By Anita Brook FCCA, founder of Accounts Assist
This year, we’ve asked some of our members to share with us their thoughts on the budget: how it affects them and how it affects the businesses with which they work. Their views are their own. Today’s first post comes from Anita Brook, the founder of Accounts Assist – a chartered certified accountancy firm specialising in accountancy and taxation services for all types of small businesses - and a member of the ACCA UK practitioners panel.
The chancellor produced a budget last week that did many of the things that needed to be done, in my opinion. He ended the 50p tax rate on higher earners; Mr Osborne predicts that by reducing the top rate by 5p, he will significantly increase the state’s revenue, and many reputable economists agree with him. He reduced corporation tax by 1p, a much needed boost for businesses that still have to cope with slow trading conditions. Most importantly of all, by raising the personal allowance by £3,580, he has taken about a million people out of income tax altogether.
The following were also announced:
Enterprise Investment Schemes
From 6 April 2012 there are two schemes which you can use to achieve tax relief for investing in small unquoted companies: the seed enterprise investment scheme (SEIS) and the enterprise investment scheme (EIS). The tax relief given under each scheme is shown below for 2012/13:
Rate of income tax relief: SEIS = 50%; EIS = 30%
Annual maximum investment qualifying for income tax relief: SEIS = £100,000; EIS = £1,000,000
Capital gains tax relief on investment: SEIS = 18% or 28%; EIS = deferred relief
Both the company and the investor have to qualify in order to receive tax relief under SEIS or EIS.
Business Tax Simplification
The government wants to simplify the accounts small businesses (partnerships and sole-traders) have to prepare for tax purposes. It is consulting on whether preparing accounts on a cash basis would be easier, and standard allowances could be used for the business use of vehicles and the proprietor's home. Any changes are likely to apply from April 2013 or later.
Personal Allowances
The big news for individuals is that the personal allowance will increase to £9,205 from 6 April 2013, so you have to wait another year for that extra tax-free income. The personal allowance has already been increased by £630 from 6 April 2012 to £8,105.
Child Benefit
We were all expecting the withdrawal of child benefit from families where at least one parent pays tax at 40% or higher.
The chancellor listened to reason and has decided to taper the withdrawal of child benefit where the higher earner's net income (after losses but before allowances) exceeds £50,000. For every £100 of income over £50,000, a tax charge will apply equivalent to 1% of the child benefit received by the family. This will lead to the complete withdrawal of child benefit at £60,000 of net income. This tax charge is to apply from 1 January 2013, and will be collected through PAYE and self-assessment from the higher earning partner in the family.
Child Tax Credit
Family element: £545 (2011/12 - £545)
First income threshold: £15,860 (2011/12 - £15,860)
Second income threshold: withdrawn (2011/12 - £40,000)
Working Tax Credit
Basic element: £1,920 (2011/12 - £1,920)
Couple and lone parent: £1,950 (2011/12 - £1,950)
30 hour element: £790 (2011/12 - £790)
Childcare element
Maximum costs for one child: £175 per week (2011/12: £175 per week)
Maximum cost for all children: £300 per week (2011/12: £300 per week)
Percentage of costs covered: 70% (2011/12: 70%)
First income threshold: £6,420 (2011/12: £6,420)
Withdrawal rate: 41% (2011/12: 41%)
Income rise disregard: £10,000 (2011/12: £10,000)
Income fall disregard: £2,500 (2011/12: N/A)
In summary
In my opinion, a budget that focuses on lowering taxes for working people has to be a good thing, so increasing the personal allowances gives a strong positive message. Also, lower corporation tax for businesses will be welcomed, but I’d have liked the chancellor to have dropped the rate and faster and further than promised.
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