Welcome to The 19th March Budget edition of Tax Tips & News.
In this analysis we have mainly concentrated on the tax measures that will directly affect individuals, employers and small businesses.
We are committed to ensuring all our clients don’t pay a penny more in tax than is necessary.
Please contact us for advice in your own specific circumstances.
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This was a Budget for bingo-playing baby-boomers who have not started to draw their private pensions. George Osborne announced some sweeping reforms to the taxation of pensions and halved bingo duty.
The traditional sin taxes on booze and fuel have largely been frozen or even reduced, although tobacco suffers a 2% above inflation tax rise. The new “sins” appear to be; owning a valuable home through a company and operating a high-stakes gaming machine.
Most individuals aged under 67 will feel the benefit of an increase in personal allowance from £10,000 to £10,500 in 2015. A transferable married couples’ allowance of £1,050 will also help basic rate taxpayers from April 2015. Savers will enjoy higher tax-free limits for ISAs and premium bonds later this year, plus a cut in tax on savings income from 2015.
Businesses are encouraged to invest in equipment by an increase in the annual investment allowance to £500,000 from April 2014, and reliefs for investing in small trading companies and social enterprises are enhanced. Small and medium sized companies who undertake R&D are also given additional tax relief.
The losers are those who use tax avoidance schemes, as those sinners will have to pay the tax avoided up front. Several other tax loopholes used by groups of companies are blocked, and the rules for VCT schemes are tightened-up to deter abuse.
This newsletter is a summary of some of the key points form the Budget, based on the documents released on 19 March 2014. It is possible that a different position will be shown by the draft legislation which will be published on 27 March 2014. We will keep you informed of any significant developments.
The rates and thresholds of the main capital allowances will apply as follows:
|From:||1 January 2013 to April 2014||1 or 6 April 2014 to 31 December 2015||From 1 January 2016|
|Main pool: writing down allowance||18%||18%||18%|
|Special rate pool: writing down allowance||8%||8%||8%|
|Annual Investment Allowance (AIA) cap:||£250,000||£500,000||£25,000|
Expenditure within the AIA qualifies for 100% allowance in the year of purchase. The AIA cap was increased to £250,000 on 1 January 2013, and is doubled to £500,000 on 1 April 2014 for companies (6 April 2014 for unincorporated businesses).
This increase in the AIA cap will help businesses invest in equipment and fixtures (cars and buildings don’t qualify), with 100% tax relief in the year of purchase. However, great care is needed to calculate the available AIA for accounting periods which straddle the various changes. The AIA cap is due to revert to £25,000 on 1 January 2016.
The corporation tax rates for small and large companies will be aligned at 20% from April 2015. This will remove the need for the associated companies rule and the marginal rate of corporation tax will disappear. The rates for the three financial to 31 March 2016 have been announced as:
|Year beginning 1 April:||2013||2014||2015|
|Small profits rate(profits up to £300,000)||20%||20%||20%|
|Marginal rate(profits in band £300,000 to £1.5 million)||23.75%||21.25%||N/A|
|Main rate for companies(profits above £1.5 million)||23%||21%||20%|
Different rates apply to profits from North Sea oil and gas.
Banks pay a special bank levy in addition to these rates of corporation tax.
Research and Development (R&D).
Companies can claim enhanced deductions for expenditure on R&D projects at rates broadly dependent on the size of the company as follows:
-Small and medium(SME): 225% of qualifying expenditure -Large: 130% of qualifying expenditure
Where the SME deduction for R&D is claimed and the company makes a loss, it can claim a cash credit from HMRC of 11% of that loss. This rate is increased to 14.5% where the R&D expenditure is incurred from 1 April 2014.
Around 46 enterprise zones have been formed around the country to encourage investment and job formation. Businesses in some of those zones can claim 100% capital allowances on the equipment they use within the zone. The period for which those 100% allowance are available has been extended by three years to 31 March 2020.
The rates and thresholds for National Insurance Contributions for 2014/15 are:
|Employer’s class 1 above primary threshold||Above £153||13.8%|
|Employee’s class 1 not contracted out||From £153 to £805||12%|
|Employee’s additional class 1||Above £805||2%|
|Married woman’s rate*||From £153 to £805||5.85%|
|Self-employed class 2(per week)||–||£2.75|
|Share fishermen class 2 (per week)||–||£3.40|
|Volunteer development workers class 2||–||£5.55|
|Class 3 ( per week)||–||£13.90|
|Annual profit thresholds|
|Small earnings exemption class 2||£5,885||–|
|Self-employed class 4||From £7,956 to £41,865||9%|
|Self-employed class 4 additional rate||Above £41,865||2%|
*only available for women who made a valid married woman’s election before 11 May 1977.
