Contents
1.1 Introduction 1
1.2 Business Tax 1
1.3 Personal Tax 2
1.4 General Anti-Abuse Rule 3
1.5 Indirect Tax 3
Introduction
For detailed coverage and comment on the Budget visit Deloitte‟s dedicated website at www.ukbudget.com
Many of today‟s Budget measures had already been set out at the time of the 2011 Autumn Statement or by subsequent official announcement. Accordingly, this Bulletin focuses on those matters which are new or have been clarified.
Leading up to the Budget, there had been much speculation directed, in particular, towards: the future of the 50% income tax rate; by how much the personal tax allowance might increase; how tax might be collected from the ownership of expensive residential property; and what next for a General Anti-Abuse Rule (GAAR)? These questions have been answered although some might be particularly surprised by the range of proposals to collect tax in respect of high value residential properties: an increase in stamp duty land tax (SDLT) for purchases of residential property worth more than £2m, a punitive charge to SDLT where the purchase is by a non-natural person‟, consultation on measures for an annual charge, and extending capital gains tax where the person is not UK resident. One surprise that will be welcome is a further cut in the main rate of corporation tax. This is currently at 26%, was planned to fall to 25% in April, but will now fall to 24%. It is also now planned to fall to 22% by April 2014. Banks will not benefit from this rate cut as there will be an increase in the bank levy from January 2013.
1.2 Business Tax
1.2.1 Corporation tax rates and deferred tax effect
Legislation will be introduced in the Finance Bill 2012 to reduce the main rate of corporation tax from 26% to 24% from 1 April 2012 and to 23% from 1 April 2013. Finance Bill 2012 also sets the small profits rate at 20% for the financial year commencing 1 April 2012.
Legislation will be introduced in Finance Bill 2013 to reduce the main rate of corporation tax to 22% for the financial year commencing 1 April 2014.
This is an acceleration of the reductions proposed in Budget 2011 which announced that the main rate of corporation tax would be reduced by 1% to 25% from 1 April 2012.
This further rate reduction will obviously have an effect on the accounting for deferred tax assets and liabilities. The rate changes will reduce the value of deferred tax assets and liabilities held on the balance sheet and have an impact on the effective tax rate for the period in which the first balance sheet falls following substantive enactment (or enactment for US GAAP purposes).
1.2.2 Bank levy increase
The bank levy rates will be increased from 1 January 2013. The rates will become 0.105% for short-term chargeable liabilities and 0.0525% for long-term chargeable equity and liabilities. This is intended to offset any benefit of the reduced corporation tax rate.
1.2.3 Research and Development (R&D) tax relief – 'above the line'
There was widespread support for an above the line‟ (ATL) R&D credit in previous consultations and the Government has now confirmed that it will amend the large company R&D tax relief regime to an ATL credit from April 2013. The ATL credit will have a minimum before-tax benefit rate of 9.1%, which maintains the current level of relief available. It has also been confirmed that loss-making companies will be able to claim cash credits. A consultation will be announced shortly after the Budget and the final rates of relief will be decided following the consultation.
1.2.4 Corporation tax reliefs for the creative sector
Consultation on the design of proposed corporation tax reliefs for the production of culturally British video games, television animation programmes and high-end television productions will take place over the summer. Subject to State Aid approval, the new regime is expected to take effect from 1 April 2013.
1.3 Personal Tax
1.3.1 Income Tax rates and personal allowances
The additional rate of tax for income in excess of £150,000 will be reduced from 50% to 45% from 6 April 2013. A corresponding reduction of the special additional rate that applies to dividends will be made. This rate will reduce from 42.5% to 37.5% of the gross dividend. This equates to a reduction in the effective rate of tax on a net dividend from 36.11% to 30.55%. There is no change in income tax rates between 2011/12 and 2012/13.
As previously announced, the standard personal allowance will increase from £7,475 to £8,105 from 6 April 2012. A further increase to £9,205 from 6 April 2013 was announced today. Basic rate taxpayers will benefit from these increases at their marginal rate. There will be savings for many higher rate taxpayers with income of less than £100,000, but these will be modest due to restrictions in the basic rate band. The Government announced its intention to effectively phase out age-related personal allowances due to further planned increases in the standard personal allowance. Age-related allowances will be frozen at 2012/13 levels and will eventually be aligned to the standard personal allowance when it reaches the same level. The 2012/13 age-related allowance for individuals born between 6 April 1938 and 5 April 1948 will be £10,500. The allowance for those born before 6 April 1938 will be £10,660. Individuals who were born after 5 April 1948 will never become entitled to age-related allowances.
