On 21 March 2012, the Chancellor of the Exchequer, George Osborne, presented his Budget to Parliament.
Taxes should be simple, predictable, support work, and they should be fair. The rich should pay the most, and the poor least. The tax system this Government inherited from its predecessor had drifted far from these principles,…we need to give Britain a modern tax system fit for the modern world….We are…pressing forward with our ambition to integrate the operation of income tax and national insurance…so we don’t ask businesses to run two different payroll tax administrations.George Osborne
In this article, we pull out some of the the main points of interest and announcements in relation to workers, payroll and HR.
- Annual Personal Tax Statement
- Change to Personal Tax
- Additional 50% Tax
- Change to Age Related Allowances (ARAs) – “Granny Tax”
- Child Benefit
- Capping Tax Relief
- Pension Contributions via flexible benefit and salary sacrifice – Spouses and family
- Cars, Vans, Fuel Benefits etc
- National Minimum Wage
- Income Tax and NICs alignment
- National Insurance 2013
- Abolished Reliefs
Annual Personal Tax Statement
From 2012-13 tax payers who undertake self assessment (around 20 million) will receive information in relation to how much of their hard earned money that is taxed is spent by this Government.
Change to Personal Tax
A further rise to the personal allowance was announced for the 2013/2014 tax year.
Since the formation of the coalition Government, personal allowances have changed in the following way:
- 2011/2012 £7,479 (+£1,000)
- 2012/2013 £8,105 (+£630)
- 2013/2014 £9,205 (+£1,100)
This latest announcement further benefits 23.6 million individual’s earnings less than £100,000 and removes another 840,000 out of income tax altogether – “people working full time on the minimum wage, will have seen their income tax bill cut in half”.
To limit the benefit to higher rate tax payers, the basic rate limit has been reduced:
- £35,001 to £34,370 in 2012/2013
- £34,371 to £32,245 in 2013/2014
This means that higher tax rate payers only benefit from a quarter of the rise to the new personal allowances.
Additional 50% Tax
…The additional rate of 50 pence…is widely acknowledged by business…as harming the British economy…George Osborne
The top rate of income tax will be reduced from 50% to 45% in April 2013.
Change to Age Related Allowances (ARAs) – “Granny Tax”
We will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6th April 2013 and I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance.George Osborne
From 6 April 2013 ARAs are frozen at 2012/2013 levels:
- £10,660 (born before 6 April 1938)
- £10,500 (born before 6 April 1948)
From January 2013, Child Benefit will be withdrawn through an income tax charge from households where someone has an income over £50,000 a year. For households where someone has an income between £50,000 and £60,000 the charge will apply gradually, preventing the cliff-edge effect. Only households where someone has an income in excess of £60,000 a year will no longer gain from Child Benefit (Finance Bill 2012).
Capping Tax Relief
To curtail excessive use of reliefs, for anyone claiming reliefs of more than £50,000, a cap will be set at 25% of income. This is not extended to reliefs already capped e.g. enterprise and pension contributions.
Pension Contributions via flexible benefit and salary sacrifice – Spouses and family
The Government will legislate to ensure that arrangements where an employer pays a pension contribution into a registered pension scheme for an employee’s spouse or family member as part of their employee’s flexible remuneration package cannot be used to obtain tax and NIC advantages for the employee or the employer. (Finance Bill 2013)
Cars, Vans, Fuel Benefits etc
The fuel benefit charge for employees with company cars that are provided with fuel for private use is increased from 6 April 2012 from £18,800 to £20,200 (a 7.4% increase), and will increase by plus 2% above RPI in April 2013.
Company van user fuel benefits values are frozen at £550 with van benefit frozen at £3,000 but will increase by RPI in April 2013
The appropriate percentage of list price subject to tax will increase by one percentage point for cars emitting more than 75 grams/kilometre of carbon dioxide, to a maximum of 35 per cent in 2014–15, and by two percentage points, to a maximum of 37 per cent in both 2015–2016 and 2016–2017. (Finance Bill 2012 and future Finance Bill) (20)
From April 2015, the five-year exemption for zero carbon and ultra low carbon emission vehicles (cars and vans) will come to an end (Finance Act 2010). The appropriate percentage for zero emission and low carbon vehicles will be 13 per cent from April 2015 and will increase by two percentage points in 2016–17.
From April 2016, the Government will remove the three percentage point diesel supplement differential so that diesel cars will be subject to the same level of tax as petrol cars.
National Minimum Wage
The new rates will come into force on 1 October 2012 at below inflation increases:
- £6.19 per hour for workers aged 21 and over – a rise of 11p
- £4.98 per hour for 18-20 year olds – no change
- £3.68 per hour for workers above school leaving age but under 18 – no change
- £2.65 per hour for apprentices – a rise of 5p
- Accommodation offset max £4.82 – a rise of 9p.
Income Tax and NICs alignment
We need to give Britain a modern tax system fit for the modern world…We are…pressing forward with our ambition to integrate the operation of income tax and national insurance…so we don’t ask businesses to run two different payroll tax administrations.George Osborne
Consultation is to follow.
National Insurance 2013
The National Insurance Upper Earnings (/Profits) Limit will also be reduced to align it with the higher rate tax threshold. The higher rate threshold will be £41,450, meaning that one quarter of the total gain will be passed on to higher rate taxpayers. (Finance Bill 2013) (1)
The budget also confirmed a number of reliefs that are to be removed. It was confirmed that the 15p per day Luncheon Voucher relief would be removed from 6 April 2013. From 6 April 2015 reliefs on Life Assurance premiums, those paid by employers and employer financed retirement benefit schemes are withdrawn.
Personal Service companies remains a contentious area and a concern to the Government. As a consequence of the continued debate, the Government is to introduce a package of measures to tackle avoidance and make the IR35 legislation easier to understand for those who are genuinely in business.
This will include: strengthening up specialist compliance teams to tackle avoidance of employment income; simplifying the way IR35 is administered; and subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013)