Budget 2013 – A Summary
The chancellor delivered his budget to Parliament on 20 March 2013, which included a number of tax related changes in the coming years.
Here we summarise these changes as they apply to both individuals and businesses.
Personal Tax Summary
- Basic Personal Allowance to increase to £10,000 from April 2014
- New childcare scheme will give 20% tax relief on up to £6,000 of qualifying childcare costs per child from Autumn 2015
- Threshold for employer related beneficial loans will increase to £10,000 from April 2014
- Inheritance Tax nil rate band will continue to be frozen at £325,000 for a further three years to 2018
- Company car benefit is revised from 2015 to introduce new ‘ultra-low emissions’ rates and a new 37% rate for high emission vehicles
- Capital Gains reinvestment relief extended where gains are reinvested into SEIS shares
Business Tax Summary
- £2,000 National Insurance Contributions break for employers from April 2014
- Corporation Tax main rate will be reduced to 21% from 1 April 2014 then 20% from 1 April 2015, creating a single rate
- VAT registration threshold increases to £79,000 from 1 April 2013, with the de-registration threshold increasing to £77,000
- 100% Capital Allowances for low or zero emissions vehicles extended to 31 March 2018
- Stamp Duty will be abolished on share transactions in UK companies quoted on Small Company Growth Markets
- Legislation will be introduced to prevent the avoidance of tax on Director’s Loan Accounts through ‘bed and breakfasting’
For childcare costs of up to £6,000 per child per year, 20% tax relief will be available worth up to £1,200. From the first year of the scheme in 2015 all children under 5 will be eligible and the scheme will expand over time to eventually cover children under 12.
The scheme will provide help to families where all parents are working, and not receiving support through the Childcare Element of the Working Tax Credit (soon to be enveloped within Universal Credit). If either parent has income above £150,000 this support will not be available.
Support will be provided through a childcare account redeemable at any registered childcare provider. The scheme will be phased in from Autumn 2015 and the current system of Employer Supported Childcare is phased out.
Company Car Tax Rates
From 2015/16 two new percentage bands will be introduced for company cars emitting 0-50g and 51-75g of CO2 per km, of 5% and 9% respectively. For cars with emissions above 75g of CO2 per km, the appropriate percentages are increased by two percentage points up to a new maximum of 37%.
Directors Loan Accounts
Anti-Avoidance legislation will be introduced in Finance Bill 2013 to prevent the circumventing of a Corporation Tax charge on loans to participators in close companies.
Section 455 of Corporation Tax Act 2010 provides that a charge to tax arises where a close company makes a loan or advance to a participator in that company. The tax is charged at 25% of the amount of the loan, however relief is given if the loan is repaid to the company within 9 months after the end of the accounting period.
HMRC have seen a number of arrangements where companies are avoiding this tax charge, and are introducing legislation to close certain loopholes and prevent avoidance. One such practice is known as ‘bed and breakfasting’, and involves the participator repaying an amount to the company in time to qualify for relief from the tax charge, only to redraw the same amount back from the company shortly after.
To prevent this practice, new provisions are being introduced to the legislation which deny relief if within a 30 day period any repayment of more than £5,000 made to the company is redrawn either through a loan or advance of money or through an ‘extraction of value’.
In addition to the above, even if the 30 day rule does not apply, relief will still be denied if there are amounts outstanding of at least £15,000 and at the time of a repayment there are arrangements, or an intention, to redraw an amount either through a loan or advance of money, or through an ‘extraction of value’.
In short, the act of repaying an overdrawn loan for a short time only to qualify to relief from S.455 Tax, will no longer entitle a company to relief from charge, and tax will be payable at 25% of loans which do not qualify for relief.