The 2012 Autumn Statement

From a tax perspective, the Chancellor’s Autumn Statement is the second most important event of the year.  This year’s Statement included a number of points that taxpayers should be aware of when planning for the future.

Tax Rates and Allowances

Tax bands and allowances have been set for 2013/14 with announcements for a number of rate changes.  Broadly, for higher rate taxpayers, these changes fall into the “tinkering at the margins” category and will have little impact.  For basic rate taxpayers the changes are more significant because the personal allowance increases by £1,335 to £9,440 in 2013/14.  This means that couples where one spouse is a higher rate taxpayer and the other is not should look at whether they can rearrange their affairs to take advantage of this increase in the personal allowance for the spouse on the lower income.

Tax Relief for Pension Contributions

As was widely predicted, it has been announced that the annual allowance for pension contributions is to be reduced from £50,000 to £40,000 from 2014/15 onwards.  The lifetime allowance is also to be reduced from £1.5 million to £1.25 million, but with some protection for those who will be affected by this change.  Anyone paying or planning to pay significant pension contributions should therefore review their position with their financial adviser to ensure that they maximise the relief available.

When considering the level of contributions, it is worth remembering that the top rate of tax drops from 50% to 45% on 6 April 2013 and therefore it will be advantageous to have contributions set against 2012/13 income rather than 2013/14 income if tax is being paid at the higher rate.

Capital Allowances

Annual Investment Allowance (100% tax relief for most capital expenditure) has been with us for a number of years and the limit for it has gone up and down like a yoyo.  From 1 January 2013 it is to be increased from £25,000 p.a. to £250,000 p.a.  Businesses contemplating significant capital expenditure may therefore be advised to delay that expenditure in order to boost the level of relief.  The precise allowance available will depend on the accounting period end date and therefore advice should be sought on the effect of the timing of expenditure.

Corporation Tax Rates

Announcements have already been made on the drop in corporation tax rates with the main rate from 1 April 2013 being 23% and the Small Profit rate being 20%.  From 1 April 2014, the main rate will drop to 21%.  These changes will benefit all companies with profits in excess of £300,000.  Going forward they will also dramatically reduce the disadvantage that has hitherto existed for smaller businesses to operate as a group (due to the effect of the “associated company” rule which spreads tax bands equally between companies despite profit levels being wildly different).   In the not too distant future, it therefore seems likely that there will be a single corporation tax rate.  Companies paying tax at the marginal or full rates may be able to do some planning in order to maximise the benefit of the fall in the tax rates by advancing expenditure or deferring revenue.  The precise effect will depend on the accounting period end date and advice should therefore be sought as to the impact and whether or not any planning will be effective.

Tax Avoidance

The political environment here continues to shift and, as expected, a range of measures will be introduced to clamp down on perceived aggressive tax avoidance.  These include confirmation that from next April there will be a GAAR (General Anti-Abuse Rule) in the UK as a net to capture those schemes which are deemed to be abusive to the UK tax system.