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Date of publication: March 2012
The rates for Employer’s and Employee’s National Insurance remain unchanged; Employers National Insurance is 13.8%, Employee’s National Insurance is 12% and the uncapped rate is 2%. The personal allowance is to rise to £8,105 from 6 April 2012 and to £9,205 from 6th April 2013. Higher rate 50% income tax is maintained for the tax year 2012-13 but will reduce to 45% from 6 April 2013.
This means that the most tax efficient method of extraction of profits for owner managed businesses will in many cases continue to be the dividend. However, this should be considered in advance to ensure that salaries are set appropriately, and that any dividends are declared and paid prior to the year end. Separately, it is worth reviewing the salaries of any low paid individuals to see whether any may have a pay increase without paying tax.
The trend towards increasing the car benefit charge continues, meaning that they are an even more expensive benefit in kind. The benefit continues to be calculated on the basis of the carbon dioxide emissions, with higher charges for diesel cars, although, with effect from 6 April 2016 the higher charge for diesel cars will be removed.
Low emission cars still present an opportunity to have lower rates of tax. 100% capital allowances are still available on cars in the lowest emissions band until March 2015. However, the number of cars falling into this category is being reduced. As from 6 April 2013, the emissions have to be 95g/km to qualify whereas at present, the limit is 110g/km.
As from 6th April 2013, cars such as the VW Polo Bluemotion will no longer fall into the lowest emission band.
Fuel benefit is calculated using a fixed amount set annually in the Budget multiplied by the same percentage as that used in calculating the car benefit, i.e. based on carbon dioxide emissions. The fixed amount for 2012/13 is £20,200.
Providing private fuel to employees has been generally tax inefficient in recent years. However, with the increase in the price of fuel, despite the continued increase in the calculation of the fuel benefit, for employees with high mileage this is becoming something to consider again.
The limit in value which an individual may hold in share options via an Enterprise Management Incentive Scheme is increased from £120,000 to £250,000.
EMI schemes can help small/medium sized companies to retain and reward employees who are integral to the growth and success of the company. This large increase makes such schemes an even more attractive option for some companies.
With effect from 6 April 2012 there will be an increase in the period that an employee has to work for an employer before being able to claim unfair dismissal. Although this was not announced in the Budget it is an important change for both employee and employer. It means that any individual starting work for a company after 6 April 2012 will not be able to claim unfair dismissal against the company until 2 years after commencement. Individuals employed by a company before 6 April 2012 still have to wait a minimum of 1 year (i.e the rule in this situation is unchanged).
Companies will need to ensure they keep careful records of when employees started work so that they can ensure that they know which rules are appropriate to which employees.
This guide does not contain a full statement of the law and it does not constitute legal advice. Please seek legal advice if you have any questions about the information set out above.