Saturday, 11 April 2015

Budget 2015

Income Tax
  • The personal allowance increases to £10,800 for 2016/17 and £11,000 by 2017/18.
  • The higher rate tax threshold will increase to £43,300 in 2017/18.
  • A new personal savings allowance will apply from 2016/17: the first £1,000 of interest is tax free for basic rate taxpayers, the allowance for higher rate taxpayers will be £500. This will not apply to additional rate taxpayers.
  • From 6 April 2015, £1,060 of a personal allowance can be transferred to a spouse or partner where the transferor’s income is less than £10,600 and the recipient doesn’t pay tax at the higher rate or additional rate of income tax.
  • The annual income tax return will be abolished from 2020 by introducing digital tax accounts to remove the need for individuals and small businesses to submit annual tax returns. (Comment:  ta doesn't have to be taxing or the burden the proposal will place on small businesses and that costs will increase for everyone?)
  • Farmers: from April 2016 the period over which they can average will be increased from the current two year years to five years. 

National Insurance
  • Class 2 NICs will be abolished in the next parliament. Class 4 NICs to introduce a new contributory benefit test.
  • From 6 April 2015 every employer with employees under the age of 21 will no longer be required to pay Class 1 secondary National Insurance contributions on earnings up to the upper earning limit.
  • From 6 April 2015 the Employment Allowance relief will be available to individuals who employ care and support workers. (Comment: Removing this exclusion from care and support workers will support individuals who need to purchase care for themselves or others).

  • From 2018 the lifetime allowance will be indexed.
  • The lifetime allowance decreases from £1.25m to £1m in 2016/17, with no changes anticipated to the annual investment limit of £40,000.
  • Existing pensioners who are receiving annuities will be able to cash these in for lump sums without a 55% tax charge. Tax will be applied at the marginal rate.

  • From April 2015, ISA annual savings limit £15,240 and Junior ISA £4,080.
  • From autumn 2015, introduction of a flexible ISA to allow people to withdraw and replace money from their cash ISA in-year without it counting towards their annual ISA subscription limit.
  • From autumn 2015, introduction of a help-to-buy ISA: a 25% top up by government on saving for deposits to buy a first home (available only to first time-buyers). Invest £200 maximum per month and the government will top it up by 25%. (Comment: In many ways this is equivalent to letting you save for a home deposit from your pre-tax income as the 25% on top is equivalent to the tax a basic-rate taxpayer would pay).

Child Trust Funds
  • From 6 April 2015 the subscription limit increases to £4,080.

Employment taxes
  • The national minimum wage will increase to £6.70 in the autumn.

Capital Gains Tax
  • Entrepreneurs’ Relief associated disposals rules: ER will not be available to reduce CGT on gains accruing on the disposal of personally held assets used in a business carried on by a company or a partnership unless they are disposed of in connection with a disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets. This affects disposals made on and after 18 March 2015.
  • Entrepreneurs’ Relief joint ventures and partnerships: ER will only apply to an investment of at least 5% in a directly held shareholding in a genuine trading company. No relief will be given in respect of shareholdings in a company that has no other trade than holding shares in a joint venture company or holding an interest in a Limited Liability partnership unless the company has a significant trade of its own. It will affect disposals on and after 18 March 2015. 
  • Entrepreneurs’ Relief and incorporation: ER will not be denied for the relevant partners who, when a partnership incorporates, do not hold or acquire a stake in the new company. This measure is back-dated to 3 December 2014.
  • From 6 April 2015, non-UK resident individuals, trusts, personal representatives and narrowly controlled companies (controlled by 5 or fewer persons) will be subject to CGT on the disposal of UK residential property. Non-resident individuals will be subject to CGT at same rates as UK taxpayers (28% or 18% on gains above the annual exempt amount). Non-resident companies will be subject to tax at the same rates as UK companies (20%) and will have access to indexation allowance. There will be rebasing as at 6 April 2015.
  • Non-UK domiciled persons: from April 2015, a new annual charge of £90,000 will apply to individuals who have been resident in the UK in at least 17 out of the last 20 years, and the charge paid by individuals who have been resident in the UK in at least 12 out of the last 14 years will increase from £50,000 to £60,000. No other measures to clamp down on non-domiciled individuals.

The rules are to be amended at a later stage to ensure that:
  • All investments are made with the intention to grow and develop a business.
  • All investors are required to be independent from the company at the time of the first share issue.
  • A new qualifying criteria is introduced to limit in some circumstances, relief to companies where the first commercial sale predated the investment.
  • There will be an investment cap for the investee of EIS and VCT of £15m, or £20m for knowledge-intensive companies
  • The employee limit for knowledge-investment companies increases to 499 employees.

