Burton Sweet’s Rachel Finch reviews recent tax changes

Burton Sweet‘May you live in interesting times’ goes the ancient Chinese curse, and as far as tax is concerned, we live in very interesting times indeed. Tax today is a minefield, with changes taking place part-way through a year and announced one, two, or even sometimes three years ahead.

As the new 2012/13 tax year starts on Friday I thought that it would useful for readers to summarise some of the changes which may affect you or your business in the coming year:

Personal Taxes

• Personal Allowance – The basic personal allowance has been increased to £8,105, and then increases to £9,205 from April 2013 as part of the coalition Government moving towards its target of personal allowances of £10,000. This is good news for low and middle income earners.

• Higher Rate Tax Threshold – However, the threshold at which you pay Higher Rate Tax will be coming down, the overall affect is that the point at which you start to pay Higher Rate Tax (£42,475) is the same for 2012/13 as it was for 2011/2012.

• Child Benefit – One very important change that is being implemented later in the year is the phased withdrawal of Child Benefit for people earning over £50,000. The changes come into effect from 7 January 2013. Child Benefit is still be received by households, however it will need to be declared on your Tax Return and ‘repaid’ with your tax liability.

• Furnished Holiday Let’s (FHL’s) – From 6 April for a property to still qualify as a Furnished Holiday Let it must be available to be let 210 days of the year (increased from 140 days) and actually let 105 days of the year (up from 70 days).

• Tax Credits – The secondary threshold for Tax Credits is being removed, this means that the ‘Family Element’ which households with children under 16, and which earned under £40,000, received in full will now be abated with the rest of the Tax Credits. This will have a significant impact on a low income families.

• Non-Domiciled UK Remittance Basis Tax Charge – The tax charge for non-domiciled individuals, who wish to use the remittance basis for their foreign income, has been increased for long-term residents who have been here for 12 of the last 14 tax years – from £30,000 to £50,000.

• Inheritance Tax – The threshold remains fixed at £325,000 per person.

• Capital Gains Tax – The threshold is not being increased, and will remain at £10,600 per person for the 2012/13 tax year.
Business Taxes

• Corporation Tax – The main rate of Corporation Tax has been reduced from the 1st of April 2012 from 26% to 24%. This then falls to 23% in April 2013, and 22% in April 2014. The small profits rate (which is paid on profits under £300,000) remains at 20%.

• Enterprise Investment Scheme (EIS) – Changes have been made to the EIS Scheme, making it available to larger companies. This scheme is aimed at trading companies and offers investors generous Income Tax and Capital Gains Tax reliefs for purchasing new shares in those companies. Increasing the size of company that can qualify should make these investments less risky, however please seek advice from a qualified IFA before making any such investment.

• Seed Investment Scheme (SEIS) – This is a new tax relief which has been introduced this year. This scheme offers an investor a very generous 50% Income Tax relief on qualifying investments and is aimed at new and growing companies. These companies will be very high risk, again you should take financial advice before making any investment.

• Research and Development Tax Credits – From 1st April the rate of relief was increased from 200% to 225% for qualifying expenditure. This means that a business can receive Corporation Tax Relief at a rate of £2.25 for every £1 spent on qualifying R&D.

• Capital Allowances – These allowances are effectively HMRC’s rates of ‘tax approved’ depreciation for businesses. The Annual Investment Allowance, for which businesses can write-off 100% of the cost of qualifying business assets, has been reduced from £100,000 to £25,000.

Writing down and Special rate pool allowances have also been reduced – which is partly to pay for the reduction in Corporation Tax rates.

• VAT – The turnover threshold for registering for VAT will increase to £77,000.

Rachel Finch is the Tax Advisory Partner at Burton Sweet Chartered Accountants and Business Advisors. She specialises in providing advice to business owners and individuals on a wide range of issues from Income Tax and Corporate Tax through to International Tax and Corporate restructuring.

To find out more about Burton Sweet visit: http://www.burtonsweet.co.uk or call them on: 0844 225 0750