George Osborne delivered his 2013 budget on 20th March 2013. Many of his proposals will not take effect until 2014/15.
- Personal Allowance and Tax Bands
The increase in the personal allowance to £9,440 was announced in the 2012 Autumn Statement. A further increase to £10,000 will apply from 6th April 2014. The additional rate reduces from 50% to 45% from 6th April 2014. This reduction had been announced in the 2012 budget.
The rates of tax applying will be as follows:
Taxable Income 2013/14 2014/15
Up to £9,440 0% 0%
£9,441 – £10,000 20% 0%
£10,001 – £41,450 20% 20%
£41,451 – £41,865 40% 20%
£41,866 – £100,000 40% 40%
£100,001 – £118,880 60% 60%
£118,881 – £120,000 40% 60%
£120,001 – £150,000 40% 40%
£150,001 + 45% 45%
- National Insurance
The rates of National Insurance for 2013/14 will be:-
Class 1 Employees NI Employers NI
Up to £7,696 0% 0%
£7,697 – £7,748 0% 13.8%
£7,749 – £41,450 12% 13.8%
£41,451 + 2% 13.8%
The rate is increased by 5p per week to £2.70 per week.
The rate is increase by 30p per week to £13.55 per week.
The rates will be:
Up to £7,755 0%
£7,755 – £41,450 9%
£41451 + 2%
From 2014/15 the first £2,000 per annum of employers National Insurance is waived as an Employment Allowance.
- Capital Gains Tax
The annual exemption remains at £10,600 for the time being but is expected to increase t0 £11,000 for 2013/14.The rates remain at 18% for basic rate and non taxpayers, and 28% for higher rate taxpayers. The 10% rate for Entrepreneur‘s Relief remains with an unchanged lifetime allowance of £10 million.
- Inheritance Tax
There were no changes to the nil rate band or the rate which remain at £325,000 and 40% respectively.
As previously announced the maximum annual contribution and the pensions cap will reduce to £40,000 and £1,250,000 respectively from 6th April 2014.
- Tax Efficient Investments
The ISA and junior ISA limits are increasing to £11,250 and £3,720 respectively from 6th April 2013. Up to 50% of the ISA limit can be invested in cash.
There were no material changes to EIS or VCT investments, but the CGT exemption on gains re-invested in a SEED is being retained for 2013/14 and 2014/15 albeit at only 50% of the gain.
- Corporation Tax
The main corporation tax rate was set to fall to 22% from 1st April 2013 and 21% from 1st April 2014. The Chancellor announced in the budget that it would then drop to 20% from 1st April 2015 to be the same as the small company rate.
The registration and de-registration limits have been increased to £79,000 and £77,000 respectively with effect from 1st April 2013.
- Disincorporation Relief
Small limited companies with assets of less than £100,000 will for a period of 5 years be able to disincorporate without a gain crystallising on the company in respect of land or goodwill transferred.
- Beneficial Loans
The limit that can be advanced as a loan to a director or employee without a benefit in kind arising in respect of n0tional interest is increasing from £5,000 to £10,000 with effect from 6th April 2014.
From a date to be announced but expected to be in Autumn 2015 families where both parents are working and neither earns more than £150,000 per annum and who are not already receiving support will be able to claim 20% of childcare costs incurred of up to £6,000 per annum per child.
- Property Ownership
Two help to buy schemes are being introduced to help credit worthy applicants who do not have a sufficient deposit to buy a house. The first is for new properties and is a 20% loan from the government which is interest free for 5 years. The second is a guarantee scheme under which the government will guarantee up to 20% of a mortgage.
- Tax Avoidance
Consultation is taking place to tackle the avoidance of employment taxes.
General Anti Abuse Rules originally announced in 2012 are expected to be introduced later in 2013.
From 6th April 2013 there will be a statutory definition of residence for tax purposes.
Large businesses will welcome the continued reduction in the corporation tax rate.
For small businesses the £2,000 Employment Allowance will be very well received. For example a typical computer contractor using a personal service company working outside IR35 will often draw a salary less then his personal allowance to avoid paying a marginal 25.8% rate of National Insurance. From 6th April 2014 the same contractor could draw up to £10,000 salary, using an additional £2,000 of his personal allowance but paying less than £250 in National Insurance.
It remains to be seen how effective the proposed measures to tackle tax avoidance will be. Many IT contractors have used schemes based in the Isle of Man. Most of these schemes have been challenged by HMRC and irrespective of whether they have proved to be effective or not, they are unlikely to work in the future.
This document has been produced for general guidance only and does not constitute tax advice. Whilst every care has been taken in its preparation, Warr & Co Limited will not accept liability for any loss incurred as a result of any use made of this document or its contents. We will be happy to offer specific advice to clients when requested. Should you have any queries or wish to discuss any of the points raised please contact Tim Warr, Peter Edwards or Suresh Dhokia on 0161 477 6789.