Monthly Archives: March 2015

Budget 2015 – Summary

George Osborne presented the 2015 Budget on Wednesday 18 March 2015.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2015-16 tax year and beyond.

It concentrates on the issues likely to affect you, your family and your business.

If you have any questions please do not hesitate to contact me for advice.

Main Budget proposals

  • The personal allowance for tax will increase to £10,600 from April 2015, and then to £10,800 from April 2016 and £11,000 from April 2017.
  • The higher rate tax threshold will be £42,385 for 2015-16,  £42,700 for 2016-17 and £43,000 in 2017-18.
  • Basic rate tax payers will have a £1,000 tax free savings allowance from April 2016.  Higher rate tax payers will have a £500 allowance.  Those paying the additional rate (income over £150,000) will not benefit from the allowance at all.
  • The deduction of tax on interest at source by bank and building societies will cease from April 2016.
  • ISAs will become more flexible – if you take money out, you can reinvest it within the same tax year without losing the tax free status.
  • A new ‘Help to Buy’ Isa will be introduced for first time buyers.
  • Pensioners who have already bought annuities will be able to sell their annuities for a cash lump sum (taxable at marginal tax rates).
  • The need to file annual personal tax returns will be abolished over the course of the next parliament.

A reminder of key changes announced previously

  • From 6 April 2015, employers with employees under the age of 21 will no longer be required to pay employers National Insurance contributions (NI) on earnings up to the upper earnings limit, for those employees.
  • From 6 April 2016, employers with apprentices under the age of 25 will no longer be required to pay employers National Insurance contributions (NI) on earnings up to the upper earnings limit, for those employees.
  • From 6 April 2015, married couples and civil partners will be able to transfer part (£1,060) of their personal allowance between them in certain circumstances.
  • The main rate of corporation tax rate (ie for larger companies) will decrease to 20% with effect from April 2015.  This aligns the rate with that payable by small companies, and the two rates will be merged.

The Budget proposals may be subject to amendment in the Finance Act. You should contact me before taking any action as a result of the contents of this summary.  Of course, the General Election is looming too, so announcements in respect of future tax years are more likely to change than they might otherwise have been!

This blog is published for the information of clients. It provides only an overview of the main proposals announced by the Chancellor of the Exchequer in his Budget Statement, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by the authors or the firm.

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Budget 2015- Corporate and Business Tax

Corporation tax rates

As announced previously, the main rate of corporation tax, which generally applies to companies  with profits of more than £1.5 million, will to fall to 20% from 1 April 2015.

The main rate and small companies rates will then be the same and will merge.

Capital allowances

In the 2014 Budget that the Annual Investment Allowance (AIA) (the amount that companies can spend on capital equipment and claim a full deduction in that year) was increased to £500,000 from 1 April 2014 (for corporation tax) or 6 April 2014 (for income tax) to 31 December 2015.  After this, it was due to return to £25,000.

The Chancellor announced today that a revised allowance for periods after 31 December 2015 would be announced in the Autumn Statement later this year.  He indicated that it was likely to be higher than £25,000 (in his words, “it will be set at a much more generous rate”).

Tax for unincorporated businesses – Class 2 National Insurance (NI)

Class 2 National Insurance (paid at a weekly flat rate by the self employed) is currently paid via direct debit or bi-annual bills.

The Chancellor announced plans to abolish Class 2 NI in the next parliament, and also to make changes to Class 4 NI (paid on business profits).  There will be a consultation on the detail and timing later this year.

Budget 2015 – Personal tax

Tax rates

There were no changes to rates of income tax announced in the Budget for 2015-16.

Allowances and tax bands

The tax allowances and bands for 2015-16 had been announced previously, as a reminder: the personal allowance will be £10,600, with the income on which you start to pay tax at 40% increasing to £41,865.

This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1060L taking effect in April 2015.

Other allowance levels can be found on the HMRC web site here.

The Chancellor announced in the Budget that the personal allowance for 2016-17 will increase to £10,800, with the 40% band starting at £42,700.  For 2017-18, it will be £11,000 with the 40% band starting at £43,300.

From 6 April 2016, there will be one income tax personal allowance regardless of an individual’s date of birth – ie there will be no higher allowances for older people.

