The Chancellor George Osborne delivered his Autumn Statement to Parliament and we would like to highlight below main facts, which we believe would be interesting to our clients.
In addition to the Budget 2012 announcement, the main Corporation Tax (CT) rate for Financial Year 2014 will be reduced by a further 1% to 21%.
As already announced, the main CT rate for Financial Year 2013 is 23% and the Small Profit rate is 20%.
Obviously the government wants to make UK more tax attractive jurisdiction for multinational corporations (MNC). Most of the UK neighbours have quite low CT rates and as in the UK quite high Income tax rates ( IT).
What we found interesting is that George Osborne very briefly addressed MNCs’ tax avoidance cases, which currently have a huge publicity in the UK press. Nation was expecting some views to be expressed, or some more dramatic changes for MNCs. But as we can see tax avoidance is not illegal and UK government is trying to attract more headquarters to be based in the UK.
Annual Investment Allowance
For companies the Annual Investment Allowance will be increased from £25,000 to £250,000 per annum for a 2 year period commencing from 1 January 2013.We believe that government pretends to be generous. As a matter of fact that change would affect roughly 2% of the businesses. It is quite rare when the company has large capital expenditure during the year and that change would positively contribute to MNC. Efficient tax system is based on tax neutrality, simplicity and stability. Tax payers can be negatively affected by sudden considerable increase / decrease in rates.
Simplier income tax scheme
A simpler income tax scheme for small unincorporated businesses will be introduced for the tax year 2013-14 to allow:
Eligible self employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business. They will generally not have to distinguish between revenue and capital expenditure.
All unincorporated businesses will be able choose to deduct certain expenses on a flat rate basis.
We believe that this is quite radical and good changes for sole traders and unincorporated partnerships. But rates of IT and Capital Gain Taxes (CGT) need to be carefully considered before entering into proposed simpler income tax scheme. The those who has benefit of 20% IT, this change would have some positive effect.
New PAYE reporting system – Real Time Information (RTI)
On one hand the government is trying to simplify tax legislation and reduce burdens to the taxpayers, but it worth to mention some changes which have not been announced during autumn statement. From April 2013, every time as UK employers pay an employee, employer would be in the position to submit details about employee pay and deductions to HRMC. Does it simplify reporting process, it does not sound like.
Stamp Duty Land Tax (SDLT)
We would like to briefly remind our clients above controversial changes of SDLT which were introduced in the current tax year.
£2 million threshold for wholly residential property
From 22 March 2012 SDLT on residential properties over £2 million is charged at 7 per cent It does not apply to non-residential or mixed-use properties.
If you exchanged contracts before the higher rate came into force on 22 March 2012) the 5 per cent rate applies. This only applies where the contract is unconditional and unaltered on or after 21 March 2012.
If non - natural person (NNP) buys residential property for more than £ 2 mln after 22 March 2012, NNP is subject to 15% SDLT. A NNP includes UK and non-UK companies and partnerships comprising at least one corporate partner. But it is worth to mention that if UK company buys residential property, it would be considered to be capital expenditure and no deduction would be allowed in the tax year when the property bought. Also upon disposal of the property, the company would be subject to CT instead of CGT.
It was a lot of speculation whether offshore trust would be included to NNP group. After consultation, the government announced that discretionary trust which holds the property will no longer be caught by the new rules and the annual residential property tax will no longer be payable. The Trust will also be outside of the new capital gain tax (CGT) rules, but the beneficiaries who are UK resident may fall within existing CGT rules if the trustees realise gains and beneficiaries receive benefits in the UK.
However, the asset will be a UK situs asset for IHT purposes and the trust will then be liable to UK inheritance tax (IHT) under 10 years charging regime in respect of its UK situs assets. The trust would therefore have to pay a maximum of 6% of the value of its UK situs assets every 10 years based on the value of the assets less than the prevailing nil rate band amount.
