Archive for December, 2012

Autumn Statement

Saturday, December 1st, 2012

The Chancellor delivered his Autumn Statement on Wednesday 5th December.

He gave a rather more assured performance than was the case when making his budget speech last Spring and was aided by a rather erratic and unfocused response from the Shadow Chancellor.

Hopefully the statement will not unravel as quickly as the last budget, although there do appear to be fewer contentious issues and pitfalls in these latest proposals than was the case in the budget.

The Chancellor appears to have heeded calls from the business community to provide some stimulus to investment and economic activity, as most of the eye catching announcements were business related.

The most significant proposal was the increase in the Annual Investment Allowance.  All businesses will be able to claim 100% tax relief on capital expenditure of up to £250,000 in 2013 and 2014.  The Chancellor wisely introduced this change from 1st January 2013, to avoid businesses delaying investment and it is thought that 99% of total capital expenditure will fall within the new limit.  Careful planning on the timing of capital expenditure will be essential to take full advantage of this tax break.

Smaller business owners and other lower paid individuals will benefit from the increase in the personal allowance to £9,440 in 2013/14. However, this benefit is significantly diluted for higher income earners as the basic rate tax band is being restricted to £32,010 in 2013/14, which means more taxpayers will be dragged into the higher rate tax band.

The Chancellor has also continued the downward pressure on corporation tax rates; the main rate will be reduced down to 21% by the year ended 31 March 2015.  Sadly there have been no further reductions in the small companies rate, which remains at 20%.

The lower rates of corporation tax are mainly aimed at encouraging investment into the UK and also to reduce the propensity of overseas based companies to indulge in complex tax avoidance.

Tax avoidance is currently very topical and an issue that is proving popular in the press   but presents difficulties for government in balancing the need for tax revenues and quelling the howls of protest from the media with the need to encourage international companies to locate in the UK.

We still await the final composition of the General Anti Avoidance Rule and can only hope that it clearly tackles the most aggressive and non commercial tax avoidance planning but does not spread uncertainty and confusion into unintended areas such as normal routine day to day tax planning.

Other business friendly measures include enhanced tax relief for the creative sector and the new employee share ownership scheme, which offers tax breaks for shares granted to employees in exchange for the employees giving up some of their UK employment rights.

Cancellation of the previously proposed fuel duty increases provides some welcome relief for the transport industry and generally for all motorists.

Less welcomed by the business sector was the reduction in the annual maximum that can be contributed to a pension scheme.  The amount is being reduced from £50,000 to £40,000 although this will not be until 2014/15. The lifetime allowance, the maximum value of your pension plan, is also reduced from £1.5 million to £1.25 million, again as from 2014/15.

There is some good news on pensions in respect of pension drawdown, the maximum income that can be withdrawn from a pension fund is increased to 120% from 100% of the equivalent single life annuity.

Despite the gloomy growth and borrowing forecasts announced at the start of the statement, the Chancellor managed to introduce some useful business tax breaks and it is to be hoped that they will provide some much needed stimulus to the economy.  In particular the significant increase in investment allowances should persuade many businesses to bring forward capital projects and release some of the large amounts of cash hoarded on company balance sheets.

If you have any questions about the Autumn Statement or if you have another financial query, please call us today on 01903 713508 or email simon@bottingandco.co.uk.

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