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A guide to Finance Bill 2013 contributed by ACCA

The Finance Bill 2013 was published on 11 December 2012. The majority of measures were announced in Budget 2012, with further measures being announced in the 2012 Autumn Statement.  The final contents of the Bill will be subject to confirmation at Budget 2013. This article summarises the main provisions introduced in the Bill.

Income Tax: 

  • Personal tax allowance – increased from £8,105 to £9,440 from April 2013.
  • Basic rate income tax band – being further reduced from £34,370 to £32,010 with effect from 6 April 2013.
  • Additional rate income tax band – reduced from 50% to 45% with effect from 6 April 2013.
  • Universal credits – to be introduced from 1 October 2013; will be exempt from income tax.
  • Cap on unlimited tax reliefs – legislation will be introduced to cap unlimited income tax reliefs to the greater of £50,000 or 25 per cent of income. For details of the reliefs that will be subject to the cap, please click here.
  • Pensions tax relief – the standard lifetime allowance will be £1.25m for the 2014-15 tax year onwards. The annual pension saving allowance will be reduced from £50,000 to £40,000 for the 2014-15 tax year onwards. 
  • Statutory residence test – legislation will be introduced to provide a statutory residence test for individuals from 2013-14. The legislation will also provide for a tax year to be split into a UK part and an overseas part in certain circumstances, and contain new rules for the taxation of certain income and gains arising during a period of temporary non-residence. For further details of the new statutory residence test, please click here.
  • Ordinary residence – legislation will be introduced to eliminate the concept of ‘ordinary residence’ for tax purposes as far as possible. In particular, overseas workday relief, which has previously been available to taxpayers who are resident but not ordinarily resident, will in future apply for a fixed period, regardless of whether or not the individual intends to settle in the UK.
  • Remittance basis for non-domiciled individuals – changes are being made to the remittance basis to prevent inadvertent remittances to the UK being taxed. Legislation will be introduced and put into SP1/09 on a statutory basis. For our Guide to the Remittance Basis and Non-Domicile Levy, please click here.

Capital Gains Tax: 

  • Annual exemption – this remains unchanged at £10,600 for 2013/14. The annual exempt amount will increase to £11,100 for 2014/15 and to £11,100 in 2015/16.
  • Exemption for gains on disposals of ‘employee shareholder’ shares – the government will create a new employment status, to be known as the ‘employee shareholder’ status. Individuals adopting this status will receive a minimum of £2,000 worth of shares. To support the policy aims of the ‘employee shareholder’ status, legislation will be introduced to exempt all gains made on disposals of up to £50,000 worth of ‘employee shareholder’ shares from capital gains tax. This exemption will commence on 6 April 2013. 
  • Enterprise Management Incentives (EMI) – entrepreneurs’ relief on shares acquired through the exercise of EMI share options is to be improved. Legislation will be introduced to extend the relief to EMI shares by removing the 5% minimum shareholding requirement and allowing the 12 month minimum holding requirement to commence on the date the option is granted. This measure applies to shares acquired on or after 6 April 2012 that are disposed of on or after 6 April 2013.
  • Review of tax advantaged employee share schemes – legislation will be introduced to give effect to the Office of Tax Simplification’s proposals to simplify aspects of the tax advantaged employee share schemes: Share Incentive Plans, Save As You Earn Option Schemes, Company Share Option Plans and Enterprise Management Incentives.
  • Capital gains on disposals by an offshore non-natural person – the legislation introduces a CGT charge on the disposal proceeds of high value residential property held by an offshore non-natural person from April 2013. The rate of the CGT will be 28%, with a tapering relief for gains where the property is worth just over £2m.  Due to their non-resident status, offshore non-natural persons would not currently subject to the CGT regime. However, this charge will apply only to that part of the gain that is accrued on or after 6 April 2013.