We would like to briefly outline features of the discretionary trust:
In a discretionary trust, the trustees are the legal owners of any assets - such as money, land or buildings - held in the trust. These assets are known as 'trust property'. The trustees are responsible for running the trust for the benefit of the beneficiaries.
The trustees have 'discretion' about how to use the trust's income. They may also have discretion about how to distribute the trust's capital. The trustees may also be able to 'accumulate' income - add it to capital.
In line with NNP proposed rules, the annual charges that will come into force on residential property owned by companies from April 2013 are currently proposed as:
- £15,000 a year for properties worth between £2 million and £5 million;
- £35,000 for properties worth between £5 million and £10 million;
- £70,000 if the property is worth between £10 and £20 million
- and £140,000 a year for properties worth more than £20 million
This annual charge will be a bigger burden for those living in the UK, given that any income they earn here or bring onshore to pay the annual fee will be taxed, probably at the top rate of 45% (for the next year), meaning that their effective charge is doubled.
In addition, disposals of residential property held by a company will be liable to Capital Gains Tax.
Further documents were published on 11 December 2012 including draft clauses for Finance Bill 2013, Tax Information and Impact Notes and Responses to Consultation on Budget announcements.
Before final draft of Budget 2013, which will be published in March 2013, we are expecting more news on exemptions, allowances and reliefs for certain number of trusts, UK and offshore companies which would be exempt from 15 % SDLT, annual charges and CGT.
Personal Tax, Benefit and Credits
But let’s back to autumn statement, which was announced on 5th December 2012 and summarize changes of personal tax, benefits and credits
For the tax year 2013-14 the Personal Allowance will increase to £9,440 and the basic rate limit will be set at £32,010.
For 2014-15 and 2015-16 the increase in the higher rate threshold will be capped at 1%.
Child Benefit rates are frozen in 2013-14 and will increase by 1% in 2014-15 and 2015-16.
Tax credits disability elements are increased in line with Consumer Price Index (CPI).
Other elements are either frozen or will increase by 1% in 2013-14.
All rates are increased by 1% in 2014-15 and 2015-16.
Guardian's Allowance is increased in 2013-14 in line with CPI.
For 2013-14, there are no changes to the percentage rate of contribution for Class 1 and Class 4 National Insurance contributions (NICs) but there are changes to all of the thresholds and limits.
Reducing tax credit error fraud and debt
A number of initiatives have been announced aimed at reducing the levels of tax credit error and fraud and recovering tax credit debt. They include:
Requiring claimants to provide more evidence to support tax credit claims for children and childcare
Trialling the use of debt collection agencies to collect tax credit debt
Changes to enable the collection of existing tax credit debt from a new tax credit award.
Pensions savings – tax relief
For tax year 2014-15 onwards:
the annual allowance for pensions tax relieved savings will be reduced from £50,000 to £40,000
the standard lifetime allowance for pensions tax relieved savings will be reduced from £1.5 million to £1.25 million
a transitional 'fixed protection' regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance
Legislation will be introduced in Finance Bill 2013 to make these changes and will be published in draft on 11 December 2012.
Inheritance Tax (IHT)
The IHT nil-rate band was frozen at Budget 2010 at its current level of £325,000 until April 2015. For 2015-16 the band will be increased by 1% rounded up to £329,000.
Over the next three years, HMRC will significantly expand the range of digital services to include:
20 million taxpayers will receive a Personal Tax Statement, showing how their tax is calculated and spent by government, and
A more joined-up digital experience for our business customers, providing an overview of their HMRC 'account', links to all their online transactions and a facility for accessing tailored help and asking HMRC questions. These services will also be made available to tax agents to use on behalf of their clients under the proposals in the Tax Agent Strategy.
Some other aspects have been announced by George Osborne, but we decided to comment on those, which we believe can be interesting to you, our readers.
We would look for further announcement by the government and keep you updated.
Meanwhile, should you have any questions or require any assistance please feel free to contact our company for further advice.