‘Budget 2015’

Budget 2015 – What was missing?

Wednesday, March 18th, 2015

Patent box regime – this was expected to be abolished. This regime which allows qualifying profits to be taxed at a reduced rate of 10% has been mooted as a ‘harmful tax practice’ and changes are expected.

Principle Private Residence Relief election was expected to be restricted to one property, to prevent ‘flipping’ between multiple properties but there was nothing in the detail.

There was no reduction in the tax-free annual pension allowance. This remains at £40,000 pa.

We’d been expecting to see a major reform of Capital Gains Tax but the only nod to this was a few tweaks to Entrepreneurs’ Relief..

Budget 2015 – Business taxes

Wednesday, March 18th, 2015

Umbrella Companies and Employment Intermediaries

As previously announced in the Autumn Statement the government reviewed the use of contracts which allowed some workers to receive a tax benefit on home to work travel expenses. From April 2016 there will be new restricted rules on eligible travel and subsistence costs.

National Insurance

Class 2 national insurance for the self – employed will be abolished in the next parliament together with a reform of the Class 4 which is currently collected through the self-assessment tax return. The timing and implementation of this will be consulted on by the next government.

In addition as previously announced no employer’s national insurance on employees aged under 21 from April 2015 which will also be expanded from April 2016 to include apprentices.

Tax Avoidance

Further rules on avoidance were issued as has become the norm in recent budgets.

Entrepreneurs Relief – It was announced two aspects to tackling anti-avoidance in respect of this relief. Firstly entrepreneurs relief on personal assets which are allowed provided there is a meaningful withdrawn from the business of at least 5% will apply to disposals from today. Secondly where structures are created to give small indirect stake in a business to benefit from the relief will be also be challenged specifically where the company is not trading in its own right.

Tax Avoidance Schemes

Accelerated Payment Notices – Currently accelerated payment notices are being issued and it is expected that an additional 21,000 notices are to be issued than first advised, leading to more companies paying tax up front from tax avoidance schemes.

Serial Avoiders – New tougher measures will be introduced for those who continue to take part in multiple schemes.

Farmers

The current two years farmers are allowed to average their profits over will be increased to five years from April 2016. Further details on the implementation of this will be announced in the future..

Budget 2015 – Personal tax

Wednesday, March 18th, 2015

Personal Self-Assessment Returns

The government is looking to reform the tax system by introducing digital accounts which will remove the need for individuals and small businesses to submit annual tax returns. However no details on this proposal are announced only that further announcements will be published later in 2015.

The new digital accounts will also be responsible for collecting tax and national insurance instead of self-assessment.

This is a major overhaul of the existing system but expected to be aimed at simple returns.

Personal Allowance

As widely speculated the personal allowance is being increased to reach £11,000. In the autumn statement the personal allowance was increased to £10,600 from April 2015. The proposal is for an increase to £10,800 in 2016-17 and up to £11,000 in 2017-18.

Previously we have seen the basic rate band reduced when the personal allowance is increased, however it was also announced that this is increased to £42,385 from April 2015 further increasing to £42,700 in 2016-17 and to £43,000 in 2017-18, which is a welcome relief for individuals hovering around this income level which previously have seen their income reduced.

National Insurance

Employee primary national insurance will see the upper earnings level increased to keep in line with the higher rate tax threshold.

Personal Savings Allowance

From April 2016 a new Personal Savings Allowance will be created exempting the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers, saving up to £200 off an annual tax bill. This will not apply to additional rate taxpayers. Because so many people will no longer pay tax on their savings, the automatic deduction of tax by banks and building societies will no longer be necessary therefore the current deduction of 20% income tax by banks and building societies on non-ISA savings will cease from April 2016. As part of these reforms, HMRC will introduce automated coding out of savings income.

ISAs – general

The government will allow ISA savers to withdraw and replace money from their cash ISA without counting towards their annual ISA subscription limit for that year, as long as the repayment is made in the same tax year as the withdrawal. These changes will be introduced in autumn 2015.