  • The requirement that 70% of SEIS money must be spent before EIS or VCT funding can be raised will be removed at some later stage.

Corporation Tax
  • The main rate of corporation tax will be reduced to 20% from April 2015. The small profits rate remains at 20%.

Construction Industry Scheme
The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2015 amend the Income Tax (Construction Industry Scheme) Regulations 2005 to remove the obligation to file a return in cases where the contractor has not paid any subcontractors in a tax month and also amend the rule that any repayment can only be made to a subcontractor after the end of the tax year in which the deductions were made where the subcontractor is insolvent. The Regulations come into force on 6 April 2015.

A series of changes will be introduced to improve the operation of the Construction Industry Scheme (CIS) making it easier for businesses to access gross payment status, reduce administration burdens and move more transactions online. These include: 
  • the threshold for the turnover test will be reduced to £100,000 in multiple directorships
  • the initial and annual compliance tests will focus on fewer obligations
  • the nil return obligation will be amended
  • joint ventures where there is already one member with gross status will be allowed easier access to gross payment status
  • allow an earlier repayment to liquidators in insolvency proceedings
  • mandation of filing of CIS returns and online verification.

  • Registration threshold will increase to £82,000. De-registration threshold will increase to £80,000.

Capital Allowances
  • The Annual Investment Allowance is £500,000 up to 31 December 2015. It will revert back to £25,000 per annum from 1 January 2016 unless reviewed and changed by the next government.

Research and development tax credit reform
  • The rate of the expenditure credit will be increased from 10% to 11% and the rate of the SME scheme from 225% to 230%.

Business rates
From 1 April 2015 the government is: 
  • increasing the business rates discount for smaller retail premises with a rateable value of £50,000 or below to £1,500 to 31 March 2016
  • doubling small business rate relief for a further year to 31 March 2016
  • capping the rise in the business rates multiplier at 2%
  • Extending transitional rate relief to support 16,000 small business facing significant rates bill increases due to the ending of transitional rate relief. 

Annual tax on enveloped dwellings
From 1 April 2015 the annual charges for the annual tax on enveloped dwellings (ATED) will be increased by 50% above inflation (Consumer Prices Index). The measure ensures that non-natural persons holding residential property in corporate and other ‘envelopes’ and not using them for a commercial purpose pay a fair share of tax. This improves the fairness of the way property is taxed. 

  • New penalties for tax evasion and for advisers who assist evaders.
  • From 18 March 2015 entrepreneurs' relief (ER) will not be available to reduce capital gains tax (CGT) on gains which accrue on personal assets used in a business carried on by a company or a partnership, unless they are disposed of in connection with a disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets.
  • The government will consult on perceived abuse of IHT using deeds of variation.
  • Changes to inheritance tax that had been trailed before the Budget, were left out of the speech and are now likely to appear in the Conservative manifesto instead. The Chancellor had reportedly drawn up plans to cut inheritance tax on main properties worth up to £2m.
  • Changes to enterprise investment schemes (EIS) and venture capital trusts (VCTs) will be introduced to comply with the latest state aid rules and increase support for high growth companies. Seed enterprise investment schemes (SEIS) will be affected by the new rules, which include the requirement for companies to be less than 12 years old when receiving their first EIS or VCT investment, except where the investment will lead to a substantial change in the company’s activity. A cap on total investment of £15m will be introduced under the tax-advantaged venture capital schemes, increasing to £20m for knowledge-intensive companies. The employee limit for knowledge-intensive companies will also increase, subject to state aid approval, to 499 employees from the current limit of 249. The government also wants to make it easier for money to be moved between schemes by removing the requirement that 70% of SEIS funds be spent before VCT or EIS fundraising can occur.
  • The government will restrict the corporation tax relief a company may obtain for the acquisition of goodwill when a business is acquired from a related individual or partnership. The change will be effective for acquisitions on or after 3 December 2014.
  • Legislation to tackle diverted profits by a Diverted Profits Tax (DPT 25% of diverted profits relating to UK activity). This will apply to foreign companies exploiting permanent establishment rules and to companies using transactions that lack economic substance. The tax will only apply to large multinationals (“Google tax”).
  • Travel rules: includes a clamp down on agencies, umbrellas and personal service companies who abuse the temporary tax travel rules. Any changes will take place after "full and formal" consultation and would be intended to take effect from 6 April 2016 and legislated for in a future Finance Bill.
  • IR35: HMRC estimates that the annual administrative burden of IR35 is £16m and the cost to the exchequer of abolishing it is £550m. The government holds the view that the administrative burden of IR35 is proportionate when considered against the fiscal risk to the exchequer of those incorporating to disguise employment income.