Month: December 2012

2012 Autumn Statement

The Chancellor delivered his Autumn Statement 2012 on 5 December. The negligible growth in the economy and the fall in corporate tax income has meant that government borrowing continues to be higher than forecast.

Mr Osborne acknowledged that the country is in for at least another five years of austerity before government borrowing is reduced to their target level. He therefore announced further reductions in government spending and capped the increase in state benefits to 1%.

Company tax – To help business he announced that the main rate of corporation tax will be reduced by an additional 1%. The rate will be reduced from 24% to 23% in April 2013, and then to 21% in April 2014. The small company rate will remain at 20%.

He also announced that there will be a temporary increase in the Annual Investment Allowance for capital expenditure incurred on or after 1 January 2013 from £25,000 to £250,000 for a period of two years.

The Small Business Rate Relief Scheme will be extended by a further 12 months from 1 April 2013.

Income tax – The personal allowance will increase to £9,440 from April 2013, but the higher rate threshold will only increase by 1% (rather than inflation) in 2014-15 and 2015-16. This means that the higher rate threshold will be £41,865 for 2014-15, and £42,285 for 2015-16.

National Insurance – the upper earnings limit and upper profits limit will increase in line with the income tax thresholds.

Capital Gains – annual exemption: this will be increased by 1% in 2014-15 and 2015-16. This means that the annual exemption will be £11,000 for 2014-15 and £11,100 for 2015-16.

Inheritance Tax – nil rate band: the inheritance tax nil rate band (currently £325,000) will increase by 1% in 2015-16 to £329,000.

Pensions – From 2014-15, the lifetime allowance will be reduced from £1.5 million to £1.25 million. The annual allowance will be reduced from £50,000 to £40,000.

IR35 – the Government is strengthening the current IR35 legislation to put beyond doubt when it applies.

Tackling tax evasion – the Government once again announced their intention to clamp down on tax evasion. Mr Osborne announced additional resources for HMRC target aggressive tax avoidance schemes and to close down tax loopholes.  As previously announced he also intends to introduce the UK’s first General Anti-Abuse Rule. This is supposed to help HMRC to tackle the tax arrangements of large multi-national corporations and offshore evasion, but we must wait to see whether HMRC use it to target smaller taxpayers.

Summary – With the background of high government borrowing, low growth and the euro zone crisis there was little good news in the chancellor’s autumn statement. The cuts in benefits and government spending will continue for the foreseeable future but Mr Osborne has attempted to get some good headlines by increasing the personal allowance by more than originally announced, the reduction in the corporation tax rate and the cancellation of the fuel duty increase. Whether this will be enough to improve consumer and business confidence is doubtful.

 

 

AS 2012 CLOSES PREPARE NOW FOR PAYROLL & PENSION CHANGES

The introduction of Real Time Information (RTI) next year together with the requirement to auto enrol employees in a pension scheme will mean all employers have new legislation to comply with. From April 2013 the way payroll information is reported to HM Revenue & Customs will change dramatically. Instead of completing a year-end P35 form containing details of employee information, employers will have to have to submit payroll information every time they pay employees, meaning it is essential all payroll data is complete and correct.

Employers should be preparing now to ensure that they are ready for the change to RTI.

–          Can their payroll software handle RTI?

–          Are they sure that their payroll information is correct?

–          How will they ensure that they have all the necessary information before making a payment to a new employee?

As if that was not enough, employers should also think about what they need to do ahead of the introduction of pension auto enrolment. Between October 2012 and February 2018, employers will have to auto enrol all their eligible employees in a qualifying pension scheme. The exact staging (start) date will depend upon the number of employees on the payroll and their PAYE reference number, but the earliest an employer with less than 50 employees will have to introduce a scheme is June 2015. HMRC will write to employers 12 months before their staging date informing them of their legal responsibilities, but financial advisors are saying that it could take up to 12 months to put a qualifying scheme in place.

Unless they already have a qualifying pension scheme, employers must decide whether to use the government NEST (National Employment Savings Trust) scheme or set up a defined contribution pension scheme with an insurance provider. Employer contributions will be phased in at a minimum 1% of qualifying earnings, but will rise to 3% by 2018. The employer can pay more than the minimum contribution but by 2018 the total contributions must be 8%.

Employers also need to take action to identify which employees are eligible as they will need to write to all employees telling them whether they are to be auto enrolled or not. All UK based employees aged between 22 and the state pension age earning a minimum of £8,105 must be auto enrolled. There are penalties for non-compliance so employers need to ensure they get it right. An employee may decide to opt out, but it will be an offence for an employer to encourage an employee to opt out.

Any employer that has not yet taken action to prepare for the introduction of RTI or Auto Enrolment needs to seek professional help. A qualified accountant can advise on payroll software and the necessary preparation. In addition to explaining the legal requirements of auto enrolment, they will be able to refer you to a reputable financial advisor to help set up a qualifying pension scheme.