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As widely anticipated, The Chancellor could not afford to give much away, but nor did he want to slow down growth. This was a budget with repeated reference to everyone paying their "fair share", and a strong focus on anti-avoidance. There was good news for companies with an additional 1% reduction in the rate of corporation tax. For individuals, most will gain from the rise in personal allowances, and the 50% rate will fall to 45% next year.
The main Areas.
The major focus of the Budget was on anti-avoidance measures. A "General Anti-Abuse Rule" will be introduced in 2013, with consultation on the detail later this year. The GAAR will be extended to cover Stamp Duty Land Tax (SDLT) as well as Income Tax (IT), Corporation Tax (CT) and Capital Gains Tax (CGT).
Specific legislation will be introduced to stop "sub-sale" schemes, which have been widely marketed over recent months. There are other specific measures targeting leasing and capital allowances, as well as the measures on debt buy back and loss relief announced within the last few weeks.
The proposal to restrict loss relief to 25% of total income, for all claims over £50,000, could have a significant effect: it is predicted to raise almost £500m in 2014.
The Chancellor also confirmed that legislation will be introduced in the Finance Bill 2012 to tackle dishonest tax agents. HMRC will be given the powers to issue civil penalties, to access the agent's papers (with the approval of the Tribunal) and to publish the details of any penalised agent.
And in the Finance Bill of 2013, HMRC's powers in criminal investigations involving direct tax and tax credits will be brought into line with the powers they already have in relation to indirect tax and duties. HMRC officers will be able to seize cash and to exercise search and seizure warrants when conducting any criminal investigation.
The Controlled Foreign Companies (CFC) and Patent Box proposals will be enacted, although the precise details are still being discussed.
The additional 1% reduction in the rate of Corporation Tax will be widely welcomed.
As announced in the Autumn Statement 2011, an "above the line" R&D credit will be introduced for large companies in 2013, aimed at encouraging R&D activity.
Also proposed to encourage UK industry, Corporation Tax reliefs for video games, television animation productions and "high end" television productions will be introduced in 2013, to complement existing film scheme reliefs. The new reliefs are likely to be accompanied by strict anti-avoidance rules, to ensure that tax planning schemes do not develop.
The highly publicised use of offshore companies to hold high value properties is no longer a tax efficient way of owning property. Not only will a higher rate of 15% SDLT apply (from today) to any purchase of a residential property worth over £2 million by a company, but the Treasury also intends to introduce, in April 2013, an annual charge payable on properties worth over £2 million and held in companies. Residential property owners who already hold their property in a company will undoubtedly consider taking the property out.
With immediate effect, the closure of a widely used SDLT planning scheme which involves the use of sub-sale relief in conjunction with an option, as well as further consultations on sub-sale relief. Finally he has warned that the Government will act swiftly against stamp duty avoidance, using retrospective legislation where appropriate.
The introduction of a 7% rate for properties worth over £2 million (effective from 22/03/12), in line with the Chancellor's stated intention of ensuring that the rich contribute more than the poor. The commercial property industry, as well as residential property developers, will also welcome the fact that the bulk of the measures are aimed at purchases of a single residential property.
The Chancellor reaffirmed his commitment to clamping down on tax avoidance and evasion by the wealthy, and his goal to implement a simple, predictable and fair tax system whereby the rich paid more tax and the poor the least.
A number of VAT changes to address perceived anomalies in the classification of certain supplies such as hot food and sports drinks as zero rated, as opposed to standard rated. Alterations to listed buildings are likely to lose their zero-rated status and to become subject to tax at 20%.
A new Machine Gaming Duty is to be introduced to replace both Amusement Machine Licence Duty and VAT and is expected to come into force on 1 February 2013. In particular, it will seek to tax according to the place of consumption, so that operators will not avoid tax by establishing offshore.
A number of consultations have been announced including new PAYE late payment and late filing penalties under Real Time Information.
A package of measures will be introduced to target avoidance using personal service companies and simplifying IR35 legislation.
Mixed news for SMEs seeking venture capital: the draft Seed Enterprise Investment Scheme legislation will be amended to relax some of the requirements following consultation, including the restriction on investee companies having subsidiaries. However, the increase in the annual investment which a company will be able to receive under Enterprise Investment Schemes and Venture Capital Trusts (EIS/VCT) will be increased to £5m as opposed to the £10m originally proposed by the government in 2011.
An extension to the Enterprise Management Incentive Scheme (which allows SMEs to grant tax favoured share options to employees) to more than double the individual employee limit to £250,000 will be welcomed by many, as well as the proposed extension of entrepreneurs relief to shares acquired under EMI options after 6 April 2012, subject to State Aid Approval. The government intends to consult on tax advantaged share schemes following recommendations made by the OTS for simplifying the schemes.
A consultation has been announced to review a voluntary cash accounting basis for unincorporated business up to the VAT threshold, as well as a simplified expenses system and disincorporation relief.
The Energy Sector
The Oil industry will welcome the undertaking to draft legislation to allow the Government to make contractual agreements with industry to guarantee future levels of decommissioning relief they will receive. This follows last year's unexpected tax increases and announcement that decommissioning relief would be granted at a lower rate than the new 62% corporation tax rate for upstream activities. It is hoped that the certainty provided will make it easier for new entrants to enter the North Sea exploration and production market.
The field allowance regime, which relieves supplementary charge on income from harder to reach fields is to be extended. Among the measures, a £3bn allowance for particularly deep fields is introduced and is aimed at the West of Shetland area.
If you need any help and advice on Inheritance Tax, Capital Gains Tax, or any other implications of the 2012 Budget, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help in all your financial planning.
ABDS Chartered Certified Accountants of Southampton.
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