020 8876 1097 office@blythetax.com
Budget Comment March 2013

We can guage the number of new and interesting measures in this year’s Budget from the reply from the Leader of the Opposition. Ed seemingly spent the majority of his time goading the Government benches about who benefits from the cut in the top rate of tax from 50% to 45%. Well very good Ed but nothing to do with this year’s Budget – that was last year’s announcement and anyway what about your own income? His MP salary plus Leader of the Opposition enhancement is over £140,000 so has he tucked away investments and other income to avoid the 50% rate himself?

But to be fair to Ed he was struggling to find anything headline grabbing in what was a very quiet budget full of either no change or just confirming changes that had been previously announced.

One exception to this (of interest to any business or charity with employees) is the new £2,000 Employment Allowance offsettable against Employers National Insurance – a welcome cushion against a very significant cost to employers. But, you guessed it, the commencement date is April 2014. Employers National Insurance is the ‘tax’ levied on employers at the rate of 13.8% of their employee salaries over £7,696.

The chart of new Rates and Allowances is, as always, set out below. Probably the biggest change is the increase in Tax Free income (the Personal Allowance) from £8,105 to £9,440 (this is the one that will be increasing again next year to over £10,000). So that sounds good for higher rate taxpayers with another £1,335 of tax free income. Well actually, no it isn’t because what is given with the Personal Allowance is taken away with a lower Higher Rate Threshold! The 40% rate now starts at £41,450 (down from £42,475). There’s a summary of Tax Rates below reflecting these changes.

There are three topics loosely connected to the Budget to look at:

Child Benefit

Do you remember what we said last year about another measure beginning to impact now – here’s a reminder from the 2012 Budget Report: Elsewhere, from 7 January 2013 (what date is that!) there will be a complicated (and often unfair) tax charge to recoup Child Benefit where one of the household inomes exceeds £50,000.

This is an important matter for 2013 Tax Returns – although the period in question is just the 88 days up to 5 April 2013, there may well be Tax Return disclosure and (potentially) liability for the highest earner in the household. HMRC did a good job of contacting those likely to be affected, but it is something to check carefully when gathering your Tax Return information. All Child Benefit from 7 January 2013 received in households where the higher income exceeds £60,000 will have to be repaid (between £50,000 and £60,000 there is a sliding scale). This liability, or to give it its full name, this High Income Child Benefit Tax Charge can either be received and paid back or (where you are confident that it will have to be paid back) it can be stopped before it is paid. If you need more information please contact us – but either way please be careful to give us the information with your tax information.

Hint: A Personal Pension contribution reduces your ‘income’ for the purposes of the HICBTC so not only would you enjoy the higher rate tax relief on contributions – you could also reduce the clawback of Child Benefit!

Student Loans

There are two types of ‘Income Contingent’ Student Loans. Those taken out prior to September 2012 and those taken out on or after September 2012. Repayments take the shape of an additional ‘tax’. On the former the rate is 9% on income above £16,365. On the latter the same 9% is paid on income above £21,000. The current rate of interest on the former is 1.5%, on the latter it is a staggering 6.6%! Watch these rates – they are prone to significant change.

Please be aware of the tax impact of these loans and if you don’t know what you currently owe – contact the Students Loan Company: www.slc.co.uk

State Pension

For those retiring after 5 April 2016 (brought forward by one year in the 2013 Budget) there will now be an all encompassing ‘Flat Rate State Pension’. No more ‘Earnings Related’ or ‘Second Pension’ adjustments. A simple (inflation adjusted) £144 per week across the board – so long as you have 35 years of qualifying National Insurance (there is nothing for those with less than 10 years). There will be no differentiation between men and women and the age difference for men and women (remember until recently women took theirs at 60 and men 65) is well on its way to being phased out. By 2020 both sexes will reach State Pension age at 66 and by 2028 it is expected to be 67. When will today’s new born be taking theirs?

If you wouldn’t be able to survive on £144 per week have you got a plan to enhance your income when the day comes?

As noted last year (and the year before), there are continual changes to pensions that are far too complex to consider here. The basics stay the same but, if you want to make significant contributions or do anything radical, contact us and we will either advise or (quite likely) pass you on to a pension specialist.

The comments above are brief highlights, please note the full chart of Rates and Allowances below and remember – there is always more to it than meets the eye so please contact us before taking or refraining from action.