Business Tax: 

  • Annual Investment Allowance – increased to £250,000 for expenditure incurred in the two year period from 1 January 2013 to 31 December 2014. For further details on the Annual Investment Allowance, please click here.
  • Personal services companies and IR35 – following the consultation on the ‘Taxation of Controlling Persons’, the government has decided not to proceed with this proposal. Instead, legislation will be introduced to put beyond doubt that the intermediaries legislation (IR35) applies to office holders for tax purposes. HMRC will still be using the IR35 Business Entity Tests.
  • Tax simplification for small businesses – legislation will be introduced to enable eligible unincorporated small businesses to choose to use the cash basis when calculating taxable income.  All unincorporated businesses will also have the option to use certain flat rate expenses when calculating taxable income. These measures will be available to unincorporated businesses whose turnover is below the VAT registration threshold. The measures will have effect from the tax year 2013-14. See also Simpler income tax system for small businesses

Corporation Tax: 

  • The main rate of corporation tax – reduced from 24% to 23% from 1 April 2013 and then to 21% with effect from 1 April 2014. The small companies’ rate remains at 20%.
  • Disincorporation relief – legislation will be introduced to allow small companies to claim disincorporation relief. Disincorporation relief will allow a company to transfer goodwill and an interest in land to its shareholders so that no corporation tax charge on the company arises on the transfer. The relief will be available for a limited period of five years effective for disincorporations occurring on or after 1 April 2013 and to companies where the value of the qualifying assets transferred does not exceed £100,000.
  • Gaming, animation and ‘high-end’ television industries – the legislation introduces an additional deduction of 100% qualifying core expenditure and a payable tax credit of 25% for losses surrendered, up to a maximum of 80% of the total core expenditure by the qualifying company.
  • Above the line R&D credits for large companies – the legislation will introduce an ‘above the line’ tax deduction on qualifying R&D expenditure for larger companies from 1 April 2013. Following consultation, the following has been agreed:

    Following consultation, the government has decided that the ATL credit will be:

  • a taxable credit paid at a headline rate of 9.1%
  • fully payable, net of tax, to companies with no corporation tax liability
  • available for qualifying expenditure incurred on or after 1 April 2013
  • introduced alongside the existing super-deduction in April 2013 and will replace the super-deduction in April 2016
  • available to surrender to group companies
  • safeguarded from abuse through the introduction of a Pay As You Earn (PAYE)/National Insurance Contribution (NIC) cap on the payment of the credit to companies with no corporation tax liability.

View our existing guidance on R&D tax relief

Anti-Avoidance:

General Anti-Abuse Rule (GAAR) – the GAAR will come into effect in relation to abusive tax arrangements entered into on or after the date of Royal Assent to Finance Bill 2013. HMRC’s guidance on the GAAR comes in three parts, although this is still subject to the consultation process:

  • Part A: Scope of the GAAR legislation
  • Part B: Examples of how the GAAR applies to tax arrangements
  • Part C: GAAR Procedure

Other Taxes: 

Inheritance Tax – extension of nil-rate inheritance band for non-domiciled spouses – the general rule is that anything passing between spouses is exempt from inheritance tax. However, where a UK domiciled person passes assets to their non domiciled spouse the inheritance tax-free allowance is limited to £55,000, a figure which has been unchanged since 1982. Based on current rates, the maximum that can be passed to a non-domiciled spouse free of tax is £380,000 (being the nil-rate band of £325,000).

With effect from 6 April 2013, the inheritance tax free sum that can be paid to a non domiciled spouse will be increased to the amount of the nil rate band, ie £325,000, meaning that the maximum that could be bequeathed to a non domiciled spouse will increase to £650,000. From 6 April 2013, an individual can make an election to be treated as UK domiciled for IHT purposes.

Inheritance TaxIncrease in the nil-rate band – the nil-rate band is fixed until 5 April 2015 at £325,000 but, with effect from 6 April 2015, it will increase to £329,000.

Stamp Duty Land Tax – a new 15% rate for purchased properties worth more than £2m from 20 March 2012.

Annual residential property tax – a new annual tax charge on residential properties worth more than £2m owned by non-natural persons.

For a link to all of the draft clauses and explanatory notes, please click here.

For further guidance on taxation matters generally, please visit the taxation section of ACCA UK’s Technical Advisory website.