THE AUTUMN STATEMENT
In the past the Chancellor would use the Autumn Statement to set spending plans and to announce changes to benefits. In recent years, tax changes have increasingly featured and the 2012 Autumn Statement was no exception.
Set out below are the main tax changes introduced which take effect between now and 6th April 2014.
1. Personal Allowances
The personal allowance for 2013/14 was set at £9205 in the March 2012 budget. In a surprise move this was increased to £9440.
2. The Higher Rate Tax Band
Again in the March 2012 budget this was set so that it would apply from 6th April 2013 to taxable income in excess of £32245. This figure has been reduced to £32010. The combined effect of this reduction and the increase in the personal allowance means that the total gross income a person needs to receive before they start paying higher rate tax remains at £41450 for the 2013/14 tax year
3. Pension Contributions
Two years ago the Chancellor announced a reduction in the pension cap to £1.5m and a reduction in the maximum annual tax free contribution to £50,000 with both of these limited applying from 6th April 2012. In the Autumn Statement these limits have been reduced to £1.25m and £40,000 respectively from, 6th April 2014.
4. Corporation Tax
In the March 2012 budget the Chancellor set out a staged reduction in the main rate of corporation tax going down from 24% currently to 23% from 1st April 2013 and 22% from 1st April 2014. This was changed so that from 1st April 2014, the main rate will be 21%.
5. Capital Allowance
The annual investment allowance which is currently £25000 per annum will be increased to £250,000 for a two year period commencing 1st January 2013. This move is clearly to encourage small and medium sized businesses to borrow and invest in plant.
6. Taxation of Controlling Persons
Consultation has been taking place to look at the possibility of taxing at source individuals paid through personal service companies who undertake a controlling role in an organisation. The government has decided not to go ahead with this measure. Of course, such persons would in any case almost certainly be caught by the IR35 legislation which was originally targeted at Computer Contractors.
7. Cash Accounting for Income Tax
A scheme will be introduced to apply from 6th April 2013 under which very small unincorporated businesses will be able to choose to prepare their accounts on a cash basis. It will be entirely voluntary and will be available to those businesses whose turnover is no more than the VAT registration limit (currently £77000). Once in the scheme a business will be able to remain there until its turnover reaches twice the VAT registration limit. The system will include a number of flat rate expenses.
Small businesses and their advisors are likely to find the rules complex and unfamiliar and take up may well be a lot lower than the government hope.
8. Tax Avoidance
A small number of tax avoidance schemes were closed down at or about the time of the Autumn Statement, but there will be an imminent announcement of General Anti Abuse Rules which are expected to come into force on 6th April 2013 and which are intended to outlaw all the tax avoidance schemes.
These rules will take some time to bed in because judgement is needed to determine the dividing line between acceptable tax planning and unacceptable tax avoidance.