Finally before setting out the Rates and Allowances, as there has been a fair amount of change in the ‘tipping points’ and rates of Income Tax (IT), here is a table that you may find helpful (this takes no account of potential ‘rate reducers’ (eg pension or Gift Aid)) and no account of the (reducing) Age Related Enhanced Allowance or the Child Benefit Clawback). Specifically be aware of the 60% spike (caused by the loss of Personal Allowance at the rate of £1 for every £2 income exceeds £100,000)!

Level of Income
2012/13
Rate of IT
2012/13
Level of Income
2013/14
Rate of IT
2014/14
0 - £8,105
nil
0 - £9,440
nil
£8,106 - £42,475
20%
£9,441 - £41,450
20%
£42,476 - £100,000
40%
£41,451 - £100,000
40%
£100,001 - £116,210
60%*
£100,001 - £118,880
60%*
£116,211 - £150,000
40%
£118,881 - £150,000
40%
£150,001 and above
50%
£150,001 and above
45%
* There is no 60% ‘rate’ but it does illustrate the effect of the loss of the Personal Allowance on this band of income.
Rates and Allowances

Rates and allowances for Income Tax, Corporation Tax, Capital Gains Tax, and Inheritance Tax are set out below.

 
2012-13
(£)
2012-13
(£)
Increase
(£)
Income tax allowances      
Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people 75 and over
8,105
10,500
10,660
9,440
10,500
10,660
1,335
0
0
Income limit for under 65 personal allowance
 
Income limit for age-related allowances
100,000

25,400
100,000

26,100

0

700

Married couple’s allowance for people born before 6 April 1935

Minimum amount of married couple’s allowance

Blind person's allowance
7,705


2,960

2,100
7,915


3,040

2,160
210


80

60
Capital gains tax annual exempt amount:
Individuals etc
Trustees

10,600
5,300

10,900
5,450

300
150
Inheritance tax threshold
325,000
325,000
0
Taxable bands 2012-13 (£)
Taxable bands 2013-14 (£)
Starting rate 10%
Starting rate 10%
Basic rate 20%
0 – 34,370
Basic rate 20%
0 – 32,010
Higher rate 40%
34,371 - 150,000
Higher rate 40%
32,010 - 150,000
Additional rate 50%
Over 150,000
Additional rate 50%
Over 150,000
Corporation tax profits 2012 (£)  
Small companies’ rate 20%
0 – 300,000
Marginal relief
300,001 – 1,500,000
Main rate 23%
1,500,001 or more
The main rate of Corporation Tax for 2014/15 will be 21%
National Insurance
 
2012/2013
2013/2014
Class 1 Employees
On first £146 pw Nil £149 pw Nil
Between £146 - £817 pw 12% £149 - £797 pw 12%
Over £817 pw 2% £797 pw 2%
Employee's contracted-out rate 1.4%   1.4%
Married womans
reduced rate
5.85% of £139 to £817 pw, 1% above £817 5.85% of £146 to £817 pw, 2% above £817
Class 1 Employers
On first £144 pw Nil £148 pw Nil
Over £144 pw 13.8% £148 pw 13.8%
Employers' contracted-out rebate, salary related schemes 3.4%   3.4%
Employers' contracted-out rebate, money purchase schemes Abolished   Abolished
Class 2 Self employed
Flat rate £2.65 pw   £2.70 pw
Small earnings exception £5,595 pa   £5,725 pa
Special Class 2 rate for share fishermen £3.30 pw   £3.35 pw
Special Class 2 rate for volunteer development workers £5.35 pw   £5.45 pw
Class 3 Voluntary
 Flat rate £13.25 pw £13.55 pw
 Class 4 Self employed
On profits between £7,605 - £42,475 pa 9% £7,755 - £41,450 pa 9%
  above £42,475 2% above £41,450 2%
Stamp Taxes

Transfers of property (consideration paid)

Rate
All land in the UK
  Residential Non-residential
Zero £0 - £125,000 £0 - £150,000
1% Over £125,001– £250,000 Over £150,001– £250,000
3% Over £250,001– £500,000 Over £250,000 – £500,000
4% Over £500,001– £1,000,000 Over £500,001
5% Over £1,000,001 - £2,000,000 N/A
7% Over £2,000,000  
15%* Over £2,000,000  

* The 15 per cent rate applies if the property is acquired by certain non-natural persons (e.g. companies)

The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% for 2013/14.

Value Added Tax (VAT)
  January 2011 - April 2011 April 2011-12
Standard rate 20% 20%
Reduced rate 5% 5%
Zero rate 0% 0%
Exempt n/a n/a
Value Added Tax (VAT) – Registration and Deregistration thresholds
  From April 2012 From April 2013
VAT - registration threshold 77,000 79,000
VAT - deregistration threshold 75,000 77,000