Budget 2012 - in detail

Business Tax

Corporation tax

  • Corporation tax will be cut by 1%, effective from 1 April 2012, from 25% to 24%. Additional 1% decreases are scheduled each year until 2014, leaving the maximum corporation tax rate at 22%.
  • The small companies rate remains at 20%.

Enterprise Investment Scheme (EIS)

  • Individuals maximum annual investment has been doubled to £1m.
  • Qualifying company size has been increased to £15m gross assets, and maximum employees threshold to 250.
  • Maximum annual threshold of funds receivable by a company under EIS raised from £2m to £5m.

Seed Enterprise Investment Scheme (SEIS)

  • New relief from 6 April 2012 (announced in 2011).
  • Investors can avail of 50% income tax relief based on their investment, up to an annual maximum of £100,000 for all SEIS investments.
  • Investors can be Directors of the company they are investing in, or former employees. Current employees are excluded.
  • Similar to EIS, investors cannot be a ‘connected party’ with the company (broadly speaking, connected threshold is a 30%+ shareholding).
  • Same Capital Gains Tax (CGT) Exemption as EIS, whereby qualifying shares sold within 3 years of issue do not attract CGT.
  • It is questionable whether or not this relief will achieve its aims of stimulating investment, given that companies cannot raise more than £150,000 in total through the scheme, and to qualify, gross assets must not exceed £200,000 before issuing qualifying shares.

Annual Investment Allowance (AIA) and Writing Down Allowances (WDA)

  • As previously announced, the amount of capital expenditure that can be written off immediately is scheduled to be significantly cut from £100,000 to £25,000 in April 2012. For companies with a year end other than 31 March, this can have a dramatic effect on the tax relief available on their capital expenditure.
  • WDA (tax relief on capital expenditure incurred) will be cut from 20% to 18% per annum.

Enterprise Zones

  • Specific areas within Wales and Scotland were granted Enterprise Zone status, allowing businesses located within these areas to avail of generous tax relief on plant and machinery equipment (provided it is new, and not replacing existing equipment).
  • Northern Ireland was also mentioned by the Chancellor as a potential Enterprise Zone, but we understand that will require Assembly approval.

Research & Development

Broadly speaking, several major restrictions are due to be lifted from April 2012;

  • R&D tax credit will no longer be restricted by the amount of PAYE/NIC paid by the company.
  • The de-minimus level of R&D spend (£10,000) will no longer apply.
  • SME’s will get an additional 25% relief on qualifying R&D spend, to 125%.
  • An ‘Above the line’ tax credit was also announced, giving further savings of up to 9.1%, which will be subject to further consultation before inclusion in the 2013 Finance Bill.

Tax credits for the Creative Industries

  • Tax credit relief will be given for companies operating in the animation, gaming and high-end TV sectors. We anticipate that this will operate in a similar way to Film tax credit relief currently in operation.
  • It is expected that qualifying expenditure will attract additional tax relief of 25%, effective from April 2013 and subject to EU State aid approval.
  • Fantastic news for Northern Ireland, as we have great strength in depth in these sectors.

Patent Box

  • Legislation is to be introduced that will enable companies to apply a 10% rate of corporation tax to all profits attributable to qualifying intellectual property (IP) made on or after 1 April 2013.
  • Qualifying IP will include patents granted by the UK Intellectual Property Office and the European Patent Office, as well as supplementary protection certificates, regulatory data protection and plant variety rights.
  • It is anticipated that the provisions will apply to both new and existing IP, as well as acquired IP provided that the group has further developed the IP or the product which incorporates it.

Stamp Duty Land Tax (SDLT)

  • The Chancellor announced a new 7% SDLT, with immediate effect, on all residential properties in excess of £2m.
  • High value residential properties (+£2m) purchased on or after 21 March 2012 will be subject to 15% SDLT if the purchaser or purchasers are certain types of ‘non-natural persons’.
  • Non-natural persons include companies, unit trusts, and partnerships in which a non-natural person is a partner.
  • Property developers and certain corporate trustees will be exempt from this new higher rate.
  • SDLT relief for zero carbon homes will cease on 30 September 2012.

Personal Tax

  • Personal allowances to rise to £8,105 (2012/13) and £9,205 (2013/14).
  • However, the ceiling whereby basic rate taxpayers will pay tax at the higher rate of 40% will drop from £42,475 (2012/13) to £41,450 (2013/14).
  • Top rate of income tax to be cut from 50% to 45% from April 2013.
  • Child Benefit threshold to be based on any single taxpayer within the household. Anyone earning between £50,000 – £60,000 will see their benefit cut by 1% for every £100 earned above £50,000. Qualifying earnings above £60,000 will not be entitled to Child Benefit.
  • Generous age related personal allowances for the eldery have been frozen, with a view to aligning them with all other tax payers in the future.

Employment Taxes

Enterprise Management Incentives Scheme (EMI)

  • Employees maximum value of EMI options to be increased from £120,000 to £250,000, effective from a date to be confirmed. This measure will be subject to EU State aid approval.
  • Entrepreneurs’ relief (capital gains tax rate of 10%) will now apply to shares acquired through excercising EMI options from 6 April 2012 onwards.

Car benefits

  • Employee company car benefit rates will increase by 1 percentage point, to a maximum of 35%.
  • Employee company car fuel benefits, calculated using the percentage noted above, will be based on a figure of £20,200 from April 2013 onwards (currently £18,800).

Inheritance Tax

  • For deaths on or after 6 April 2012, the normal 40% rate of inheritance tax (IHT) is reduced to 36% if at least 10% of the deceased’s net estate is left to charity.
  • The Government will consult on legislation to increase the IHT-exempt amount that a UK domiciled individual can transfer to their non-UK domiciled spouse or civil partner. The Government similarly proposes to allow individuals who are domiciled outside the UK and who have a UK domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of IHT. Legislation will be in Finance Bill 2013.

If you would like to discuss this article, please contact Nigel Morrow.