1.3.2 Cap on unlimited reliefs
The Government proposes to legislate to impose a cap on income tax reliefs claimed by individuals from 6 April 2013. This will not affect tax reliefs which are already capped, such as Enterprise Investment Scheme and pension reliefs, but may affect reliefs such as sideways loss relief, qualifying loan interest and gift aid relief. The cap will be set at the greater of 25% of income, or £50,000, in any one tax year. The Government will consult with charities and philanthropists to ensure that charities are not adversely affected.
1.3.3 Capital gains tax on residential properties for non residents
The Government will consult on the introduction of a capital gains tax charge on residential property owned by non-UK resident, non-natural‟ persons (for example, companies) from April 2013. This measure will be consulted on in conjunction with the SDLT enveloping annual charge for high-value residential properties. (See 1.5.1)
1.3.4 Enterprise Management Incentives (EMI)
The individual grant limit will be increased from £120,000 to £250,000 to commence from the earliest opportunity following State Aid approval. Entrepreneur‟s Relief will be extended to gains on shares acquired through EMI. The Government will consult on extending the EMI scheme to academics employed by a qualifying company from April 2013, again subject to State Aid approval.
1.3.5 Employee ownership
HM Treasury will conduct a review of benefits of employee ownership in supporting growth and examine options to remove barriers, including tax barriers.
1.4 General Anti-Abuse Rule
1.4.1 General Anti-Abuse Rule (GAAR)
As was widely anticipated, the Chancellor announced today that he intends to accept the recommendation of the Aaronson report for the introduction of a narrowly-focussed GAAR. A consultation document will be released later this year, with the intention of introducing the new rule from April 2013. It will apply to income tax, capital gains tax, corporation tax, petroleum revenue tax, NIC and SDLT. Our view is that a narrowly-focussed GAAR, which targets transactions with the sole purpose of avoiding tax, should cut down artificial, aggressive schemes without adversely affecting businesses. A wider GAAR would simply add uncertainty and would not be helpful, either for HMRC or for business.
1.5 Indirect Tax
1.5.1 SDLT – residential property
The main SDLT measures are concerned with residential properties over £2 million. From 22 March 2012, individuals will pay SDLT at the rate of 7% on buying such property.
In addition, from 21 March 2012 non-natural pensions, eg companies, making such a purchase will pay at 15%. This much higher rate for non-natural persons is rooted in the view that companies are used as a vehicle to avoid SDLT by allowing subsequent changes of ownership to be effected through share sales. On the same basis, the Government also announced consultation on an annual, value-based levy where such properties are held by
non-natural persons. Much detail is no doubt to come, including whether the 15% entry charge and annual levy, which will commence in April 2013, will be cumulative.
1.5.2 SDLT – Sub-sale relief
Another SDLT measure is to amend Sub-sale relief‟ to make it clear that it does not apply to the grant of options. This measure, which applies to residential and commercial property, is immediate and is to block a specific scheme which most thought did not work anyway.
1.5.3 VAT – addressing borderline anomalies
A range of changes will be introduced with effect from 1 October 2012. They will confirm standard rating for:
- Catering – hot‟ takeaway food and on premises‟ consumption;
- Sports nutrition drinks;
- Self storage;
- Hairdressers‟ chair rental;
- Holiday caravans; and
- Approved alterations to listed buildings.
1.5.4 Remote Gambling
Changes will be introduced in December 2014 so that remote gambling will be taxed on the basis of the place of consumption. It is proposed, subject to consultation, that operators will pay tax at 15% on gambling profits generated from customers in the UK, whether the supplier is in the UK or elsewhere. UK-based operators will no longer be liable to gambling taxes on revenues from non-UK customers.
The current tax treatment is driven by whether the bookmaker, casino, bingo operator or website‟ is in the UK, which has led to most online gambling operators being established offshore. The Treasury has estimated that only 10% of online gambling by UK participants is currently taxed in the UK.
1.5.5 Machine Games Duty
The rates of Machine Games Duty have now been announced. The lower 5% rate will apply to machines where both the maximum cost to play any game is 10p (or less) and the maximum cash prize for any game is £8 (or less); and the standard 20% rate will apply to all other dutiable machine games. The new tax is due to come into force on 1 February 2013, when it will replace amusement machine licence duty and VAT on the takings from certain gaming machines.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
