Lambert Chapman LLP’s Nick Forsyth reviews the 2012 Budget

The Budget has been welcomed warmly by large business leaders and already Smith Kline Beecham have announced plans to open a new factory in Ulverston previously famous for being the birthplace of Stan Laurel. Clearly the reductions in the main rate of corporation tax are designed to get large businesses to invest in the UK rather than other European destinations and these may receive a positive response from chief executives seeking out lower taxes for their businesses and maybe themselves with the reduction in the highest rate of income tax.

Unfortunately they will not be able to push the house they need to live in into a limited company to avoid the stamp duty whilst they are working in the United Kingdom and that may cause some head scratching. This clampdown on stamp duty schemes was well publicised and may serve us well. They cover most of the property market (not just the expensive bit) and many prospective purchasers have raved to us about their benefits when they clearly have not had the full implications properly explained to them.

Allowances remain an important figure for all of us and David Cameron may well be thinking of Stan Laurel this morning when he sees George Osborne over his handling of the changes to Age Allowance. It is certainly a case of “another fine mess you’ve got me into” as the argument develops over his sweep it under the carpet delivery of the message. Whether it be a tactical blunder or not this coupled with a continuation of low interest rates will make some of the grey vote feel they have joined the “target” group of people who will repay the deficit.

So what is in this budget for the majority of our clients? Well, the 20% rate of tax continues for Company’s and with personal income likely to be under the £150,000 mark no personal reduction in their tax bill. They may, however, still be caught in the 60% trap which rises every year with the increase in personal allowance to £10,000 over Parliament’s term.

Capital Allowances remain a disaster for those SME’s running capital intensive businesses and whilst Research & Development sounds grand it often does not apply when you look into it properly. For some the simplification rules, to be announced later, working along the lines of the flat rate scheme for VAT may make the record keeping side of their business sweeter but if it is to work like IR35 then this is likely to be a tax collector rather than income earner as the VAT flat rate can be.

Ed Balls always talks about the Government being out of touch but it seems to me that the majority of politicians are in this bracket. Few of them have worked so even fewer have run their own businesses yet they lecture us as if they are experts. It seems to me that the SME sector has an important role to play in growing our economy but many of these entrepreneurs will still see themselves as part of the deficit reduction “target” group this morning.

Try telling them that they’ve lost allowances and now pay at 60% on some of their income; it’s not pleasant and often provokes a negative reaction to continuing taking the stress and worry of running their business. Clearly this is a money spinner for the Exchequer so it has not been withdrawn, unlike the 50% band. You can tell me all you want that reducing the highest rate to 45% will put people off doing schemes but I can’t believe you because people were doing them long before the 50% band was introduced. The top tax rate then? 40%. Anti avoidance will help but will it really clean up the playground? Only time will tell.

Lambert Chapman LLP’s Paul Short reviews the 2012 Budget

I have mentioned before about what I call “The Greaves Effect” in tax planning.

Bill Nicholson, the Spurs Manager, paid AC Milan £99,999 in 1961 to bring Jimmy back from the land of the Lira (as it was then with the Euro a pleasant dream).  Bill paid £1 out of his own pocket to avoid Jimmy having the burden of being the first £100,000 footballer.

In the financial world we miraculously see people earning just below the threshold at which a higher rate of tax or duty comes into play and the 2012 Spring Budget will only invigorate this phenomenon.  Child Benefit will start to be withdrawn when one member in the household reaches a total income of £50,000.  I am fairly confident that we will see a lot of our clients earning £49,999 in the 2012/2013 tax year.

There will be lots of people with taxable income just below £42,475 for the current year, if their target is to avoid higher rate exposure.  By higher rate exposure this would mean that the tax on the next £1 doubles from 20% to 40%.  Is that an incentive for someone to work harder?

