On The Spot Blogs
Budget 2012 - Wealth Creators 1, Wealthy Grannies 0. Simplification 2, Complication 1.
Today's Budget certainly had a strong business emphasis to encourage and incentivise business growth. On the other hand, artificial transactions set up simply to avoid tax would not be tolerated.
Administrative Simplifications For Business
A very important message for business is the introduction of more simplification. HMRC are merging parts of their online screens so it's easier to check your tax due and paid. PAYE and NIC administration is being merged possibly followed by a merger of the rates. If your turnover is less than £77,000 you can opt to prepare your accounts on a cash basis. Helpfully, this is the same as the VAT threshold so you needn't worry about VAT either.
Therefore you may find the navigation of the tax system that bit easier. I also suspect this means small businesses won't be subject to the new business records checks so often as the risk of an error must be much lower and it can't be worth an Inspector's time.
Any of your staff earning less than £8,105 this tax year and £9,205 next tax year, often part time employees, will pay no income tax and little national insurance. However, this seems to mean the PAYE system must still be operated and this will allow your staff to achieve their state pension credits. Importantly, it may help in the recruitment and retention of part time staff, as they will have a higher take home pay. Always something useful to know when hiring staff.
Corporation Tax Rate Simplification
Profits up to £300,000 are taxed at 20% and profits over £1.5m are taxed at 24% from April 2012. Profits in between £300,000 to £1,500,000 suffer a higher marginal rate than the 24%. With the continual reductions to the main corporation tax rate, it looks as though the Chancellor wants all companies to eventually pay the lowest 20%. This is very welcome as it means companies don’t have to worry about crossing the £300,000 threshold which does cause successful companies some issues.
Tax Free Personal Allowances and Higher Rate Tax Band Complication
The higher rate tax kicks in at £42,475 for 2011/12 and 2012/13, however, it reduces by £1,025 to £41,450 for 2013/14 bringing in many more taxpayers to the tax return system. Along with the tapered loss of child benefit, there is a certain lack of simplification about this area.
Wealth Creators Encouraged - Share Options – (EMIs)
The threshold per employee has increased from £120,000 to £250,000. This increase may encourage more companies to offer these share options. It is also very useful where the market value of a private company is difficult to determine as it gives some ‘wriggle room’ should HMRC dispute the value given. EMIs are probably under-utilised as there is a certain amount of paperwork required. However, they are an important way of providing a share-based incentive without having to give any of your shares away. And they can apply to just one employee. Plus there’s no income tax or national insurance to worry about at the beginning and in many cases none due later on if the employee pays the original market value of their shares. Your new employee feels incentivised but you still own your company and there’s no up front tax to pay.
Wealthy Individuals Anti-Avoidance
Generally there is a strong message that this will no longer be tolerated. What is it? It’s not seen to be things like allocating your salary and dividends to an optimum level. But it does include putting in high value residences into a company for no other reason than to save stamp duty. Many regard this is as an artificial transaction. The Chancellor has come down very hard on the stamp duty avoidance – something HMRC itself did not so long ago! – and applied very stringent tax rates much higher than the stamp duty which has been avoided. This sort of anti-avoidance has popular public opinion behind it and looks set to continue.
They are likely to be living off large pensions, interest and dividend income, but they aren't new wealth creators. Under the guise of simplification, these higher allowances for pensioners are being reduced. With the increase in the standard tax free personal allowance applying for all of us, perhaps this was inevitable.
The Budget is sending out a message that the Government is behind business. However, more than that, it needs business to succeed.