2016 Budget Review
Mr Osborne has delivered his 8th budget as Chancellor today, with the positive tone of previous budgets being withdrawn and a hard line of a difficult future drawn. The Chancellor has stated that we must “act now so we don’t pay later” and warned that we “must live within our means” and put “the next generation first”. This slightly begs the question of whether the tone of his earlier speeches in office, where he has claimed to “fix the roof while the sun is shining”, has been accurate.
With the important vote on the EU referendum in less than 100 days, it was never expected that Mr Osborne’s speech would be rich with controversial announcements, as he was expected to not want to dramatically upset either side of Parliament, but there were many surprises in his speech!
In what must have been a difficult point to explain, growth forecasts have been revised down for the next 3 years, with a 2016 forecast of 2%, down from 2.4% in November. The Chancellor was quick to add that the outlook of the global economy is materially weaker and the UK is not immune to the impact of a “slow down” elsewhere. However, it was highlighted that the deficit will have been reduced by almost two thirds from its peak, and in the next four years forecasts have the UK running at a surplus.
In general, numerous announcements have been aimed at the next generation with Mr Osborne saving his big finale to announce that by 2020, every school in England will be an Academy, or in the process of becoming one.
In addition, his theme of looking long term towards the future was also touched on with regards to children’s health, announcing a sugar levy on soft drinks to be used for funding primary physical education. This announcement was warmly welcomed by our Tax Manager, Brett Bennett, who is a qualified CrossFit Kids coach.
Lastly, the “Northern Powerhouse” has finally reached Cumbria, with an announcement of £75 million to be invested in the upgrade of the A66 and A69 to help industry by improving road links in the North, together with significant investment to be made on flood defences.
robinson+co’s tax team have been working through the supplementary documents following the budget and have listed below the points that they feel will have the greatest impact on our clients.
Income Tax and National Insurance
Personal Allowance / Basic Rate Allowance
Unexpectedly the Chancellor has increased the Personal Allowance to £11,500 from 6 April 2017. This is an increase of £300 from the £11,200 for 2017-2018 set in the Summer Finance Bill 2015. The basic rate limit will be increased to £33,500 which results in revised limit of £45,000 before the 40% tax rate is applied.
Class 2 NIC
The Chancellor made a big thing in his speech about the abolition of Class 2 National Insurance Contributions (“NIC”) with effect from April 2018. These are paid by the self employed and the abolition will save the self employed (currently) £145.60 per year.
However, paying Class 2 NIC is how the self employed obtain a credit for state pension and certain other contributory benefits, and what the Chancellor omitted to say is how this credit will be obtained in future.
Unfortunately the supporting documents are no more forthcoming. Apparently Class 4 NIC (also paid solely by the self employed) will be reformed and will include a credit for the state pension and contributory benefits. What’s the betting though, that the self employed will end up paying more than £145.60 per year?
There is no date for the publication of the new rules and rates so the self employed could be in limbo for up to 2 years…We will of course advise our clients as appropriate when the picture becomes clearer.
One of the things about tax that most people are aware of is that, if you are made redundant, you are entitled to £30,000 tax free termination payment. Whilst this is not exactly the rule, it is a good enough rule of thumb.
Any amount above the £30,000 is taxable at your normal rate, but no national insurance is due.
Unfortunately the Chancellor saw an opportunity to raise funds here, for, with effect from 6 April 2018, employers will have to pay national insurance contributions at (currently) 13.8% on any excess above £30,000. Whilst he made sure to emphasise that the employee is not affected, this is yet another straw on the employer’s back, especially just 21/2 weeks before we see the introduction of the National Living Wage.
If you are likely to be affected by this change it is important you talk to your normal contact at robinson+co. Give us a ring on 01900 603623.
A new anti avoidance rule is being introduced with immediate effect to stop further exploitation of certain remuneration schemes.
If you are a football fan (or a tax geek, like us), you may have heard about the Rangers tax case which has been going on for a number of years about whether income tax is due on income from an “Employee Benefit Trust.” It is this sort of scheme which the new rule aims to stop.