At an income level of £100,000, the personal allowance starts to be withdrawn.  If income is between £100,000 and £116,000, the marginal rate of tax can be in excess of 60% on earned income.  Again we are likely to see a lot of owner managers and other parties who have some control over the level and timing of their income running with income between £90,000 and £99,000.

The reduction in the top rate of tax from 50% to 45% with effect from 6 April 2013 is particularly interesting. The Government have grasped this particular political hot potato but I think they have been rather cunning.  By delaying its imposition until 6 April 2013 but giving good advance notice, they know that there will be a lot of players in the City and in the owner manager community who will defer income which they might otherwise have taken in 2012/2013, but which would suffer tax at 50%, and take the income in 2013/2014 when the rate might be reduced to 45%.

If you are a banker with a £1million bonus due in March 2013, I suspect that you would be happy to delay it for a month and save £50,000 of Income Tax.  The tax take statistics for these two tax years will be out by 2015 just in time for the Election and the Government will be able to demonstrate that the reduction in the top rate of tax has actually led to an increase in the revenue due to the Exchequer.  It might just help to win the Election.

Lambert Chapman LLP’s John Smith-Daye reviews the 2012 Budget

I’m sure that my colleagues will be commenting on some of the more important topics covered  in the 2012 Budget, such as the changes to Corporation Tax main rate (only applicable for those companies with profits in excess of £1.5m), reduction in higher rate of income tax from 50% to 45%, child benefit amendments, personal allowance increase and so on. I thought I would bring to your attention a few points detailed in “OOTLAR” – a document dealing with the Overview Of Taxation Legislation And Rates.

All items in italics are direct quotes from that document, which can be found at http://www.hmrc.gov.uk/budget2012/ootlar-main.pdf or from the Budget Speech itself.

1.15 Resettlement payments paid to Members of Parliament (MPs) – From April 2012, the MPs’ Expenses Scheme administered by the Independent Parliamentary Standards Authority (IPSA) will include provision for the payment of a resettlement payment to any MP who involuntarily leaves Parliament after that date. As a consequence of this change, legislation will be included in Finance Bill 2012 to exempt from income tax the first £30,000 of resettlement payment paid by IPSA. The amendment will ensure that these payments are treated in the same way as similar grants previously paid under the House of Commons Members’ Allowances Scheme. The amendment will have effect in relation to any resettlement payment made by IPSA on or after 1 April 2012

(Hmmmm, interesting that this one didn’t actually get mentioned in the Speech.)

Then there was the bit about alcohol duty. As I was listening intently, I thought what I heard was that there was to be no change. But what he actually said was that there would be no change to what had already been announced…….. I quote from the Speech…….

“But today I have no further changes to make to the duty rates set out by my predecessor.”

Meaning that there would actually be increases – see below – but of course, he wouldn’t want to highlight that!

1.34 Alcohol duty rates – Legislation will be introduced in Finance Bill 2012 to increase the duty rates for all alcoholic drinks by 2 per cent above the rate of inflation (based on RPI) with effect from 26 March 2012. This will add 3 pence to the price of a pint of beer, 2 pence to the price of a litre of cider, 11 pence to the price of a bottle of wine, and 41 pence to the price of a bottle of spirits.

Another area of great interest to accountants and small businesses alike is that of Personal Service Companies, and the taxation thereof. OOTLAR states that they are to be looked at in greater detail again, and I wait with some trepidation as to how this is all going to end up.

2.61 Personal services companies and IR35 – The Government is bringing forward a package of measures to tighten up on avoidance through the use of personal service companies and to make the existing IR35 legislation easier to understand. This will include HMRC strengthening specialist compliance teams, simplifying the way IR35 is administered, and consulting on proposals which would require office holders/controlling persons who are integral to the running of an organisation, to have PAYE and NICs deducted at source.

As has become tradition in the recent past, most beneficial items have been well flagged up before the Speech, and most detrimental items will continue to be hidden or blamed on the previous Administration.

I really must get some treatment for my cynicism. Or is it realism?