Marriage Allowance

The Marriage Allowance starts from 6 April 2015.  This allows a spouse or civil partner to transfer £1,060 of their personal allowance to their spouse (where both were born after 5 April 1935).  Neither party can be higher or additional rate tax payers.

The Marriage Allowance is set at 10% of the personal allowance, so will be £1,080 for 2016-17 and £1,100 for 2017-18.

This is mainly aimed at situations where one partner is a non-tax payer and the other pays tax at 20%.  However, it may also have benefits where one partner has a salary of less than the tax threshold and dividend income taxable at 10% and the other has income, such as PAYE income, taxable at 20% (eg, shareholder-directors taking a salary of the lower NI limit plus dividends within the 20% band).

Savings

Starting rate for savings income

Announced in the 2014 Budget: From 6 April 2015, the starting rate for savings income will be reduced from 10% to zero, and the maximum amount of qualifying savings income will increase from £2,880 in 2014-15 to £5,000 in 2015-16.

To explain the savings rate: Say you have a pension of £9,000 and savings income of £5,000.

In 2014-5, your pension and £1,000 of your savings income will fall wholly within the personal allowance and you will pay no tax on it.  This leaves you with £4,000 of taxable savings income.  £2,880 of this is taxable at the 10% starting rate and the remainder at the 20% rate, meaning that you would pay tax of £512.

In 2015-16, your pension and £1,600 of your savings income falls within the personal allowance.  The remaining £3,400 of savings income falls within the savings rate, and is therefore subject to the zero savings rate, so you would pay no tax.

If your earned/pension income is more than the personal allowance, the savings rate is band is reduced by the excess (so, if in 2015-16, your pension was £12,000, you would only qualify for the savings rate on savings income of up to £3,600 (ie £5,000 savings rate band-(£12,000 pension-£10,600 personal allowance).

Personal savings allowance

It was announced in the 2015 Budget that a new Personal Savings Allowance will be introduced from 6 April 2016.  The first £1,000 of interest income will be exempt from tax for basic rate tax payers, and the first £500 for higher rate tax payers.  There will be no exemption for additional rate (45%) tax payers.

Banks and building societies will no longer be required to deduct tax from interest as it is paid.

Individual Savings Accounts (ISAs)

The ISA limit for 2015-16 is £15,240.  This can now be all in shares, all in cash, or a mixture of the two.

The Chancellor announced in the Budget that, from Autumn 2015, 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.

As of Budget day 2015, you still have a couple of weeks to use your 2012-13 allowance of £15,000 – the deadline is 5 April 2015.

Junior ISAs and Child Trust Funds will have an investment limit of £4,080 (previously £4,000) per annum.

Help to Buy ISA

A new type of ISA will be launched to help first time buyers save for their deposit.

For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Savers will have access to their own money and will be able to withdraw funds from their account if they need them for another purpose but the bonus will only be made available for home purchase.

Tax relief of childcare

A new childcare scheme was announced in the 2013 budget will be introduced to support working families with their childcare costs, but is still to come into effect.

In 2013, it was announced that childcare costs up to £6,000 per child would be eligible for relief at 20% tax, with only under 5s qualifying in the first year.

In the 2014 Budget, the Chancellor announced that the cap would be increased to £10,000 per child (worth up to £2,000 per child each year), and that under 12s would be included within the first year.

In the 2015 Budget, it was announced that the maximum benefit to children of disabled children would be doubled to £4,000.

The scheme will be rolled out to all eligible families with children under 12 from Autumn 2015.

Tax Credits

There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.

There were no changes to tax credits announced in the Budget 2015.   Changes to the rates of payments were announced previously and can be found at here.

Child Benefit

There were no changes announced to child benefit in Budget 2015, although the rates will increase slightly (from £20.50 to £20.70 for the first child and from £13.55 to £13.70 for subsequent children).

A reminder that new rules came in on 7 January 2013 for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

The Tax Return System
The days of the annual personal tax return are numbered!
The Chancellor announced that annual tax returns will be abolished, being replaced by digital tax accounts which can be managed online.  The process will start by early 2016 and be completed over the next parliament.

Budget 2015 – Employment Issues

National Insurance Contributions (NI)

No changes to the rates of income based NI contributions were announced in the Budget.  Class 2 NI will increase from £2.75 per week to £2.80.

The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) have been increased to £155 and £156 per week, respectively.