From April 2016 class 2 NICs will be collected through self-assessment, rather than been paid as a separate direct debit on a monthly or six-monthly basis.
The standard personal allowance will rise to £10,500 from 6 April 2015. The age related allowances are gradually falling in line with age-related allowances given to taxpayers born since April 1948.
The transferrable allowance will apply from 6 April 2015 to couples (married or civil partners) where neither person pays tax at the 40% or 45% rates. The spouse who cannot use all their personal allowance against their own income will be able to opt to transfer 10% of their personal allowance to their spouse or civil partner.
The personal allowance is tapered away for individuals who have income over £100,000, at the rate of £1 for every £2 of income above that threshold.
|Born after 5 April 1948||9,440||10,000||10,500|
|born after 5 April 1938 before 4 April 1948||10,500||10,500||10,500|
|Born before 6 April 1938||10,660||10,660||10,660|
|Minimum married couples allowance*||3,040||3,140||TBA|
|Maximum married couples allowance*||7,915||8,165||TBA|
|Transferable portion of allowance||N/A||N/A||1,050|
|Blind person’s allowance||2,160||3,140||TBA|
|Income limit for allowances for age related allowances||26,100||27,000||TBA|
|Income limit for standard allowances||100,000||100,000||100,000|
|Personal allowance removed completely at:||118,880||120,000||121,000|
* given as 10% reduction in tax liability, where one partner was born before 6 April 1935.
Income Tax Rates and Bands.
Income tax rates are to remain the same to 5 April 2016, with the exception of the savings rate. This will be cut to 0% from 6 April 2015. However, the savings rate only applies if individual’s net non-savings taxable income does not exceed the savings rate limit.
The income tax rates and bands have been announced as:
|Savings rate: 10%, 0% from 2015/16||0 – £2,790||0 – £2,880||0 – £5,000|
|Basic rate: 20%||0 – £32,010||0 – £31,865||0 – £31,785|
|Higher rate: 40%||£32,011 – £150,000||£31,886- £150,000||£31,785 – £150,000|
|Additional rate: 45%||Over 150,000||Over 150,000||Over £150,000|
When the personal allowance is taken into account an individual will start to pay tax at 40% when their total income exceeds £41,865 in 2014/15 and £42,285 in 2015/16. This is compared to a 40% threshold of £41,450 in 2013/14. This threshold (and the 45% threshold) can be increased if the taxpayer pays personal pension contributions or makes gift aid donations.
The following changes will be introduced from 27 March 2014:
-A person who wishes to take their pension as “draw-down” instead of buying an annuity will have to prove they have £12,000 of other income in retirement, rather than £20,000.
-The capped drawdown withdrawal limit will increase from 120% to 150% of an equivalent annuity.
-The total pension savings which can be taken as a lump sum will increase from £18,000 to £30,000.
-The maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000; and
-The number of personal pots that can be taken under these small pot rules will increase from two to three.
In addition the chancellor proposes to change the rules for defined contribution pension schemes from 2015 so that:
-individuals will have complete freedom in how they access their pension savings;
-buying an annuity will not be a requirement on retirement;
-the 55% tax charge on withdrawing too much from a pension fund will be removed; and
-everyone will be offered free and impartial advice on how to best use their pension savings.
The annual tax on enveloped dwellings (ATED) applies where a residential property located in the UK is owned by a non-natural person such as; a company, partnership with a corporate member or a collective investment scheme. There are a large number of reliefs and exemptions from the charge, but where such a relief does not apply the ATED charge must be paid by 30 April within the year at the following rates:
|Property value£||Annual charge 2013/14£||Annual charge2014/15£|
|Up to 2,000,000||Nil||Nil|
From 1 April 2015 the ATED charge is to be extended to properties with value of £1m to £2m. Then from 1 April 2016 the ATED charge will be extended to properties worth £500,001 to £1 million. The 15% rate of Stamp Duty Land Tax on such properties worth over £500,000 comes into effect from 20 March 2014 -; see below.
Capital Gains Tax.
The rates and annual exemption for capital gains tax are as follows:
|Annual exemption for most trustees and personal representatives||£5,450||£5,500|
|Rate for gains within the basic rate band||18%||18%|
|Rate for gains above the basic rate band||28%||28%|
|Rate for gains subject to entrepreneurs relief||10%||10%|
|Lifetime limit for gains subject to entrepreneurs relief||£10 million||£10 million|
As announced in December 2013 the 36 month tax free period when a person’s main home is sold, is reduced to 18 months for most disposals made after 5 April 2014. Where the home owner or their spouse is disabled or has moved into a residential care-home, the 36 month tax free period will still apply.
