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Autumn Statement 2012

Monday, 10 December 2012
2012 Autumn Statement 'No Quick Fixes'
George Osbourne, the Chancellor of the Exchequer, delivered the Autumn Statement 2012 at 12.30pm, 5 December 2012.

There was no mansion tax or higher council tax band, which had been the subject of some previous debate in the press, but there were corporation tax measures to hopefully increase the UK’s competitiveness in the global tax league and an increased level for capital allowances, which seem to have been well received. There is also a reversal of the funding squeeze for UK Trade and Investment. Budget restrictions on some government departments should release funds for more infrastructure projects and this will be accompanied by a review of the government’s ability to deliver these.

The Chancellor explained that “after the biggest financial crash of our lifetimes, people know that we face deep seated problems at home and abroad … People know there are no quick fixes to these problems. But they also want to know that we are making progress.”

The Office of Budget Responsibility predicted that there will be negative growth (-0.1%) for 2013, 1.2% growth for 2013 and rises of between 2% and 3% for the next four years. Economic growth has been weaker than expected, but the labour market has been stronger than anticipated with employment rising from a March forecast of 29.1 million to 29.6 million and a fall in the unemployment rate to 7.8%. The target for debt reduction in 2015/16 will be missed. There will be cuts in the budgets of government departments and unemployment is expected to reach 8.3% in 2012 reducing to 6.9% by the end of 2017. Government spending as a share of gross domestic product is predicted to fall from 48% in 2009/10 to 39.5% in 2017/18.

Note that draft legislation on various topics – including some not mentioned in the Autumn Statement – is expected to be published on 11 December 2012.

The Autumn Statement document can be found on the HM Treasury website.

PERSONAL TAXATION

Personal allowances

For 2013/14 the personal allowance will increase to £9,440 and the basic rate limit will be set at £32,010. The current allowance (2012/13) is £8,105 and it had been announced that the 2013/14 allowance would be £9,205. The increase of an additional £235 means that the allowance is now “within touching distance” of the much vaunted £10,000 target proposed by the Liberal Democrats.

Higher rate

The higher rate tax remains at 40% (with an additional rate of 50% currently and 45%for 32013/14) but the increase in the higher rate threshold for 2014/15 and 2015/16 will be capped at 1%. Potentially an example of ‘fiscal drag’ this means that more taxpayers become liable to the higher rate – the Treasury estimates that this will affect approximately 400,000 taxpayers.

The 2013/14 basic rate band will be £32,010 meaning that the 40% tax will apply where income exceeds £41,450. Following the 1% increases, the 2014/15 income threshold at which higher rate tax will become payable will be £41,865 and £42,285 for 2015/16.

The Chancellor revealed that in the first year of the 50% top rate of tax (2010/11) tax revenues from the wealthy fell by £7 billion and the number of people declaring income in excess of £1 million fell by half.

Pensions

As expected, there are more changes to the tax regime for pension contributions. For tax year 2014/15 and following years:

the annual allowance for pensions tax relieved savings will be reduced from £50,000 to £40,000 (note that the unused annual allowance can be carried forward for three years); the standard lifetime allowance for pensions tax relieved savings will be reduced from £1.5 million to £1.25 million; a transitional “fixed protection” regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance; and there will be discussions with interested parties on whether a personalised protection regime should be offered in addition to a fixed protection regime.

It was noted that 99% of pension savers contribute less than £40,000 per annum (the average is £6,000) and that the median pension “pot” at retirement is currently £55,000. Furthermore, 98% of those approaching retirement have a pension fund of less than £1.25 million.

Draft legislation will be introduced in Finance Bill 2013 and will be published on 11 December 2012.

For more information see HMRC’s overview note: Pensions: Restriction of pensions tax relief.

CAPITAL GAINS TAX

The capital gains tax annual exempt amount will be increased by 1% over the 2014/15 and 2015/16 years, reaching £11,100.

INHERITANCE TAX

The inheritance tax nil-rate band was frozen at Budget 2010 at its current level of £325,000 until April 2015. For 2015/16 the band will be increased by 1% rounded up to £329,000.

 ISAs

From April 2013, the overall ISA limit will increase from £11,280 to £11,520. The maximum cash element increases from £5,640 to £5,760.

In addition, there will be consultation on allowing investment in SME equity markets such as AIM to be held directly in stocks and shares ISAs. As explained by HMRC in their ISA Bulletin 19 (March 2010), to qualify for the ISA stocks and shares component a share must be officially listed on a recognised stock exchange. AIM is not a recognised stock exchange so shares traded on AIM will on qualify if they are also officially listed on another stock exchange that is recognised.

