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2012 AUTUMN STATEMENT INTRODUCTION »
BUSINESS TAX
Corporation tax rates
The main rate of corporation tax is 24% from 1 April 2012 and 23% from 1 April 2013. The Chancellor has announced that the rate from 1 April 2014, which was planned to be 22%, will be reduced by an additional 1% to 21%.
The small company rate will remain at 20%.
Annual Investment Allowance (AIA)
The AIA provides a 100% deduction for the cost of plant and machinery purchased by a business up to an annual limit which is currently £25,000 (with effect from April 2012). The Chancellor announced that this limit will rise to £250,000 for a period of two years from 1 January 2013.
Comment
This represents a significant increase and should mean that many businesses will get an immediate write off for their purchases of equipment. Care will be needed with regard to accounting periods which straddle 1 January 2013. No details have been provided as to how the AIA will be computed for such periods.
The actual amount of AIA available to a business for a current accounting period will depend on when that accounting period began and when it ends. A 12 month period from 1 March 2012 to 28 February 2013 will cover a period in which there have been three different AIA limits.
Capital allowances and cars
A 100% first year allowance (FYA) is available on new low emission cars purchased by a business. The current rule is that a 100% FYA is generally available where a car’s emissions do not exceed 110gm/km. The availability of a 100% FYA is to continue for a further two years for purchases from 1 April 2013 but only where emissions do not exceed 95gm/km.
Cars with emissions between 111-160gm/km inclusive currently qualify for main rate WDA (18%). The threshold is to be revised down to 130gm/km for additions from 6 April 2013 for income tax (1 April 2013 for companies).
Comment
There are over 150 models that can be purchased this tax year which qualify for a 100% FYA. If the purchase is deferred to the next tax year, the number falls to less than 30.
Enhanced capital allowances
Enhanced first year allowances are available to companies located in designated sites in Enterprise Zones. The Chancellor has announced that two more sites in Wales are to qualify for these allowances. The sites are within the Enterprise Zones at Ebbw Vale and the Haven Waterway.
A simpler tax system for smaller businesses
The Chancellor is to proceed with proposals to make the tax system simpler for small unincorporated businesses. Where a business has a turnover up to £77,000 it will be able to calculate its profits on a simplified cash basis. In addition it will not have to distinguish between revenue expenditure and capital expenditure. A business will be able to continue to use this basis until its turnover reaches £154,000.
The cash basis will be implemented from April 2013.
All unincorporated businesses will be able to claim a range of expenses on a flat rate basis rather than having to identify actual amounts spent. It is expected that motor expenses, for example, will be calculated using a flat rate for all business mileage rather than having to record all the expenses in the year.
Comment
The new rules are not quite as simple as the Government would have us believe. Whilst the actual accounting treatment may be simpler it will still be necessary to have regard to tax rules for the deductibility of some expenses. There will also be transitional rules for existing businesses wishing to opt into the new system.
Creative Sector
The Government is to proceed with special corporation tax reliefs for companies involved in the production of animated films, high-end television programmes and video games. The new reliefs will apply from 1 April 2013 (subject to State aid approval) and will allow an additional deduction of 100% of certain specified expenditure. As an alternative the company will be able to claim a payable tax credit at a rate of 25% of qualifying losses surrendered.
Taxation of controlling persons
The Government has decided not to proceed with a proposal to tax at source those who meet the definition of a controlling person. It will, however, strengthen the existing intermediaries’ legislation (IR35) to put beyond doubt that it applies to office holders.
Large business tax risks
Recent publicity has put the spotlight on the UK tax arrangements of some very large international companies. In response to that the Chancellor has announced that HMRC will enhance its ability to identify areas of risk and will be increasing its resources in the area of transfer pricing.
PREVIOUSLY ANNOUNCED CHANGES
Gift Aid Small Donations Scheme
The Gift Aid Small Donations Scheme (GASDS) is intended to provide a subsidy for charities on cash donations of up to £5,000 a year which cannot be gift aided because the identity of the donor is not known or it would be additionally complex to capture that information at the time of donation. The charity will be able to claim a top-up payment on the GASDS receipts.
A small donation is defined as one which is £20 or less. All the donations received must be collected in the UK and paid into a bank account in the UK. A claim must be made within one year of the end of the tax year concerned.
To prevent fraud the maximum claim is linked to the amount of Gift Aid claims made by the charity and the charity must have at least a three year history of making such claims. Additional claims can be made where the charity runs activities in a community building. The claims limit has to be shared by connected charities.
Comment
Many small charities that rely heavily on cash donations will be very disappointed by this scheme and may find that they are unable to actually use it. Any charity must consider making full use of the Gift Aid scheme if they are going to get the maximum benefit from the GASDS. The complexities introduced to counter possible fraud make the scheme very complex for those genuine charities that want to use it.
Flat conversion allowances
The 100% FYA for the conversion of ‘flats over shops’ is withdrawn in respect of expenditure incurred on or after 6 April 2013 for income tax (1 April 2013 for companies).
The entitlement to claim WDAs on any outstanding residue of qualifying expenditure will also be withdrawn from these dates but the ability to claw back allowances within seven years continues after these dates.
Mineral royalties
The special relief that treats 50% of the total royalties as a capital gain and 50% as income is withdrawn in respect of mineral royalties a person is entitled to receive on or after 6 April 2013 for income tax (1 April 2013 for companies). This means that any mineral royalties on or after those dates will be fully subject to either income tax or corporation tax.
Currently there is a special loss relief where land subject to a mineral lease or agreement reduces in value. Where leases or agreements are entered into before the date of withdrawal of mineral royalties’ relief, the ability to crystallize losses and the entitlement to carry back losses for up to 15 years is preserved.
2012 AUTUMN STATEMENT INTRODUCTION »
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