It does not affect contractor companies and is not connected to the notorious “IR35” rules.
Capital Gains Tax (CGT)
The changes announced are very much geared to attract investment in businesses rather than property.
The reduction to the rates of basic rate of CGT from 18% to 10% and the higher rate from 28% to 20% do not apply to sales of residential property. Gains on residential property will remain taxable at 18% and 28% where private residence relief does not apply.
The reduced rates will be applicable to sales of assets (other than residential property) from 6 April 2016.
Legislation will be introduced in the Finance Bill 2016 and the provisions will set out how gains should be calculated in the case of mixed use property.
Entrepreneurs Relief (ER)
An extension to ER, introducing investors’ relief, will apply to gains accruing on the disposal of certain qualifying shares by individuals (other than employees and directors of the company). In order to qualify for relief, a share must:
- be newly issued, having been acquired by the person making the disposal on subscription for new consideration
- be in an unlisted trading company, or unlisted holding company of trading group
- have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
- have been held continually for a period of three years before disposal
The rate of CGT charged on the qualifying gain will be 10%, with the total amount of gains eligible for investors’ relief subject to a lifetime cap of £10 million per individual. Rules will ensure that this limit applies to the beneficiaries of trusts.
As the relief is designed to attract new capital into companies, anti-avoidance rules set out in the legislation will ensure that shares must be subscribed for by individuals for genuine commercial purposes and not for tax avoidance purposes.
In what was another unexpected announcement, the Chancellor announced a reduction to the corporation tax rate for the period after 1 April 2020. The revised rate of 17% will make the UK one of the most competitive tax regimes for business of all the established global economies and is reiterating that Britain is “open for business”.
The government has continued its hard stance on tax avoidance with the introduction of new measures to target large business non-compliance with their tax obligations. Provisions will be introduced that require large businesses to publish their tax strategies where they are persistently engaged in aggressive tax planning.
Two new measures will be introduced from April 2017 with regards to tax losses incurred after this date. In essence, current rules dictate that tax losses carried forward can only be offset against profits of the same “trade”, however new rules will be introduced that imply that losses will no longer be restricted to the profits of the trade from which that a loss is generated. This will enable businesses to offset brought forward losses against other sources of income, or company groups to transfer carry forward losses between entities of the group.
Secondly, losses carried forward for large companies will be restricted to only 50% of the taxable profits above £5 million.
Loans to participators
The loans to participator rules have been in the Revenue’s sights over recent years, with numerous attempts to alter the rules of the deemed repayments to avoid tax. In his announcement, the Chancellor has announced that the tax rate on the loans outstanding 9 months after a company’s year end, will be raised from 25% to 32.5%. Although this is a “temporary tax”, in that it is eventually repaid at a point in the future if the loan is repaid, the increase acts as a further deterrent to individuals from seeking this as a potential tax saving by remunerating themselves through loans.
The registration limit for VAT has been increased to £83,000, and the de registration limit increased to £81,000.
Pensions & Savings
As well as the “Help to Buy ISA” – George Osborne has now introduced a “Lifetime ISA”.
From April 2017 anyone between the ages of 18 and 40 can open one of these accounts and between the ages of 18 and 50 you will be able to save up to £4,000 per year and receive a 25% bonus from the government each year!
You can save as much or as little as you want each month up to the maximum amount of £4,000 per year and this can either be used to save for a first home or to save for your retirement. If you already have a “Help to Buy ISA”, you can transfer those into a “Lifetime ISA” from April 2017 or continue saving into both. However, you will only be able to use the bonus from one to buy a house.
If you decided to save for your retirement, you can withdraw this after your 60th birthday – tax free! If you withdraw the money before your 60th birthday, you will lose the government bonus and have to pay a 5% charge.
As well as the introduction of a “Lifetime ISA”, it was announced that the total amount you can save each year into all ISA’s will be increased from £15,240 to £20,000 from April 2017.
