Despite many of the announcements last month being widely touted in advance, Budget 2012 contained a number of unexpected boosts for business, notably the corporation tax rate being reduced to 24% from 1 April 2012.

The Chancellor also pledged to reduce the corporation tax rate to 22% by 2014, a percentage point more than previously announced, in a move promoted as an advertisement for investment and jobs in the UK. The UK would by then have the lowest corporation tax in the G7 and the fourth lowest in the G20, the Chancellor said, signalling that he was heading for a 20% rate. This, he believes, coupled with the reform of the Controlled Foreign Companies regime, should do much to change perceptions and improve confidence in the UK. And he's probably right, though other areas of the tax code require attention as well, for example, the UK's legislation on exit taxes on companies is currently the subject of an EU Commission formal request for amendment.

The promised reduction in the additional rate of 50% to 45% in 2013 is balanced by the Chancellor's new form of “alternative minimum tax” which extends the range of reliefs subject to overall restrictions, many income tax reliefs will in future be restricted to 25% of income (or £50,000 if higher).

And for the first time in many Budgets there were no major changes to the capital gains tax regime, a sure sign that certainty in this area is viewed as being of key importance.

Let's take a look at some of the key changes.

Business Driven Measures

In addition to the headline grabbing 1% drop in corporation tax, businesses were given several boosts via the tax regime.

As announced in the Autumn Statement 2011, legislation will be included in Finance Bill 2012 to introduce a new Seed Enterprise Investment Scheme (SEIS). Introduction of the SEIS is in addition to enhancements to the Enterprise Investment Scheme (EIS) announced at last Budget.

From April 2012 the EIS annual investment limit for individuals will be increased from £500,000 to £1 million. The qualifying company limits will be increased: companies with fewer than 250 employees; gross assets before investment of £15 million and a post-investment gross assets limit of £16 million. The annual investment limit for qualifying companies will increase from £2m to £5 million. Some of these changes are subject to EU State Aid approval.

Several new corporation tax reliefs will be introduced from April 2013 for the video games, animation and high-end television industries, again subject to State Aid approval.

And a new ‘above the line’ R&D tax credit will be introduced from April, this is in addition to an increase in the rate of Research and Development tax relief to 225% from 1 April 2012 (subject to EU approval).

Enhanced Capital Allowances (ECAs) in Enterprise Zones offering 100% capital allowances on plant and machinery investment made in designated areas were announced. Details of current zones and maps will be available on the HM Treasury website shortly. Allowances in all zones are available from 1 April 2012. Northern Ireland is not currently included.

Readers are also reminded that the “Patent Box” regime is due to commence over a phased period from 1 April 2013, this will provide a reduced corporation tax rate for companies exploiting patented inventions or certain other innovations protected by particular Intellectual Property rights.

And the Government has promised to look at ways to improve and reform the Enterprise Management Incentives (EMI) scheme by providing additional support to help start-ups access the scheme and a proposal to more than double the individual grant limit from £120,000 to £250,000. Consultation will also be launched on amending restrictions that currently prevent the scheme being used by academics employed by start-ups. The Government is also considering extending Entrepreneurs’ Relief to gains on shares acquired through EMI. All of these proposals are subject to State Aid approval with the intention of introducing these in the 2013 Finance Act.

Stamp Duty

Stamp duty saw several changes last month, most of which were effective on or from Budget day.

A new Stamp Duty Land Tax (SDLT) rate of 7% was announced for residential properties over £2 million. This applies from 22 March 2012. And on the theme of avoidance, measures to tackle the “enveloping” of high value properties into companies were introduced which will consist of a 15% rate of SDLT to be applied to residential properties over £2 million purchased by “non-natural” persons. A “non-natural” person is a new concept within Stamp Duty legislation, and can be taken to mean a company, subject to some exceptions. This new rate took effect on 21 March 2012.

In addition, the Government will consult on the introduction of an annual charge on residential properties valued at over £2 million with the intention of legislating in Finance Bill 2013 for commencement in April 2013

VAT

A number of changes were announced in this area.

To correct what the Government refers to as ‘certain anomalies in the VAT system’ that cause very similar products to be taxed differently, VAT will be applied to certain items, the changes either marginally extend VAT at the standard rate to these areas or confirm the current standard rated treatment.

Consultation was therefore launched inviting comment on draft legislation changing the VAT treatment of supplies of catering, sports drinks, self-storage, hairdressers’ chair rental, holiday caravans and alterations to listed buildings.

The government also announced changes to the VAT registration and deregistration thresholds so that:

• The taxable turnover threshold for registration will be increased from £73,000 to £77,000
• The taxable turnover threshold for deregistration will be increased from £71,000 to £75,000
• The registration and deregistration threshold for relevant acquisitions from other EU Member States will also be increased from £73,000 to £77,000

The revised thresholds apply from 1 April 2012. As a result, the simplified reporting requirement (three line accounts) for the income tax Self -Assessment return will continue to be aligned with the VAT registration threshold

Personal Tax

Aside from the planned reduction in the additional rate of 50%, a number of changes are to be made to the personal tax regime.

The personal allowance will increase by a further £1,100 in April 2013, taking it to £9,205 in total. The basic rate limit will be reduced, from £34,370 to £32,245 in 2013–14.

The Government also intends to freeze existing age-related allowances (ARAs) from 6 April 2013 at their 2012–13 levels until these are aligned with the personal allowance. From April 2013, ARAs will no longer be available, except to those born on or before 5 April 1948. The higher ARA will only be available to those born on or before 5 April 1938.

From 2014–15, a new Personal Tax Statement will be available for around 20 million taxpayers. This will detail the income tax and National Insurance contributions (NICs) they have paid, their average tax rates, and how this contributes to public spending.

Detailed consultation will also be launched on integrating the operation of income tax and NICs. It is expected that the consultation will set out a broad range of options for the operation for employee, employer and self-employed NICs.

From April 2013 a new cash basis for calculating tax for small unincorporated businesses will be introduced. This is intended to reduce the time it takes for these businesses to calculate their tax. The Government will consult shortly on the details of the scheme including on extending eligibility to businesses with turnover up to the VAT registration threshold of £77,000.

Conclusion

The Chancellor was very clear that this Budget was aimed at encouraging growth, with the key focus being a reduction in the main corporation tax rate and the 50p income tax rate. However, the financial climate remains extremely challenging, leaving scope for radical action on rates very limited. It remains to be seen if these measures will have the desired effect and help foster growth.

And for many in Northern Ireland, the outcome of the Ministerial Group's ongoing review on measures to Rebalance the Northern Ireland economy remains of key importance. My fellow writer Lesley Austin alluded to Spring in her pre-Budget synopsis in February's edition of tax.point, I look forward to my favourite season and hope to see proposals that will truly help our economy to blossom when the Ministerial Group reports, as it hopes to, in early summer.

Leontia Doran is Education and UK Tax Specialist with Chartered Accountants Ireland

Email: leontia.doran@charteredaccountants.ie