2015 Budget Review
Victoria Bishop and Brett Bennett, robinson+co’s Tax Partner and Tax Manager respectively, give their unique resumé of the 2015 Budget.
With less than 2 months to the General Election this was always to be a Budget to be watched carefully. The Chancellor promised a “gimmick free” Budget beforehand but whether this is the case is open to interpretation. Whatever the reality of the measures announced, there is little doubt that the speech – which lasted for over an hour – sounded suspiciously like a party political broadcast for large swathes of time – not to mention a couple of jibes firmly aimed at the Opposition Front Bench.
Immediately after the Budget Ed Miliband said “Never has the gap between the Chancellor’s rhetoric and the reality of people’s lives been so big...” and what’s the betting they would have said this whatever the Chancellor said?
So, what about the facts? The headline announcement (and we are writing this immediately after the Speech so things may change) seems to vary, depending on what source you read: Help to Buy ISA? Increased Personal Allowance? Removing a tax liability from the first £1,000 of interest (£500 for higher rate taxpayers)?
Our annual Tax Data Card, which details tax rates and bands, will be posted out to our clients and professional contacts shortly; please contact Philip Allison, Practice Manager on 01900 603623 or firstname.lastname@example.org if you require more than one card.
Pensions and Savings
Following the announcements at Budget and Autumn Statement 2014, the Chancellor announced a myriad of measures aimed at savers stating that he wishes to build the country’s prosperity on “savings, not debt.” Thus we have:
- A 'Personal Savings Allowance' which means that the first £1,000 of interest received will be free of tax for basic rate taxpayers. If you are a higher rate taxpayer, then the exemption applies to the first £500.00. According to government figures this will remove 95% of interest from the tax net. This will be introduced on 6 April 2016.
- After the announcement in December 2014 to enable spouses and civil partners to transfer ISAs at death, the Chancellor has now announced more flexibility to the ISA regime. You will now be able to withdraw funds from your cash ISA and replace it in the same tax year. In addition further allowable investments will be added to the list. As yet there is no starting date for this measure
- Help to Buy ISA. Somewhat encouragingly, the government has continued to support the construction industry, and housing market, by announcing a new “Help to Buy ISA”, where the government will provide a bonus of £50 for every £200 saved under the scheme. The scheme will enable first time home buyers to save up to £12,000, and receive a bonus of £3,000 on their savings towards a deposit for their first house.
- The 'Lifetime Allowance' for pension savings is to reduce to £1 million from 6 April 2016, although from 2018 it will increase each year in line with inflation (CPI). This is the limit at which there is an extra tax charge when you start to access your retirement funds.
- Number 4 above sits uneasily with the Chancellor's other plans for pensions savings over the last year, and indeed he announced a further measure in this, his last Budget before the election: the ability - again from April 2016 - for existing annuitants to assign their annuities to a third party in exchange for a lump sum or to an alternative retirement product.
As ever with pensions and saving, you must be very careful so as to not prejudice your position and we always recommend that you discuss matters with our Chartered Financial Planner, Jenny Armstrong before making any decisions. Jenny can be contacted on 01900 603623 or email@example.com.
As widely expected, the chancellor has taken the opportunity to increase the personal allowance for the next 3 years in his budget speech. The rates will be £10,600 (2015/16), £10,800 (2016/17) and £11,000 (2017/18), and will mean tax savings for nearly 27 million lower paid taxpayers over the next 3 years.
In addition, the chancellor has also announced that the rate at which tax will be charged at 40% will increase above inflation to £42,700 in 2016/17 and £43,300 in 2017/18.
However, it should be noted that with effect from 6 April 2016 there will only be one rate of personal allowance – those aged over 65 and 75 will no longer benefit from higher allowances than the under 65s.
An early announcement in the actual speech was that the farmer’s averaging rules from April 2016 will be altered, to extend the period in which the profits can be averaged. This has been a long term campaign by the NFU, and will be welcomed with open arms by the agricultural sector, which has been struggling of late with the ever decreasing milk prices and subsidy uncertainties.
Our tax team will be grappling with the new rules and, if you are affected by the change, will be contacting you to make sure we save you as much tax as possible.
Non domiciled remittance basis (RBC)
Somewhat stealth like, the Chancellor has indirectly brought forward the increase to the RBC for those non domiciled residents in the UK, and who have resided here for 17 out of the last 20 years. In what was supposed to be an increase from April 2016, the Chancellor has brought forward the change to April 2015, by increasing the charge from £50,000 to £90,000 for those that meet the 17 year rule test, while increasing the charge to £60,000 for those that meet the 12 out of the last 14 years requirement.
Again, we will be contacting you if you are affected.
National Insurance Contribution (NIC) reform
As announced before the budget, the move to abolish the Class 2 NIC charge is moving forward and will take place during the 2015/2016 year. However the government has also announced an overhaul to the Class 4 NIC system, implying that there will be a reformed “contributory benefit test” consultation later this year.
As previously announced, a reduction in the large company rate to 20% from April 2015 means that the UK now has a flat rate of corporation tax of 20% for all companies, which is one of the lowest in all of the G8 countries.
Goodwill on Incorporation
To coincide with the removal of Entrepreneur’s Relief on the incorporation of goodwill, there has now been confirmation that from 3 December 2014, tax relief will not be available on the write off (i.e. reduction in value) of goodwill within the company.
This is an end to one of the advantages of incorporating a business enjoyed since April 2002; however with the reduction in the corporation tax rate to 20%, there are still significant tax advantages to be had in incorporating businesses.