The upper earnings (or profits for the self employed) limit is £42,385, aligned with the point at which 40% tax becomes payable.

Details of the rates of NI can be found here.

Employer’s Employment Allowance

The employment allowance remains at £2,000 per annum.

Comment: For those of you paying yourselves the National Insurance limit, this means that you should increase your pay to £8,060 per annum (£671.66 per month) from April.

However, if you have no other income (apart from dividends), you may want to think about paying yourself £10,600 per annum to use your tax free allowance, since, although you will pay NI at 12%, the employer’s NI will be offset by the employment allowance, and you will save corporation tax at 20%, saving you £209 per annum .

Abolition of employers National Insurance contributions for the under 21s

A reminder that, 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 (NICs) on their earnings up to the upper earning limit (UEL), for those employees.

Abolition of employers National Insurance contributions for apprentices aged under 25

From 6 April 2016, every employer with apprentices under the age of 25 will no longer be required to pay Class 1 secondary National Insurance contributions (NICs) on their earnings up to the upper earning limit (UEL), for those employees.

Tax exemption for employer expenditure on recommended medical treatment

When an employer pays for employee medical treatment, the payment is usually chargeable to tax and NI.

It was announced in Budget 2014 that from Autumn 2014, where an employer meets the cost of ‘recommended’ medical treatment for an employee, that payment will be exempt from income tax and national insurance, up to an annual cap of £500 per employee.

The new regulations actually came into force with effect from 1 January 2015.  The conditions that must be satisfied for exemption (to quote from the HMRC manuals) are:

  1. before the recommendation for medical treatment has been made the employee must have been either:
  • assessed as unfit for work due to injury or ill health for at least 28 consecutive days by a health care professional (i.e. the health care professional expects that, without medical treatment, the employee will be unfit for work for at least four weeks); or
  • absent from work due to injury or ill health for at least 28 consecutive days.
  1. the recommendation is made to the employee by a health care professional as part of occupational health services provided to the employee:
  • under section 2 of the Employment and Training Act 1973; or
  • by, or in accordance with, arrangements made by the employer;
  1. the recommendation is provided for the purposes of assisting the employee to return to work;
  2. the recommendation :
  • is in writing,
  • is provided to the employer and employee, and
  • specifies the medical treatment that is recommended.

The exemption applies to medical treatment up to a maximum cost of £500 in the tax year per employee. Any costs in excess of this amount are subject to tax in the normal way for medical treatment.

An assessment that an employee is unfit for work includes an assessment that they may be fit for work subject to the employer making arrangements to enable them to return, providing that the employee does not return to work before a recommendation for medical treatment is made.

The exemption does not apply if the medical treatment is provided under salary sacrifice arrangements.

Trivial Benefits in Kind

As announced at Autumn Statement 2014, from April 2015 there will be a statutory exemption from tax and national insurance for qualifying trivial benefits in kind (BIKs) costing £50 or less.  There will be an annual cap of £300 for office holders of close companies (which would include the directors of most owner managed businesses), and employees who are family members of those office holders.   Those affected by this cap will be able to receive a maximum of £300 worth of trivial benefits in kind each year exempt from tax.

Other changes to Benefits in Kind

The small earnings threshold of £8,500 that exists for benefits in kind will be abolished for employees from 6 April 2016.  This means that benefits in kind must be reported, and tax and employer’s national insurance paid, for all benefits provided to employees, not just those earning over £8,500 per annum.

Note: The exemption never applied for directors, so those paying themselves the lower NI limit, which is less than £8,500, already have to report and pay tax on any benefits

There is also an intention to allow voluntary payrolling of benefits in kind from 6 April 2016.  This would mean that the tax on benefits such as cars, private fuel, medical insurance and gym subscriptions could be collected via the payroll rather than via P11D benefit forms and tax code changes.

Finally, a new exemption for deductible expenses and reimbursements will apply from 6 April 2016. This will apply where employees would have been eligible for tax relief if they hadincurred and met the cost of the expenses or benefits themselves, and will remove the need either apply for a ‘dispensation’ not to include the expenses on a benefit in kind form P11D, or  to report such expenses on form P11D.

Employment intermediaries and expenses

The government will consult on detailed proposals to restrict tax relief for travel and subsistence, for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.

Budget 2015 – