This document summarizes key UK personal and business tax measures from the 2012 Budget. For individuals, it outlines increases to the personal tax allowance and adjustments to income tax thresholds. It discusses the end of the 50p tax rate and measures related to capital gains tax, inheritance tax, and taxes on alcohol, tobacco and fuel. For businesses, it outlines reductions to the main corporation tax rate and changes to capital allowances, R&D tax credits, the patent box, and relief for video games and animation. It also discusses measures around SDLT avoidance, employee ownership, IR35 rules, and international tax issues.

1. Budget 2012
Francis Clark LLP
22 March 2012

2. Private Client Matters

3. Personal Tax - Contents
• Personal Allowances and Related Issues
• 50p Rate
• Capital Gains Tax
• Other Personal Tax Measures
• EIS and SEIS
• SDLT Avoidance
• IR35
• Employee share ownership
• Inheritance Tax
• Booze, Fags & Petrol

4. Personal allowances and related issues
• The Government is committed to increasing the
personal allowance to £10,000 by 2015
• Increase to £8,105 for 2012/13
• £9,205 for 2013/14
• Corresponding adjustments to the basic rate band

5. Income Tax Thresholds
Basic rate threshold 2011-12 £35,000
2012-13 £34,370
2013-14 £32,245
Additional rate threshold £150,000

6. The End of the 50p Rate
from 6 April 2013
• £16bn of income advanced in
2010 – not forecast by Labour
• Raised £1bn when £3bn was
expected and forecast
• Other measures to cover
measure

7. Capital gains tax
Current situation
• Annual exemption remains £10,600
• Entrepreneurs’ relief - 10% on the first £10m of gain
• Basic rate taxpayers taxed at 18% on gains over the
annual exemption up to the limit of the basic rate
band
• Gains made by higher rate taxpayers are taxed at 28%.
• Foreign currency bank accounts to be removed from
the charge to CGT from 6 April 2012

8. Other Personal Tax Measures
• Statutory residence test delayed until April 2013
• Non-dom investment relief begins April 2012
• Income tax charge on child benefit from 7 January
2013 where either partner has income over £50k
• From 2013 cap on unlimited reliefs of over
£50,000. 25% maximum shelter

9. Tax Favoured Investments

10. Enterprise Investment Scheme (EIS)
changes
• Rate increased to 30% from last April
From 6 April 2012:
• Increase in max size of qualifying company for both EIS to £15m
and <250 employees
• Max amount which can be invested in an individual company
increased to £10m
• Annual limit on investment for an individual is £1m
• Connection via a holding of 30% of loan capital is removed
• Qualifying shares can now include shares with certain
preferential rights to dividends
• The definition of qualifying trades has been amended to exclude
businesses based on feed in tariffs for electricity generation

11. Seed Enterprise Investment Scheme(SEIS)
• Investments made on or after 6 April 2012 for five years
• 50% income tax relief is given on qualifying
investments, whatever your marginal rate of tax – tax credit to
reduce tax bill
• For one year only in 2012/13 where gains are reinvested in SEIS
shares the original gain will be exempted, rather than deferred
• 78% tax relief in 2012/13!
• Capital gains tax is not charged on disposal (conditions include
hold for three years)
• Income tax relief will be withdrawn on the same basis as for EIS
if the shares are not held for at least 3 years
• Relief can be claimed in prior year

12. Seed Enterprise Investment Scheme(SEIS)
• £150,000 maximum raise per company
• Gross assets must not exceed £200,000 immediately before the investment is
made
• No EIS or VCT investment must have been made before the issue of SEIS shares
• Fewer than 25 full time employees
• The trade must be a genuine new trade and only within two years of
incorporation
• 70% of the funds raised must have been spent on qualifying activities
• Maximum annual investment of £100,000 per investor
• The investor must not own more than 30% of the company or be an employee
• Usual plethora of conditions about qualifying trades and disqualifying events

13. Personal Service Companies
• New package of measures
aimed at PSCs
• HMT suggested that PAYE
could be collected on
payments to PSCs
• Consultation process to follow

14. Employee Ownership
• Nick Clegg’s big vision
• Previously EMI option holders
unlikely to get entrepreneurs
relief
• This will be changed going
forwards
• EMI allowance increase from
£120k to £250k

15. SDLT Avoidance
• Properties purchased or
bought in a company now
targeted with high rates of
SDLT
• Applies to properties with a
value in excess of £2m
• Immediate effect

16. Inheritance tax
• Nil rate band is currently frozen
at £325,000 until 2015
• New rate of 36% from 6 April
2012 where at least 10% of the
estate is given to charity.

17. Booze, Fags and Petrol
• Beer up 3p a pint
• Cider up 3p a litre
• Wine up 11p a bottle
• Spirits up 41p a bottle
• Cigarettes up 37p a pack
• Cigars up 12p a tin
• Petrol no change

18. Corporate & Business Taxes

19. Corporate & Business Taxes - Contents
• Corporation tax rates
• Capital allowance changes
• R&D
• Patent box
• Video Game & Animation relief
• ESC C16
• Overseas issues
• GAAR
• National Insurance
• VAT

20. Corporation tax rates
2010/11 2011/12 2012/13 2013/14 2014/15
First
21% 20% 20% 20% 20%
£300,000
Upper rate
28% 26% 24% 23% 22%
on £1.5m
• Note - bands subdivided by number of associates
• Main rate will reduce to 22% by 1 April 2014
(lowest rate UK has ever known)

21. Capital allowance changes
From April 2012
• WDAs reduced to
– 20% to 18% for plant & machinery
– 10% to 8% for integral features
• AIA down to £25,000 from £100,000
• No 100% ECAs on assets in respect of which the feed-in tariff (FIT)
or renewable heat incentive (RHI) is received
• Expenditure on solar panels will only qualify for CAs at 8% (not
18%)
• Business Premises Renovation Allowance – extended to 2017
• Flat conversion allowance - 100% relief ends April 2013

22. Capital allowance changes
Capital Allowances For Plant Fixtures from April 2012
• Purchaser and all future owners of the property could forfeit
entitlement to claim on any plant fixtures unless done properly
• Allowances can be in the region of 10% - 30% of the purchase price
of a property
• The current rules allow a property owner to claim capital
allowances at any time whether or not any previous owner has
made a claim
• Fundamental need for tax DD on property acquisitions and advice
on disposal

23. R&D
From 1 April 2012
• SME rate 225% from 200%
• Repayable R&D credits for loss making SMEs reduced
from 12.5% to 11%
• Remove PAYE/NIC Cap CTAPs ending on or after 1
April 2012
• Remove £10k minimum claim limit from 2012 or after
1 April 2012
• Move to 'above the line' tax credit system from 2013

24. Patent box
• Corporation tax rate of 10% on the exploitation of
patents and some other intellectual property
• From 1 April 2013
• Phased in from 2013; full benefit from 2017
• Deduction calculated to reduce the tax to 10% on relevant
income
• Elect in
• Includes patents granted by certain other EU national patent
regimes, the UK Intellectual Property Office and the European
Patent Office
• Can claim 10% rate on profits for six years prior to the grant
• No special regime for SMEs

25. Video Game & Animation Relief
• Applies to the ‘creative sector’
• Similar to film tax credits
• Consultation to follow
• Effective 1 April 2013

26. ESC C16
• No longer exists; legislated with amendments
• Winding up unwanted company value below
£25,000
• No clearance required - capital
• Winding up unwanted company value above
£25,000
• Liquidation costs

27. International Issues
• CFC reform - new ‘gateway test’
• CFC reform - HMRC guidance essential
• Update to the foreign branch exemption rules
• Consultation on ToAA and s.13 TCGA

28. Tax Avoidance
‘I regard tax evasion and
indeed aggressive tax
avoidance as morally
repugnant.’
George Osborne – Chancellor
21 March 2012

29. General Anti-Avoidance Rule - GAAR
• Economic & political climate
• Graham Aaronson QC
• Double reasonableness test
• Clearance procedure
• Avoidance or mitigation
• Impact on cost of advice

30. National Insurance Holiday
• ‘NIC holiday’ for small start-up
companies taking on new
employees –
• Far less take up than the
Chancellor originally predicted
(12,827 as at 16 February
2012)
• Local geography is important

31. Value Added Tax - Thresholds
• VAT registration threshold £77,000 from 1 April
2012 (currently £73,000)
• Deregistration threshold £75,000 from 1 April
2012 (currently £71,000)
• Fuel scale charges – new rates from 1 May 2012

32. Value Added Tax - Admin
• All VAT returns to be filed online from 1 April 2012
• All VAT registrations, deregistrations and variations
to be online from 31 October 2012
• The VAT threshold for businesses not established
in the UK will be removed from 1 December 2012

33. Value Added Tax - Avoidance
HMRC have proposed to address anomalous VAT borderlines
by applying VAT to the provision of:
– Self storage facilities
– Approved alterations to listed buildings
– Catering
– Sports drinks
– Holiday caravans
– Rental of hairdressers’ chairs

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35. Stuart Rogers
Stuart.Rogers@francisclark.co.uk