credits.
Those that qualify will receive 20% of their yearly childcare costs up to a cap of £6,000 per child.
Tax Free Employer Loans
The government are doubling the amount an employer can lend an employee tax free to £10,000. These loans are generally used to pay for commuter seasons tickets.
Capital Gains Tax
The only real change to existing capital gains rates is that the annual exemption for an individual will increase to £10,900. Meaning that the first £10,900 of any capital gain made is tax free. Entrepreneur’s relief remains the same at 10% with a lifetime limit of £10 million. Other gains continue to be taxed at 18% (lower rate) and 28% (higher rate).
Pension and Investments
The pension annual allowance is being reduced from £50,000 to £40,000 from April 2014. Unused annual allowance from the previous 3 years may be carried forward and added to this annual allowance. IF you exceed this amount then a tax charge will be applied to the excess. This is called the ‘annual allowance charge’ and it is linked to your marginal rate of income tax.
The lifetime allowance for an individual’s pension contributions is being reduced to £1.25 million from 2014/15. If you receive pension benefits that exceed this then a lifetime allowance charge applies to the excess. This will be taxed at 25% if the excess is taken as a pension and 55% if the pension is taken as a lump sum.
A single flat-rate pension of £144 a week is being brought forward a year to April 2016, along with the introduction of single-tier pension.
The proposed fuel tax rise has been abolished – the freeze is maintained for two more years. For those who enjoy a pint – the duty on a pint of beer has been cut by 1p.
Business Taxes – Summary
The main rate of corporation tax will be reduced to 21% from April 2014. The government had previously announced that the main rate will reduce to 23% on 1st April 2013.
The small profit rate remains at 20%. It was also announced that from 1 April 2015 the main rate of corporation tax will be reduced to 20% this will mean that the small profit rate and main rate will be the same, producing a single rate of corporation tax and simplifying the corporation tax system.
Employment Allowance: Employers’ National Insurance Contributions
From April 2014 all businesses and charities will be entitled to a £2,000 Employment Allowance towards their employer national insurance contributions bill.
The introduction of this will mean that 450,000 of UK’s small businesses will not have to pay any employer NIC’s. It is estimated that up to 1.25 million employers will benefit from this. The scheme will be operated through payroll and HMRC’s Real Time Information service (RTI) the government have advised that the procedure will be simple to administer – employers will confirm their eligibility through their regular payroll processes.
The article helps self-employed sole traders and partnerships to understand how basis period reform will impact their business in the 2023/24 transitional tax year, and what steps need to be taken to ensure they do not lose any brought forward tax reliefs and remain compliant!
The article outlines the typical tax payment dates and methods of estimating the values of tax payable for each type of tax, including VAT, PAYE, NIC, CIS, Corporation Tax, and Dividend and Personal Taxes.