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Health and Care Budget update - tax saving opportunities
22 March 2012
Reduction in the additional rate of income tax
From 6 April 2013, the additional rate of income tax for individuals with income of over £150,000 is due to fall from 50% to 45%.  The additional effective rate of income tax on dividends is due to fall from 36.11% to 30.56%.

Opportunities 
If you are likely to pay income tax at the 50% rate for the next tax year (the year ended 5 April 2013), you should consider ways to legitimately defer income to the following year, so that you are taxed at the lower 45% rate. Possible ideas are to:

  • defer remuneration until after 5 April 2013;
  • draw money out of a company as a loan during 2012/13, rather than receiving income.  The loan could be repaid after 6 April 2013 (consideration needs to be given to benefit-in-kind and company tax implications); or
  • accelerate capital expenditure, so that taxable profits are lower in the year ended 5 April 2013.  Care operators should bear in mind that the Annual Investment Allowance (which attracts 100% capital allowances on qualifying capital expenditure) falls from £100,000 to £25,000 on 1 April 2012.
    maximise pension contributions during the year ended 5 April 2013 to obtain relief at up to 50%. 

Increase in the personal allowance
From 6 April 2013 the personal allowance will increase to £9,205. 

Opportunity
Married couples and civil partners running a care business should make sure that both of them are taking full advantage of the allowance.  This type of planning is perfectly legitimate and over several years can save families a significant amount of tax.

Reduction in the main rate of Corporation Tax 
From 1 April 2012 the main rate of Corporation Tax will fall from 26% to 24%, although a 1% fall had already been announced.  Two further reductions in the main rate of Corporation Tax of 1% have been announced from 1 April 2013 and 1 April 2014 when the rate will be 22%. 

Opportunity
If your company is taxed at the large or marginal rate, careful consideration should be given to where profits accrue.

Careful consideration should also be given to whether you receive dividends or salary, as this will make a difference to your overall tax burden. Changing rates create planning opportunities!

Withdrawal of Child Benefit
From 7 January 2013 Child Benefit will be cut for families where one parent earns more than £50,000. The benefit will be completely eliminated where one parent earns more than £60,000.

Although the threshold for losing the allowance has been increased, it is still a little inequitable.

Opportunity
This is yet another reason why couples should look at equalising income where possible.  
 

VAT changes

Approved Alterations to Protected (including Listed) Buildings
The zero rating available for certain supplies in relation to protected buildings that are used for a residential or relevant charitable purpose is to be removed.
 
Subject to certain conditions, the first grant of a substantially reconstructed protected building, or approved alterations to a protected building are currently VAT free.  However, this relief is to be removed with effect from 1 October 2012.  Transitional arrangements will ensure any contracts already signed before Budget day will continue to benefit from the zero rating.
 
Opportunity
Whilst this effectively prevents the zero rated opportunities above from being taken advantage of on any building contracts not already in place, it does not prevent users of protected buildings from seeking refunds of VAT incorrectly charged in the past.  Hazlewoods can review your historical expenditure and advise on any potential savings.
 
Charitable Buildings
Measures will be introduced in the Finance Bill 2013 to remove charitable buildings from the scope of the VAT reduced rate for the supply and installation of energy saving materials.  This means any such expenditure will become VATable at 20%.  Whilst we do not know the effective date as yet, it is likely to be around April 2013.
 
Opportunity
This gives a window to engage in any planned expenditure in these areas in the next 12 months to benefit from the reduced rate of VAT.

Stamp Duty Land Tax (SDLT)

Residential Properties above £2 million
SDLT on the purchase of a residential property will be charged at 7% of the chargeable consideration where this is more than £2 million.
 
This measure will apply for new transactions entered into from 22 March 2012.
Contracts that have been entered into before 22 March 2012, but complete after this date, will not be affected, and the old rate of 5% will apply. 
 

Opportunity

Careful planning is therefore advised when considering the acquisition of a relevant residential property.  Care operators should note that a care home (C2 use) is not considered a relevant residential property for SDLT purposes and will, therefore, not be affected by the above changes.  That said, an acquisition for change of use to C2 would be caught.

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