As widely predicted, the Chancellor confirmed that the 50% rate of tax for taxpayers with income in excess of £150,000 will reduce to 45% from 6 April 2013. There is a corresponding reduction in:

The Chancellor reported that HMRC's analysis of how much revenue the 50% rate had actually raised (based on self-assessment tax returns for the first year of its application (2010-11)) revealed only around £1 billion and possibly less had been raised (against an expected yield of £2.5 billion). HMRC's analysis also reveals that there was a "considerable behavioural response" to the rate change, which included around £16 to £18 billion of income being brought forward to the 2009-10 tax year. On the basis of this evidence, it would appear that the behavioural response to the government's advanced announcement of the rate reduction will be that a considerable amount of income will be shifted from 2012-13 to 2013-14. The Office for Budget Responsibility estimates the amount to be in the region of £6.25 billion.

(See Overview, para 1.3, The Exchequer effect of the 50% additional rate of income tax and Office for Budget Responsibility: Economic and fiscal outlook - March 2012, Box 4.2.)

There was no announcement of a timetable for any further reduction of the additional rate.

This development will be relevant to companies with highly paid executives and their remuneration advisers. The introduction of the additional rate, which was always expected to be a temporary measure, has encouraged greater use of:

Employees who are holding exercisable awards in the hope of deferring tax until the additional rate is withdrawn will now need to assess whether to exercise after 5 April 2013 and bear tax at 45%, or continue to hold out for a future complete withdrawal of the additional rate.

The potential advantage of equity award structures that offer control over the tax point probably remains (although somewhat reduced in value), given the possibility of future reductions to the top rate of income tax. Likewise, awards designed to secure CGT treatment of employee gains will continue to be attractive for higher rate and additional rate taxpayers, as long as the top rate of CGT remains at 28% as opposed to 40 or 45% income tax plus National Insurance contributions (NICs) liabilities. (Of course, that is subject to the risk that the income tax legislation will be extended at some point to tax them in a similar way to share options. This possibility has been acknowledged for years without coming to fruition, but it may become more likely as these arrangements become more widely used.)

Similarly, some employers with 50% taxpayer employees may want to consider offering to defer, until after 5 April 2013, immediately taxable bonuses expected to be paid between 21 March 2012 and 5 April 2013. It is possible that HMRC will anticipate this and introduce counter-measures. The bank payroll tax included provisions to counter deferral of bonuses until after the taxable period (see Practice note, Bank payroll tax), and we have seen "anti-forestalling" measures a couple of times in recent years, in connection with plans to limit higher rate pension tax relief and the introduction of the disguised remuneration legislation (Part 7A of the Income Tax (Earnings and Pensions) Act 2003). However, counter-measures might be rather difficult to draft effectively, and also might seem inappropriate when the political and governance climate strongly favours greater deferral of executive pay in order to improve alignment with corporate performance. It might be difficult to distinguish avoidance-related deferrals from those adopted for corporate governance reasons.

It is possible for an employee to bear employer NICs only if the NICs arises on:

Because an employee benefits from income tax relief for any employer NICs he agrees to bear on any of these taxable events, the effective combined rate of income tax and both types of NICs is not obvious and needs to be computed.

If an individual paying income tax on or after 6 April 2013 at the revised additional rate of 45% assumes all employer NICs on the acquisition of securities under a securities option (or on another chargeable event relating to securities or securities options on which NICs can be transferred), his effective rate of combined employee and employer NICs and income tax on the option gain will be 54.59% (previously 58.9%).

This is calculated as follows:

Employer NICs on 100% of gain = 13.8%.

Employee NICs on 100% of gain = 2%.

Additional rate tax (at 45%) on (100 - 13.8) % of gain (with relief for employer NICs) = 38.79% (previously 43.1%).

Total = 13.8 + 2+ 38.79 = 54.59%.

Legislation will be introduced in Finance Bill 2012 to reduce the main rate of corporation tax to 24% for the financial year commencing 1 April 2012 (it was already expected to fall to 25% from 26% at the start of that year) and then to 23% for the year commencing 1 April 2013 and to 22% for the year commencing 1 April 2014. The main rate applies to companies and groups whose annual profits exceed £1.5 million. The corporate tax rate for companies with ring-fenced profits from oil extraction in the UK and UK continental shelf (ring-fenced profits) will remain at 30%.

(See Overview, para 1.19: Corporation tax rates and Annex B: Business and financial services.)

The 2012 Budget confirmed that, as announced in the 2011 Budget, the personal allowance for under-65s would increase in 2012-13 by £630, to £8,105. At the same time the basic rate limit will reduce by only £630 (to £34,370), so in 2012-13 the higher rate threshold will be unchanged (at £42,475) and the increase in the personal allowance will benefit basic rate taxpayers and those higher rate taxpayers who enjoy the personal allowance (that is, those with income of up to £116,210 in that year).

The chancellor also announced an acceleration in the implementation of the coalition government's plan to increase the personal allowance to £10,000 over the parliament. The personal allowance for under-65s will increase (by £1,100) in 2013-14 to £9,205. At the same time, the basic rate limit will be reduced (by £2,125, to £32,245), bringing the higher rate threshold to £41,450 (previously £42,475). Although this increase in the personal allowance will be of some benefit to those higher rate taxpayers who would also be so under the 2012-13 higher rate threshold and who benefit from the personal allowance (that is, those with taxable income of more than £42,475 but not more than £118,410 in 2013-14), the benefit will be small, at £15 or less (that is, 20% of £2,200 - £2,125).

(See Overview, paras 1.3 - 1.5 and Annex B.)

For the tax year 2012-13, the capital gains tax annual exempt amount will be unchanged at £10,600. It will increase in line with the consumer prices index from 2013-14 onwards.

(See Overview, Annex B.)