As ever, the Budget press releases reveal further details of certain changes that were not immediately obvious from the speech, and here are some thoughts on half a dozen of the Budget changes which have more to them than initially meets the eye.

1. Child Benefit Income Tax Charge

In my immediate comments yesterday I said that I thought it was bizarre to clawback child benefit from the higher paid by using the income tax system, but I didn’t know the half of it. For reasons which I will not begin to try to understand, let alone explain, the restriction to child benefit becomes operative on 7 January 2013, which is around 3/4 of the way into the upcoming tax year. Thus the clawback for 2012-13 will be restricted to child benefit paid on or after 7 January 2013.

The calculation will be carried out by applying a 1% restriction to the amount of child benefit received for each £100 of an individual’s net income above £50,000. Thre individual concerned will be the parent in a couple with the higher level of income. The calculation is such that child benefit will be clawed back in full where income exceeds £60,000. For 2012-13 the ful tax year’s income will be used in the calculation, even though only 1/4 of the year’s child benefit will be subject to clawback.

2. Changes to Higher Personal Allowances for people aged over 65

I did not immediately get too worked up over this, perhaps because I am not (quite, my children would say) over 65, but my laid back approach has not been matched by organisations representing the interests of the older generation. In summary, for a relatively short period, until the level of the personal allowance reaches the current level of the age-related higher personal allowances (£10,500 for those aged 65 to 75 and £10,660 for those aged 75+), there will be no increase in these figures, and those who do not reach 65 or 75 before 6 April 2013 will never qualify for the higher allowances.

I have never quite been sure why people aged over 65 qualified for extra personal allowances anyway, but their withdrawal is causing a political storm, despite the fact that it has been more than compensated for by recent generous pension increases. I have some sympathy for many older taxpayers who find that income on their savings has c0llapsed along with interest rates, but given that I could never see the logic for age related allowances in the first place their withdrawal was never likely to break my heart.

This has been done in a relatively painless way it seems to me, taking everything into account, but in a world where form appears to take precedence over substance, the Chancellor appears to have got himself into a PR mess over this change.

3. VAT changes from 1 October 2012

The Government has set itself to correct some perceived VAT anomalies, which are as follows:

i. Hot food

This will be defined as food provided to the customer at a time when it is above ambient air temperature. There will also be an amendment to the definition of premises (food whether hot or cold supplied for consumption ‘on the premises’ is standard-rated), to make it clear that this includes areas adjacent to a retailer and areas shared with other retailers (I am thinking Trafford Centre Food Court and Lowry Outlet Mall Food Court here).

ii. Sports nutrition drinks

These are mainly carbohydrate, protein and/or creatine based drinks, marketed as products to enhance physical performance, accelerate recovery after exercise or build bulk, which are currently zero-rated but will become standard-rated from 1 October.

iii. Self storage

Where a specific defined area of land is allocated to a customer for storage of goods. that supply is currently VAT exempt. From 1 October 2012 it will be standard-rated.

iv. Approved alterations to listed buildings

These are broadly works on listed buildings that require planning consent because of the listed status of the building. Such works are currently zero-rated, but from 1 October 2012 will be standard-rated. A similar change will take place in respect of the first sale or long lease by a developer of a substantially reconstructed listed building, where zero-rating will be restricted to buildings reconstructed from a shell.

v. Hairdressers’ chair rental

Some hairdressers have in the past argued that the rental of a chair to a hairdresser is VAT exempt as a licence to occupy land. From 1 October 2012 such a supply will be standard-rated.

vi. Holiday caravans

These are defined as caravans that are not designed and constructed for continuous year round occupation (presumably because they are not designed for winter occupation in terms of heat retention etc). They are currently zero-rated if more than 7 metres long, but from 1 October 2012 will be standard-rated. They are mainly static caravans but also include a small number of larger touring caravans capable of being towed by a motor vehicle.

4. Corporation tax “patent box”

From 1 April 2013 it will be possible for companies to elect to apply a 10% corporation tax rate to all profits attributable to qualifying patents, whether paid separately as royalties or embedded in the sales price of products. The regime will also apply to Regulatory Data Protection SPCs and plant variety rights. It will apply to existing and new intellectual property, and acquired IP where the acquirer has further developed the IP or the product which incorporates it.

5. Enterprise Management Incentives

The maximum value of shares (at grant) which may be held by any individual is increased from £120,000 to £250,000, subject to EU State Aid approval. This will allow many key employees of trading companies to enhance their shareholdings in those companies in a tax-efficient manner.

6. Seed Enterprise Investment Scheme (“SEIS”)

This is a scheme to help small early-stage companies to raise equity finance by offering a range of tax reliefs to individual investors who purchase new shares in those companies. It is effective from 6 April 2012, and the rules broadly mirror those of the existing EIS.

A maximum annual investment of £100,000 by an individual will attract income tax relief at 50%. From 2013-14 it will be possible to carry back an SES investment one year for tax relief purposes.

Where an asset is disposed of in 2012-13, giving rise to a chargeable gain, and all or part of the gain is reinvested in SEIS shares, the amount reinvested will be exempt from capital gains tax. The £100,000 limit and the carry back provisions also apply for this relief, which applies for 2012-13 only, meaning that 2013-14 SEIS investments could be carried back for relief against 2012-13 gains.

Where the shares are held for at least 3 years, and relief is not withdrawn, a disposal of the shares is exempt from capital gains tax.

Any company that has had an investment from a Venture Capital Trust or issued EIS shares cannot use the SEIS.

Requirements for SEIS investors. shares and companies 

Shares must be paid up in full for cash when issued.

The investor does not own more than 30% of the company.

The investor is not employed by the company (but can be a director).

The company is unquoted when the shares are issued, it has fewer than 25 employees and it has less than £200,000 in gross assets.

The company may not raise more than £150,000 under the SEIS.

Any trade carried on must be less than 2 years old at the date of issue of the shares.