Budget 2013 Highlights

Budget 2013 – A Budget for the ‘Aspiration Nation’

Chancellor Osborne hailed the UK an ‘aspiration nation’ and his Budget was designed to help those who wanted to work hard and encourage employment in the UK.

The economics in brief:

• Chancellor confirmed the debt targets had been missed and he would be borrowing more than planned, although public sector net borrowing is forecast to fall by one third over the three years from 2009/10 to 2012/13.
• Growth forecast was revised down for 2013 from 1.2% to 0.6% and 2% to 1.8% for 2014.
• More subdued and uneven recovery than expected.
• Budget designed to help those who want to aspire and work hard.

Personal taxation

In one of the most hotly anticipated announcements, Chancellor Osborne confirmed that the personal tax-free allowance would increase to £10,000 from April 2014, up from the 2013/14 allowance of £9,440.

However, some of this has been clawed back by the reduction of the basic rate personal tax threshold from £32,010 in 2013/14 to £31,865 from April 2014. The higher rate threshold will increase slightly from £41,450 for 2013/14 to £41,865 for 2014/15.

Statutory Residency Test

A statutory residence test is to be introduced via the Finance Bill 2013 to introduce a new statutory definition of the tax residence status for individuals. Previously this has been a difficult area to advise, the new rules will bring clarity which with a more mobile workforce and employment in various countries during a tax year will bring certainty on income and gains for individuals.

Childcare

The Chancellor reminded us of the measure announced yesterday providing 20% tax relief of up to £1,200 per child towards the costs of childcare. Conditions are that both parents must work, not receive support through tax credits and neither parent earns over £150,000 pa. It is expected that this scheme will be open to around 2.5 million working families in the UK.

Pensions

From 2014/15 the annual allowance will reduce to £40,000 pa with the lifetime allowance reducing to £1.25m. This is a better than expected result given the rumours that the annual allowance would fall to £30,000! The measure is designed to rebalance the amount of tax relief benefiting higher earners.

Seed Enterprise Investment Scheme

The scheme is to be extended for capital gain tax on gains accruing in 2013-14 which are reinvested during 2013-14 or 2014-15. The relief will apply to half the qualifying amount re-invested.

Business Taxes

Corporation tax

It is a long-held commitment of the Chancellor (and Chancellors before him) to make the UK one of the most competitive tax regimes in the G20 and today he announced a reduction in the main rate of corporation tax to 20% from 2015. The measures are designed to attract overseas investment and will align with the small companies’ rate, simplifying the tax calculation process and save administration time. However, as large companies pay their tax on account, (as opposed to small companies who pay after the year-end), the detail on how this anomaly will be ironed out has yet to come to light. Watch this space.

Employers National Insurance Savings

In a welcome and headline-grabbing measure, the Chancellor introduced an ‘Employment Allowance’ of £2,000 pa for all businesses and charities to be offset against their employer’s NIC bill from April 2014. It was hailed as a ‘tax off jobs’ designed to encourage further employment and remove further burden for small businesses.

The measure is expected to benefit up to 2.5m employers with 450k of the country’s smaller businesses no longer paying contributions.

Employment-Related Loans

From April 2014 employers who provide their employees with loans either low-cost or interest free will see the threshold increase from £5,000 to £10,000 before they are treated as earnings and taxable on the employee. To ensure there is no tax charge, the total outstanding loan balance must not exceed the new £10,000 threshold at any point during the tax year.

Research & Development ‘Above the line (‘ATL’) R&D credit’

The coalition has continued its commitment to encouraging R&D investment in the UK and today announced a 10% tax credit ‘above the (profit) line’ for large companies. The measure is designed to help larger businesses realise a cash benefit immediately and is mandatory from April 2016. This initiative was announced in the 2011 Autumn Statement followed by consultation to June 2012 and will provide a huge boost to large companies, specifically those making losses.

Businesses need to prepare for the ATL credit before it is introduced in order to obtain it as quickly as possible and can do this by seeking robust advise from an R&D tax specialist.

General Anti-Abuse Rules – ‘GAAR’

Never before has tax avoidance made the headlines so much as in the last few months and as expected, today’s Budget delivered measures to counteract tax advantages arising from abusive tax avoidance arrangements. The GAAR will apply to income tax, NIC, corporation tax, capital gains tax, stamp duty land tax and petroleum revenue tax.

The rules are effective for arrangements entered into or after Royal Assent by the Finance Bill 2013 and provide additional means for HMRC to tackle tax avoidance schemes. In line with HMRC’s recent stance, Chancellor Osborne announced that tax avoiders would be ‘named and shamed’.

 

Property

Help to Buy Scheme

The Chancellor referred to the UK as an  ‘aspiration nation’ and in a nod to the UK’s aspiring home owners,  launched the ‘Help to Buy’ scheme, providing a government backed equity loan of up to 20% of the new property’s value. The scheme will be in place for three years and the loan is repayable once the home is sold. Loans will be interest free for the first 5 years and the other conditions at the moment include:

• Available to all, not just first time buyers
• Property value  must be less than £600,000
• 5% personal deposit required
• No income cap constraint

Social Care Funding Reform

Recognising the high costs of residential care for the elderly, more people will get access to financial support towards reasonable residential care costs. This is to be capped at £72,000 and aims to prevent many from seeing their life savings wiped out by this cost or the sale of homes.

Beer & Fuel – the highlights!

Beer Tax

Duty rates on beer will decrease from Sunday as follows:

• 6% for low strength beer
• 2% for standard strength beer
• 0.75% for high strength beer

As previously advised, duty rates are increasing for spirits, wine and cider by 2% above the rate of inflation, being:

• 10p increase to a bottle of wine
• 38p increase to a bottle of spirits
• 2p increase to a litre of cider

Fuel tax

• September’s rise in fuel duty has been cancelled
• Petrol now 13p a litre cheaper than if the Government had not acted in the last two years
• Saving is equivalent to £7 off every time you fill up for the average Vauxhall Astra or Ford Focus

And what’s missing……

Here are some of the things not included in the Budget:

• There was no call for the reduction of 62% rate of tax from earners between £100,000 and £116,210 to remove such a high rate of tax for individuals in this range.
• No freezing of business rates to help buisnesses with increasing cost pressures.
• Conservatives requests for marriage tax allowances to allow stay at home parents haven’t materialised – this would have helped compensate for the reduction in the Child Benefit for many couples and has been the focus of political pressure recently. This falls in with the ‘work’ focus of the Budget rather then helping parents stay at home.

We will follow up with a more detailed look at some of the key issues and hope to publish this early next week in our Spring Newsletter.

Please contact Curo’s Head of Tax, Julia Whelan on [email protected] or call Julia on 01527 558539 if you would like to discuss today’s Budget in more detail..