UK tax – a look forward to 2012
The UK fiscal budget for 2012/13 will be set on 13 March. We look at developments we expect to see in 2012 which have already been announced.
Changes to tax allowances and bands
The income tax personal allowance is to increase to £8,105 from £7,415 for the 2012-13 tax year. At the same time the basic rate band for income tax is to be reduced to £34,370 from £35,000.
The capital gains tax annual exemption for individuals will remain at £10,600 for the 2012-13 tax year. Thereafter the amount of the annual exemption will increase automatically in line with the consumer price index.
PAYE – 0T code to apply to post-P45 share based earnings
HMRC have announced that from 6 April 2012 the 0T tax code must be used when making payments to employees which arise from employment related securities after the issuance of the P45 form following cessation of employment. (Employment related securities include shares and options). This means that PAYE withholding will apply at the individual’s marginal rate of tax, 20%, 40% or 50% as appropriate, and that the personal tax free allowance will not be taken into account.
This brings the tax treatment of employment related securities into line with all other post-P45 employment income.
Indexation of National Insurance contributions (“NICs”)
From 6 April 2012 the Consumer Prices Index will replace the Retail Prices Index (“RPI”) as the basis for indexation of NICs rates, limits and thresholds. There are 2 exceptions to this: (i) the secondary threshold for class 1 employer’s NICs (which will continue to be indexed to the RPI) and (ii) the class 1 upper earnings limit and the class 4 upper profits limit which will remain aligned with the income tax higher rate threshold.
Streamlined approval process for share schemes
HMRC has announced that it is streamlining its share schemes approval process. This is intended to reduce the time taken by HMRC to review draft documents for proposed Company Share Option Plans, Share Incentive Plans and Save As You Earn Schemes, respond to applications for approval of plans and issue formal approval.
HMRC has also recently revised its share scheme checklists. Employers seeking to introduce an approved share plan must complete and submit a checklist along with the relevant scheme documents to HMRC in order to demonstrate that the scheme rules and ancillary documents satisfy the statutory requirements.
HMRC to be able to collect small tax debts via the PAYE tax code
From April 2012, HMRC will be able to collect small debts of up to £2,999.99 by amending individual taxpayers’ PAYE codes. Priority will be given to PAYE underpayments and income tax liabilities arising from self assessment returns.
Reports on taxation to be published by the OTS
The Office for Tax Simplification is expected to publish reports on the taxation of pensioners, share schemes and the taxation of small businesses prior to the 2012 Budget.
The share schemes review will focus on approved share schemes with the aim of simplifying and harmonising the rules where possible.
Reforming executive pay
We are expecting significant developments in this area. Please see the link to our article on this topic in the Resources section below.
Not going ahead in 2012
Legislation to counter high risk tax avoidance schemes
Following a consultation on high risk tax avoidance schemes the government announced in December 2011 that they would not be including the draft legislation, which was published as part of the consultation, in the Finance Bill 2012. However, the government has announced that it will continue to debate the issues and will publish an update in the 2012 Budget.
We expect that a lot of attention will be focused on executive remuneration in 2012. Once the government has decided on its approach and draft legislation has been published, we will provide a detailed commentary.