The Government will consult on how to charge capital gains tax on disposal of UK homes by individuals who are not tax resident in this country.
Disposals of payment entitlements by farmers under the EU Basic Payment Scheme will qualify for business asset rollover relief with retrospective effect from 20 December 2013.
The inheritance tax (IHT) nil rate band will remain frozen at £325,000 until 2017/18, and the rates of IHT payable on death remain unchanged at 40% or 36% where at least 10% of the net estate is left to charity.
The government will consult on extending the existing IHT exemption for the estates of members of the armed forces, whose death is caused or hastened by injury while on active service, to members of the emergency services.
Seed Enterprise Investment Scheme (SEIS).
The SEIS was introduced for a limited five year period from 1 April 2012. The SEIS has now been made permanent, with the income tax and capital gains tax reliefs applying as shown below for all future years.
|Rate of income tax relief||50%||50%|
|Maximum investment qualifying for income tax relief||£100,000||£100,000|
|Gains exempt from CGT relief on investment in SEIS shares:||50%||50%|
Venture Capital Trusts (VCTs).
Investing in VCT shares gives the taxpayer 30% income tax relief on up to £200,000 invested per tax year, and the shares are generally exempt from capital gains tax when sold. However, the Government thinks that VCTs have been abused, so the following changes will be made from 6 April 2014:
-tax relief is withdrawn if the shares are disposed of within five years;
-the VCT will not be permitted to return capital to its members within three years of the shares being subscribed for; and
-VCT investments that are linked to share buy-backs will be denied tax relief.
The ISA investment limits for 2014/15 were announced in December 2013 as:
|Shares and cash ISA||£11,280||£11,880|
|Cash only ISA||£5,760||£5,940|
|Junior ISA and Child Trust Fund||£3,720||£3,840|
However, this Budget includes the announcement that from 1 July 2014 the ISA rules will be reformed to extend the investment limits to:
|From||1 July 2014|
|New ISA – for shares and/ or cash||£15,000|
|Junior ISA and Child Trust Fund||£4,000|
ISAs will also be permitted to hold peer to peer loans as investments, and possibly other debt securities.
Individuals have been limited to the amount they hold in premium bonds to £30,000 per person since 2003. This cap will now be raised as follows:
-From 1 June 2014 : £40,000 -From 2015/16: £50,000
There will also be two tax free prizes at the maximum level of £1 million awarded each month from August 2014.
The VAT rates and thresholds are as follows:
|-From:||1 April 2013||1 April 2014|
|Acquisitions from EU member states, registration and deregistration threshold||£79,000||£81,000|
Changes from 2014.
- VAT treatment of prompt payment discounts given by suppliers
Changes from 2015
The Government will consult on changes to the VAT rules in the following areas:
- Zero-rating of work to adapt cars for use by disabled persons
- VAT avoidance scheme disclosures
- Reverse charge for buyers of gas and electricity – not domestic customers
Duties Stamp Duty Land Tax (SDLT).
This duty applies to the sale of land or buildings in the UK as follows:
|Effective Date||Residential property||Non-residential or mixed property||Rate
|From 22 March 2012||Up to £125,000||Up to £150,000||0|
|£125,001 to £250,000||£150,001 to £250,000||1|
|£250,001to£500,000||£250,001 to £500,000||3|
|*£500,001 to £1m||£500,001 and over||4|
|*over £1m to £2m||N/A||5|
|* over £2m||N/A||7|
From 20 March 2014 the residential properties in bands marked * are subject to SDLT at the rate of 15% where the property is acquired by a non-natural person such as a company, partnership or collective investment scheme. For sales in the period: 22 March 2012 to 19 March 2014 the 15% rate of SDLT only applied to properties sold for £2 million or more where the buyer was a non-natural person.
The percentage of bingo promotion profits paid in duty is cut from 20% to 10% with effect from 30 June 2014.
Machine Games Duty (MGD).
This duty was introduced from 1 February 2013, and must be collected by the owner of the premises where the game machine is provided for play.
MGD applies at two rates:
-5% when the fee for playing a game is not more than 20p, and -20% for other machines.
From 1 March 2015 MGD will apply at 25% for games which may cost £5 or more to play.
Air Passenger Duty (APD).
This duty currently applies at three rates (reduced, standard and higher) over four bands (A, B, C & D), according to the distance travelled.
From 1 April 2015 the bands will be reduced to two:
-journeys up to 2000 miles -journey over 2000 miles
The rates will also be reduced except for the higher rate which applies to aircraft with fewer than 19 seats – generally luxury jets.