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Autumn Statement 2012

After much shouting and waving by both sides of Parliament we have a short review of the Autumn Statement 2012:

The main rate of Corporation tax will fall to 21% in April 2014. The small companies rate remains at 20%.

The personal tax allowance will rise to £9,440 from 6th April 2013 (higher than previously detailed).

The threshold for 40% rate of income tax to rise by 1% in 2014 and 2015 from £41,450 to £41,865 and then £42,285.

The capital gains tax annual exempt amount will increase by 1% in 2014 and 2015, reaching £11,100.

The Inheritance Tax nil-band rate to rise from £325,000 now to £329,000 in 2015/16.
The overall ISA limit will increase from 6th April 2013 to £11,520.

From 2014/15 the government will further reduce lifetime pension tax-free allowance from £1.5 million to £1.25 million and annual tax-free allowance from £50,000 to £40,000.

There will be an increase in pension draw down limits from 100pc to 120pc, but we cannot find a date yet!

The small business rates exemtption has been extended for another year.

The fuel duty rise has been cancelled.

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Make sure your Christmas Party is tax deductible

An employer can spend up to £150 a year per person on entertaining employees (including directors and company secretaries).

Companies that employ dozens of workers probably arranged their Christmas party months ago. But if you don’t have any staff, say, there’s just you, or you and your partner, you might be considering a less formal Christmas do, such as a meal and a stopover at a nice hotel. Will the exemption still apply in this situation?

Good news! The legislation spells out the rules to the exemption pretty clearly. There’s no restriction on the size of business. Whether your workforce numbers 1,001 or just one, the exemption applies.

It gets better: the exemption is per head rather than per employee, so you can also pay for spouses and partners to come along without worrying about a benefit-in-kind charge.

As far as Corporation Tax is concerned, it makes no difference whether or not the Christmas party is a taxable benefit-in-kind. Either way it can claim a deduction for the cost. But this doesn’t mean you should plough ahead expecting to gain a financial advantage. The key to making this tax break pay is maximising the BiK exemption.

However, there is a trap. Go a penny over the £150 (including VAT) per head budget and the full cost becomes taxable as a benefit-in-kind. The employee will pay income tax and National Insurance, and the employer will be charged Class 1A National Insurance.

There is a get out. The restaurant, hotel etc. should be booked in the company name and if there’s any danger of the £150 limit being exceeded the director or business owner should be authorised to pay the bill personally and claim back only up to £150 per head from the company – supported by receipts of course. This ensures the cost to the company stays within the exemption.

The exemption applies to all employers, but sole traders or partnerships cannot claim an income tax deduction on entertaining their proprietors.

Finally, the party has to be open to all employees. This means that for a husband and wife company it could be their Christmas dinner!

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