Help to Buy ISA

The scheme will work by the government providing a “top up” to savings used by first time buyers to purchase their first home. For every £100 a first time buyer saves, the government will provide a further £25 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Savers will still have access to their funds whilst they are saving and will be able to withdraw funds from their account for other purposes if they need to but the top up will only be made available for house purchase.

Pensions

From 6 April 2016 the lifetime allowance for pension contributions that benefit from tax relief will reduce from £1.25m to £1m. The lifetime allowance will be then increased in line with indexation from 6 April 2018

From April 2016 people who are already receiving income from an annuity will be able to dispose of the annuity to a third party and access their funds either immediately or via a draw down. The income will be taxed at their marginal rate, in the same way as those taking their pension after April 2015..

Budget 2015 – Economic overview

Wednesday, March 18th, 2015

The economy – an end to austerity in 2019….?

Britain is getting “out of the red and into the black”, per Chancellor Osborne, going from “austerity to prosperity”.

Based on figures provided by the independent Office for Budget Responsibility, the public finances are in better shape than expected, based on previous growth and borrowing forecasts.

UK (Gross Domestic Product) growth forecasts are revised up for the current year to 2.5% with similar rates of growth expected until the end of the forecast period in 2019, three times that of the Eurozone.

Employment has risen to the highest rate in history with 1,000 jobs created every day, although the nature of these jobs wasn’t revealed. Unemployment is set to fall to 5.3% this year, giving the UK the highest employment rates in the world.

Public sector net borrowing for the current year is down to £90.2bn, lower than the £91.3 forecast; this is expected to fall to £12.8bn in 2017/18 then turn to a surplus of £5.2bn the following year.

Public sector net debt as a share of net income is due to peak in 2014/15 at 80.4% before falling to 71.6% in 2019/20, again, lower than the 2014 Autumn Statement forecast.

In a reversal from a few years ago when taxpayers bailed out the banks, a ‘windfall’ has now been created from the sale of bank shares and mortgage debt, with Lloyds and Northern Rock being singled out respectively.  Chancellor Osborne stressed that this money would go towards paying down the national debt which will come as a shock to most people as we were expecting some major giveaways in view of the election looming.

In order to meet his debt targets, an extra £30bn the Chancellor has to find an extra £30bn which he did through tax crackdowns, government department savings and welfare savings.

Inflation was revised down to 0.2%, reflecting falling oil and food prices although the 2% inflation target remains as a long term goal. The rules on farmers’ averaging of profits for tax purposes are to change, recognising the fluctuations in income due to weather uncertainty, etc..

What we’re expecting in Budget 2015

Tuesday, March 17th, 2015

Scrapping of annual tax returns – a late announcement on Budget morning. Over a five year period ending in 2020, the annual tax return will be phased out in favour of a digital tax account. HMRC will gather taxpayers’ information from banks, pension providers, employers and other relevant sources, which in turn feeds into a single online account.

Pensions – Chancellor Osborne announced at the weekend that existing pensioners would be able to cash in their annuities from April 2015. This measure is expected to affect up to 5 million pensioners. Last year he announced over 55’s would be allowed to cash in their pensions savings rather than buy an annuity. There has been a good take up of pension bonds and we’re hoping to see the purchase deadline of 15 May 2015 extended.

Plans to build 45,000 homes per year were announced recently although this is still short of the supply needed by the UK’s fast growing population.

The personal tax allowance was previously set to increase to £10,600 but this was widely expected to be revised upwards to £11,000 from April 2015.

A major review of business rates is taking place although progress is said by many to be too slow.

The Chancellor has aired plans to restrict Child Benefit to three children for new claimants and also impose a welfare cap of £23,000.

We already knew about the Chancellor’s crackdown on corporation tax avoidance in international companies. Dubbed the ‘Google tax’, we’re hoping for more details outlining how the tax will work..