In the 2014 Budget the government announced the introduction of pension flexibility. This allows individuals aged 55 and over to access their money purchase pension savings if they wish, which would be subject to their marginal rate of tax.
The predicted changes to tax relief on pension contributions were abandoned by the Chancellor before he made today’s speech.
If you require financial advice regarding your pensions or anything else, please contact our in-house financial advisor Jenny Armstrong on 01900 603623
The Chancellor announced in his budget speech that he was cutting business rates. From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates, with a tapered rate of relief on properties worth up to £15,000.
As announced in the autumn statement; from 1 April 2016 there is going to be an “additional property SDLT rate”, meaning an extra 3% of Stamp Duty Land Tax (SDLT) will be charged on purchases of additional residential properties. This includes second homes and buy-to-let properties.
Also, if a company is to purchase a residential property, it will be subject to the higher rates which includes the first purchase of a residential property.
However, a bit of good news is that in the event that there is a period of overlap or a gap between ownership, purchasers will have 36 months - rather than the original 18months – to either claim a refund from the higher rates or before the higher rates will apply.
As this is a “budget for working people” Mr Osborne also decided to reform SDLT on non-residential property transactions which will cut the tax for many businesses purchasing property. Currently the rates work on a “slab” system which creates distortion in the market. However, the Budget announces that the rates will now be based on a “slice” system so that SDLT is only payable on the portion of the transaction which falls into each band. These are as follows:
0% for £0 to £150,000
2% for £150,001 to £250,000
5% for £250,000 and above
Good news for beer and cider drinkers! Alcohol duties on beer, spirits and most ciders has been frozen with the price of a pint of beer, litre of cider or bottle of Scotch Whisky unchanged in cash terms. Unfortunately, wine prices will increase by RPI inflation from 21 March 2016 in that a bottle of wine will be 4p higher in cash terms.
Surprisingly, for the sixth year Fuel duty has been frozen for 2016-2017, with a saving of £75 a year for the typical motorist.
The Chancellor pointed out that 90% of those who aren’t working because they are caring for a family or home are women, and included an announcement that a consultation will look at the inclusion of working grandparents in Shared Parental Leave. In addition tax free childcare will be introduced by the end of 2017.
A report will also be issued next week looking at how the gender pay gap can be eliminated.
The Chancellor was particularly pleased to report that he is committing £12million to charities supporting women’s causes such as Breast Cancer Care, Women’s Fund for Scotland and Greater Manchester Women Offender Alliance, all of which is funded by the “Tampon Tax,” which is the 5% VAT paid on sanitary products.
Whilst we at robinson+co can not but applaud this commitment, there is a consensus amongst our female employees, that we would rather not pay the VAT in the first place, and be able to choose which charities (if any) we want to support. By not giving women the choice it rather looks as though the Chancellor’s commitment to Gender Equality is lip service only – it appears women can’t be trusted to do the right thing!
Support for Cumbria
Ever since the Northern Powerhouse was first mooted we at robinson+co have been concerned about the lack of mention of Cumbria. It appeared that the “North” was limited to Manchester, Liverpool, Leeds and Newcastle upon Tyne.
We are therefore pleased to see Mr Osborne specifically mention the possibility of upgrading the A66 and A69, although it appears the money allocated will have to be shared with a potential road tunnel between Sheffield and Manchester.
There is also more money to build up flood defences, as well as £130 million to repair transport infrastructure damaged by Storms Desmond and Eva. This cannot come too quickly for the repairs to the A591, the closure of which is, according to Tim Farron, leader of the Liberal Democrats and MP for Westmorland and Lonsdale, costing Cumbria’s economy up to £1million per day. This will be funded by an increase in the Insurance Premium Tax – up to 10% from 9.5%.
We appreciate that some of the above measures may be revisited should the UK vote to leave the EU in June.
As ever, if you have any queries about any the measures discussed in this article, or in the Autumn Statement generally, please do speak to your usual contact at robinson+co on 01900 603623, 01946 692423 or 019467 25808.