Tax Q & A’s – Debbie’s monthly editorial for Grapevine readers

Every month Debbie Story answers your questions in the local Grapevine magazine. In this month’s article Debbie answers your questions on The Budget 2012.

Q: In the Budget the chancellor raised the personal allowance to £9,205. What does this actually mean?
A: The personal allowance is the amount of income you can earn each year without paying any tax on it. The level of personal allowance depends on your age and the total income in the tax year. This rise referred to an increase in the basic allowance, which applies to anybody under the age of 65 and earning less than £100,000. Remember this rise does not come into effect until April 2013, but once it does, the average person will be £220 a year better off. The basic allowance for the tax year 2012/2013 is £8,105.

Q: What was the change to child benefit and who does it affect?
A: The change to child benefit will only impact those households where someone in a household has an income of more than £50,000. After this point the benefit is phased out by a reduction of 1% for every £100 earned. At £60,000 the benefit disappears completely.

Q: What did the chancellor do for small businesses?
A: In my opinion, the biggest benefit for small businesses was the change to how small businesses pay tax. From April 2013 small businesses with a turnover of £77,000 and below will pay tax based on a cash basis. In reality, this means that firms pay corporation tax on what they have received less what they have paid, rather than what they have actually invoiced. For a small business whose customers are slow or bad payers this will be good news !

Q: Any missed opportunities or disappointments?
A: Yes, they missed a trick in not doing more to incentivise companies to hire more people. Perhaps the biggest Budget disappointment for small firms was that George Osborne did not announce any reduction in business rates, the tax firms have to pay on their property. Business rates have now gone up by 5.6%. There was also no reprieve on the 3p increase in fuel duty which is due to take place in August 2012.

Q: What are the implications of the Budget on larger local businesses?
A: The main announcement was the decision to speed up the drop in the main rate of corporation tax, the taxation that firms have to pay on their profits. The main rate will now fall to 24% next month, down from the current 26%. By 2014 it will fall to 22%. It’s easy to forget that this rate was 28% in 2008, so a marked reduction to stimulate the economy. This change only affects businesses with profits more than £300,000 a year. Businesses under that limit already only have to pay corporation tax at 20%.