Budget 2012

Post date: Mar 26, 2012 2:09:58 PM

As of March 21st 2012, the budget for 2012 was announced. Below is the key information I believe is relevant to a small business.

For Individuals

Personal Allowance

On the April 6, 2012 the standard personal allowance will raise by £630 from £7,475 up to £8,105.

It was also announced that next year the personal allowance will rise again by £1,100 to £9,205 which is ahead of the coalitions promise to raise the standard allowance to £10,000 by the end of this parliament.

The age allowances are also set to rice to £10,500 and £10,666 for over 65 and 75 years respectively. This is the last time that these will raise, as they have been frozen until they catch up with standard personal allowance, at which time the age related allowances will be scrapped. It is also worth noting that anyone reaching the age of 65 after April 5, 2013 will only receive the standard allowance and not the age related allowance.

Tax Bands

To compensate for the raise of the personal allowance the government has decreased the threshold at which the higher rate of tax, of 40%, need paying to £34,370. This has the effect that the higher tax rate still needs paying once you have an income of £42,475.

Child Benefit

The coalition will be applying a new charge to taxpayers who have an income over £50,000 a year where either they or their partner receives Child Benefit. This extra charge will be at 1% of the total Child Benefit for every £100 of income over £50,000. There will be a charge equal to the full Child Benefit for taxpayers with an income above £60,000.

The Child Benefit for two children is £1,752.

A taxpayer with an income of £55,000 would receive an extra charge of 50% of the Child Benefit, or £876.

To facilitate this change HMRC will be introducing a new cohabitation box on the tax return, which you must tick if you are living with anyone who is claiming Child Benefit. So if you are earning over £50,000 you will need to fill in a tax return, even if you don't do so now.

For Businesses

Corporation Tax Rates

The main rate of corporation tax is to be reduced by 2% from 26% to 24%, this is an extra 1% than was expected. In 2013 and 2014 it is expected to fall a further 1% per year to 23% and 22% respectively. The small company rate is staying at 20%.

Annual Investment Allowance (AIA)

Business can claim AIA when purchasing many fixed assets. Any items that qualifying for AIA can claim tax relief on the full cost, up to the annual allowance. This allowance is going to be reduced to £25,000 form £100,000.

This can cause some complications for business which have an accounting period straddling the beginning of the tax year. In this case the business will have to apportion the expenditure on a time basis.

Writing Down Allowance (WDA)

The main rate of WDA will be reduced from 20% to 18% and the lower rate is being reduced from 10% to 8%.

Again this can cause complications for businesses that accounting periods that straddle the tax year, as they will have to calculate a hybrid for rate for that period.