Research & Development (R & D)
Obviously still an area of focus, the government confirmed the increase to the R & D tax credit rate from 225% to 230% from April 2015. However, on the downside, the Revenue have announced that they are looking to tighten the rules on what expenditure qualifies for the R & D uplift.
In addition, an announcement has been made to commence a consultation on improving the way small businesses can access the R & D tax credits, by introducing an advanced clearance procedure which will last for up to 3 years, along with launching a publicity campaign to make small businesses aware of the rules and advantages that can be gained by companies.
If you have any queries about any of these matters, please contact Brett on firstname.lastname@example.org.
Annual Investment Allowance
One of the most volatile allowances in the past 5 years has been the limit on which businesses could claim 100% of their capital spend on plant, equipment and fixtures and fittings. From December 2015, the allowance (which currently sits at £500,000) was intended to be reduced to £25,000. This has obviously been met with stiff resistance and disappointment from the business sector and accordingly, the chancellor has announced that the limit which will take affect after December 2015 will be revisited in the Autumn statement, and he has also indicated that £25,000 is by no means an “acceptable” limit.
This obviously affects the comments made in Victoria’s article of 3 March (click here) and makes it even more important for you to contact us before making any major acquisitions.
Enhanced Capital Allowances
These allowances refer to energy saving items and the Chancellor announced that the list of eligible equipment will be updated and expanded in the summer 2015.
DIY Tax Return
In what can only be described as an attempt by the Revenue to bring themselves further into the 21st century, the government has announced that they are to be rid of the requirement to complete annual tax returns, and replace them with “digital tax accounts”.
With the intention being that this will be “live” for over 5 million small businesses and 10 million individuals by early 2016, the sceptic in us does not see this happening as HMRC has demonstrated in prior years a major deficiency in their utilisation of technology to collect information. Anyone remember RTI……?
The other potential downside of this new system for taxpayers (although we at robinson+co are breathing a sigh of relief!) is that the information provided to HMRC would only be a reflection of the accounts and would not necessarily take into account tax adjustments. This could cost individuals more than the cost saving of “doing their own” with HMRC. This suggests that professional chartered tax advisers such as Victoria and Brett will not be out of a job!
Watch this space!
With the current penalty regime being the most aggressive on record, HMRC is continuing to consult on how the penalty rules are applied in practical terms, and the consultation on this point will end in May 2015.
A now expected part of the Budget is the strengthening of the rules against tax evasion (which is illegal) and “aggressive tax avoidance” (which is legal).
Umbrella Companies / Personal Service Companies
The government has again touched on its unhappiness with this area of the legislation, where basically a relationship of “employment” is disguised through an intermediary.
The Budget today announced that a detailed consultation will be undertaken in 2015, with a view to new legislation from April 2016 that will restrict the relief that is claimed on travel and subsistence costs of companies that are deemed to be “umbrella companies” or “personal service companies.”
This is an area that will be of interest to many “businesses” trading in West Cumbria. However, the clients of robinson+co will be pleased to hear that they are unlikely to be affected by this news as the company through which they trade is not classed as either an umbrella company or a personal service company.
The Chancellor has closed what he considers to be a loophole in that – with immediate effect – one has to dispose of at least 5% of your shareholding or partnership share in order to get the associated relief on assets used within the business.
As appears to be traditional for Mr Osborne, he did not mention Inheritance Tax as such.
However, he did announce a review of the rules regarding a “Deed of Variation” whereby one can amend a will after death – as long as all the beneficiaries agree. Whilst Deeds of Variation will sometimes be made for tax reasons, this is by no means the only reason for such Deeds and it is to be hoped that any changes acknowledge the non-tax reasons for such Variations.
Another big silence here – those pasties really did frighten him back in 2012! The 2015/16 registration and deregistration were announced in the supporting documents and are £82,000 and £80,000 respectively.
As ever the Budget encompassed a myriad of other measures, not necessarily accountancy or tax issues.
Other matters to note include:
- Up to £9billion worth of shares in Lloyds Banking Group plc will be returned to private ownership
- Changes will be made to the “SEIS, “VCT” & “EIS” rules to ensure that they continue to qualify for tax relief under the EU’s state aid laws. In addition there will be administrative changes to the rules
- The automatic claim of Gift Aid for charities and Community Amateur Sports Clubs is increasing to £8,000 from £5,000
- Further funds are to be made available to Air Ambulances – but unfortunately the Great North Air Ambulance was not included in the list of organisations poised to receive money for new helicopters
- Funds are to be made available to assist the repairs needed to church roofs over the next two years
- The Chancellor continued to lower the cost of alcohol with another 2% off beer, wines, spirits and low strength cider. Tobacco duty is up by 2% above inflation
- Fuel Duty has again been frozen
- Superfast Broadband is promised to 95% of the country’s population – but how much of the missing 5% will be in rural Cumbria?
- Much needed funds for mental health services, in particular to children.
Victoria and Brett are surprised at just how much the Chancellor has given away – especially as he promised no gimmicks! – but with some starting dates being in 2016 or later one has to wonder whether a change of government will lead to any changes to the policies announced today.
As we said above – watch this space!
What is certain is that the UK already has (one of) the largest tax legislations in the world running to 1000s of pages. This Budget is not shortening it! And we are likely to remain in business even when tax returns are abolished!
These notes are not a full resume of the Budget Report issued on 18 March 2015.
All care has been taken in preparing this material. However no responsibility can be accepted for any losses arising to any person acting or refraining from acting as a result of this material.
Any comments are those of Victoria Bishop and Brett Bennett and do not necessarily reflect the views of robinson+co.