The 2012 Budget – 21 March 2012

This must have been one of the worst kept secrets of all budgets. With all the “leaks” or “advertising” that has occurred over the last few days, there were few surprises this time around.

It has to be remembered that many changes that are happening as from 6th April 2012 were officially announced in previous Budget or Autumn Statements.

So, what has George Osborne done today?

Personal Allowance (PA)
The Personal Allowance (PA) is the amount you can earn before you pay tax.
From 6th April 2012 the PA is going to be £8105 – but many taxpayers will already know this because they have already received Notices of Coding if they are employed.
The PA from 6th April 2013 is going to be £9205 – the largest increase in the PA ever announced. This is part of the Coalition’s pledge to increase the PA to £10,000 before the end of this Parliament.

One announcement which took us all by surprise is that the “Age-related” allowance given to pensioners is to be slowly phased out as the rate of the personal allowance increases over time.  This is to be phased in from 6th April 2013.

Not covered in the Chancellor’s speech, is that the point at which taxpayers will start to pay higher rates of tax. Over the last few years, as the Chancellor has increased the PA, he has simultaneously lowered the point at which higher rates start. Currently you can earn £42,875 before you start to pay tax at 40%. This falls to £ 42,475 from 6th April 2012 and to £ 41,450 from 6th April 2013.

If your earnings exceed £100,000, this personal allowance continues to be withdrawn at the rate of £1 for every £2 of earnings over £100,000.

Personal Tax Rates
As expected the highest rate of tax has been reduced from 50% to 45% almost with immediate effect from 6th April 2012.

The basic rate of tax remains at 20%.

Business Tax
The main rate of Corporation Tax (CT) is to fall to 24% from 6th April 2012 and will fall by a further 1% per year to 22% by 2014.

The rate of CT paid by small companies remains at 20%.

The Chancellor announced a consultation to introduce a voluntary cash basis for the preparation of accounts where business turnover does not exceed £77,000 (the VAT registration threshold) – this will only apply to sole traders and partnerships – not limited companies.

Currently accounts have to be prepared on the “Accruals” basis which takes into account the amounts of money owed by and owed to a business at its year-end. The Chancellor quoted this as “simplifying” the tax system. There is a minor pitfall that some taxpayers could fall into if they fail to take into account the debtors and creditors at the start of the accounting period, which could mean taxing income twice, or claiming tax relief on expenses twice!

There will also be further consultation on the business use of cars, motorcycles and use of home.

More information on the Tax Simplification process can be found here.

Child Benefit
There has been much criticism of last year’s announcement to withdraw Child Benefit from households where one earner is a higher rate taxpayer.

The Chancellor has announced that the withdrawal of Child Benefit will now be phased so that the benefit is withdrawn at the rate of 1% for every £100 over £50,000 and will therefore be completely removed once income reaches £60,000. There still seems to be the disparity that two earners in one household with incomes of say £ 49,999 each will not lose any Child Benefit at all.

Fuel Duty
Despite widespread campaigns by many consumer groups, the Chancellor proposes to continue with the planned 3p/litre rise in fuel duty in August.

The “above inflation” rises of fuel duty will only return if oil drops below £45 (currently $75) a barrel.

Vehicle Excise Duty (“road tax”) will rise by the rate of inflation, except for hauliers.

Company Cars
The fuel benefit charge will increase from £18,800 now to £ 20,600 from 6th April 2012. This reflects the increased cost of fuel. This will increase by 2% above the rate of inflation from 2013/14.

The scale rates for cars will also change by 1% per banding. As from April 2016, the 3% supplement that applies to diesel cars will be withdrawn.

However, the maximum rate of 35% charged will be increased by 1% per year from 2015/16 and 2016/17 to 37%.

Alcohol and Tobacco
There are no changes to existing plans for alcohol duties.

Duty on tobacco will increase by 5% above inflation from 1800 today – so a packet of cigarettes will increase by 37p.

Stamp Duty
There has been much speculation in the press lately about “Mansion taxes”. The Chancellor announced a few measures.

From midnight tonight, a new 7% rate of Stamp Duty Land Tax (SDLT) is to be introduced on homes valued at more than £2m – this is an increase from 5%.

If a company owns a property valued at more than £2m a new 15% rate of SDLT will be payable when the company is sold on (until now the sale by this method did not attract any SDLT at all).
There is also a 7% annual charge to be levied on such properties, and Capital Gains Tax will be payable by foreign companies owning residential property in the UK as from April 2013.

Pensions
The State Pension age will be regularly reviewed in line with expected lifespan. When the State Pension was first introduced the age was set so that very few people would actually reach that age to draw the pension!

A single State Pension of £140 per week is to be introduced for future pensioners which will replace the current system of the Guaranteed Minimum Pension (means tested) system.

More detailed information can be found on the HMRC website here.

Readers are advised to contact their tax adviser for bespoke advice rather than relying on any information contained or implied in this blog/briefing.

E&OE