BUSINESS TAX

Corporation tax

The main corporation tax (CT) rate for financial year 2014 will be reduced by a further 1% to 21%. The main rate is currently 24% and, as previously announced, this will reduce to 23% for financial year 2013 and then to 21% (rather than the previously planned 22%) for 2014. These rates will not apply to banks, the rate of the bank levy will increase to 0.130% from 1 January 2013. The small profit corporation tax rate remains at 20%.

Subject to state aids approval by the EU, Budget 2012 announced corporation tax reliefs from April 2013 for the video games, animation and high-end television industries. A payable tax credit for these reliefs will be offered which will be worth 25% of qualifying expenditure.

Capital allowances

Capital allowances have seen many changes in recent years. The annual investment allowance for plant and machinery where a 100% allowance can be obtained was reduced from £100,000 between April 2010 and April 2012 to £25,000. The annual investment allowance will now be temporarily increased from £25,000 to £250,000 per annum for a two-year period commencing from 1 January 2013. The Chancellor stated that this allowance should cover total annual investments by 99% of UK businesses.

Cash basis

Already the subject of consultation, a simpler income tax scheme for small unincorporated businesses will be introduced for the tax year 2013/14. The main aspects of this will be as follows. Eligible self-employed individuals and partnerships (with receipts up to £77,000) will be able to calculate their profits on the basis of the cash that passes through their business. They will generally not have to distinguish between revenue and capital expenditure. All unincorporated businesses will be able choose to deduct certain expenses on a flat-rate basis.

Personal companies

The Government appears to have abandoned the idea of new legislation on “controlling persons” to tackle individuals who use a personal service company to avoid being taxed as an employee. Existing legislation, etc. will be strengthened and should be sufficient to deal with this issue.

Company cars

The Government will consult on the use of time-limited incentives through the company car tax regime to encourage the purchase and development of ultra-low emission vehicles.

OTHER TAXES

Fuel duty

The 3.02 pence per litre fuel duty increase that was due to take effect on 1 January 2013 will be cancelled and the increase that was planned for 1 April 2013 will be deferred until 1 September 2013.

Air passenger duty (APD)

APD rates will rise by amount of the retail price index (RPI) increase for September 2012 from 1 April 2013.

Shale gas

The Autumn Statement says that “the government will also establish an Office for Unconventional Gas. This will join up responsibilities across government, provide a single point of contact for investors and ensure a simplified and streamlined regulatory process. The Government will also consult on the tax regime for shale gas.”

Carbon reductions

The Carbon Reduction Commitment energy efficiency scheme is to be simplified from 2013.

ANTI-AVOIDANCE AND EVASION

Schemes closed

HMRC's approach to tax evasion was launched on Monday 3 December. Details can be found at Tackling Tax Avoidance and Evasion including a summary of information on the Treasury website and the HMRC document Closing in on tax evasion. Five further measures have been announced in a Written Ministerial Statement. The measures have effect from 5 December 2012 as follows.

Foreign bank levies. These will not be allowable deductions for income tax or corporation tax purposes.

Tax mismatch scheme. It will no longer be possible to reduce corporation tax liability through the asymmetric tax treatment of loans or derivatives. Property return swaps. Legislation will prevent capital losses being converted into income losses. 

Manufactured payments. Schemes involving stock lending arrangements are to be closed. Payments of patent royalties. Relief for non-trade payments is to be abolished.

General anti-abuse rule

A general anti-abuse rule (GAAR) will be introduced as a deterrent to abusive avoidance schemes and to strengthen HMRC’s methods of tackling them. Guidance and draft legislation on the GAAR will be published in December 2012.

Other measures

There will be consultation on the introduction of significant new information, disclosure, and penalty powers to target the promoters of aggressive tax avoidance schemes. There is to be a review of offshore employment intermediaries used to avoid tax and NICs. More information will be included in Budget 2013. It is estimated that the agreement between the UK and Switzerland on undisclosed bank accounts will raise £5 billion over the next six years. The number of tax inspectors is to be increased by 2,500 and prosecutions for tax evasion have increased by 80%. £77 million more will be spent on combating tax avoidance and there will be more resources to ensure that multi-national companies pay their “proper share” of tax.

The following documents which include the Tax Information and Impact Notes (TIINs), draft legislation and explanatory notes have been published.

