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United Kingdom Tax Changes Coming - 2012 Budget Announced

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The UK Chancellor of the Exchequer, George Osborne, announced the 2012 budget statement last week, which includes a surprise additional rate cut for corporations and a rate cut for individuals. Other select changes include VAT rates, stamp duty rates, lower capital allowance rates, and R&D credits.

The UK had previously announced that the rate of corporation tax would be reduced from 26% to 25% in April 2012. The Chancellor’s budget went a step further, announcing a 1% reduction to 24% beginning April 2012, followed by further 1% annual reductions to 22% by 2014. For small companies, those deriving profits up to £300,000, the tax rate will remain at 20%.
The top individual income tax rate will be reduced from 50% to 45% beginning in 2013.

The not-so-good news is that the rate for capital allowances on plant and machinery (write-down of capital expenditures) is reducing beginning April 2012. Main pool items will reduce from 20% to 18% per year, and special rate pool items will reduce from 10% to 8%. Furthermore, the annual investment allowance, which provides a 100% tax relief on plant and machinery expenditures, is being reduced from £100,000 to £25,000.
The tax credit will increase for small and medium-sized businesses from the current 200% to 225% for expenditure incurred on or after April 1, 2012.

A new Stamp Duty Land Tax rate of 7% will apply to residential property purchases in excess of £2m with effect from March 22, 2012. The current rate of 5% applies to residential properties over £1m.
The budget includes proposed changes to close zero-rated and VAT exemption loopholes. Specific items that will be standard rated include hot carryout food (except bread), sport nutrition drinks, and all work on listed buildings. Businesses are required to file VAT returns online beginning April 1, 2012 if the business registered before April 2010 and has annual sales less than £100,000 (excluding VAT).

VAT registration thresholds will be increased to £77,000 (from £73,000). However, of note to businesses without establishment in the UK, the VAT threshold to register will be removed on December 1, 2012. After this date, overseas companies trading in the UK, but without permanent establishment in the UK, will be required to register for VAT regardless of turnover (sales) amounts.

To see more on the UK budget items, please follow this link.

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