Bank levy amendments

Corporation tax: mismatch schemes, property return swaps and manufactured payments

Abolition of income tax relief for patent royalties

STATE BENEFITS

General

On the basis that salaries are not rising substantially, rises in benefits (eg jobseekers allowance, employment and support allowance and income support, child tax credit and working tax credits) will, with some exceptions, be limited to 1% rather than increasing by the rate of inflation. 

Child benefit rates are frozen in 2013/14 and will increase by 1% in 2014/15 and 2015/16 and housing benefit will be capped at 1% for two years from 2014.

Carer benefits and the disability elements of tax credits are to be increased in line with the consumer price index (CPI). Other elements are either frozen or will increase by 1% in 2013/14 and all rates are increased by 1% in 2014/15 and 2015/16. The guardian's allowance will be increased in 2013/14 in line with CPI.

Support for mortgage interest is to be extended for two more years. A Welfare Uprating Bill is to be introduced.

Universal credit

Universal credit will be introduced from October 2013 to simplify the benefit system with the aim of increasing the incentive to work. By 2017/18, universal credit will comprise about two-thirds of working age welfare expenditure. The earnings disregards for each household type will be increased by 1% for two years from April 2014, rather than by CPI, in line with the restricted level of increase in most other benefits. 

State pension

The basic state pension will rise by 2.5%, meaning that the full basic state pension will be £110.15 a week in 2013/14 (rising from £107.45 in 2012/13).

NATIONAL INSURANCE CONTRIBUTIONS

For 2013/14 there are no changes to the percentage rate of contribution for Class 1 and Class 4 National Insurance contributions, but there are changes to all of the thresholds and limits.

The HM Treasury website has Tables confirming tax and tax credit rates and thresholds for 2013-14.

PENSIONS

The capped drawdown limit will be raised from 100% to 120% allowing pensioners with such arrangements to increase their income if they wish. The volatility in measures of pension scheme deficits can make it hard for companies to manage their investment plans and attract external funding. It has been announced that the Department for Work and Pensions will consult on whether companies undergoing valuation in 2013 or later should be allowed to smooth asset and liability values.

BUSINESS RATES/COUNCIL TAX

Business rates

Subject to consultation, all newly built commercial property completed between 1 October 2013 and 30 September 2016 will be exempted from empty property rates for the first 18 months, up to the state aids limit. The temporary doubling of the small business rate relief scheme will be extended for a further 12 months from 1 April 2013. It is estimated that over half a million small businesses will benefit from this extension, with 350,000 not paying any business rates until April 2014.

Council tax

As for the two previous years, a grant will be provided to English local authorities that freeze or reduce their council tax in 2013/14.

EMPLOYMENT LAW

Following consultation, legislation will be introduced on a new employee shareholder status. In return for accepting changed employee rights these workers will be given shares worth a minimum of £2,000 in their employer firm. It has already been announced that capital gains of up to £50,000 on such shares will be exempt. Options to reduce income tax and National Insurance liabilities on the receipt of such shares will also be considered. This would mean that the first £2,000 of shares received under the new status would be free from income tax and NICs.

There is to be consultation on reducing unnecessary burdens from the transfer of undertakings (protections on employment) (TUPE) regulations.

OTHER ANNOUNCEMENTS

Reducing tax credit error fraud and debt

Measures are to be introduced aimed at reducing the levels of tax credit error and fraud and recovering tax credit debt.

• Claimants will have to provide more evidence to support tax credit claims for children and childcare.

• The use of debt collection agencies to collect tax credit debt will be trialed.

• Changed rules will enable the collection of existing tax credit debt from a new tax credit award.

Recovering debt

New initiatives are proposed with the aim of recovering debt owed to central government. include:

• The use of debt collection agencies will be trialed by the Department of Work & Pensions.

• HMRCs debt management resources will be increased for the rest of 2012/13 and for 2013/14.

Digital Services

HMRC will significantly expand the range of digital services over the coming three-year period to include:

Personal tax statements for an estimated 20 million taxpayers showing how their tax is calculated and spent by government. A more “joined-up digital experience” will be provided to business customers. This will give an overview of their HMRC “account”, links to online transactions, and the ability to access tailored assistance.

OTHER BUSINESS NEWS

From April 2015, a greater proportion of growth-related public spending will be devolved to local areas. Details will be in the Spending Review. A Business Bank will be created. A package of reforms is planned to promote exports and inward investment. There will be capital investments in various infrastructure projects including spending on super-fast broadband, new homes, motorway improvements, science and schools and academies.

  

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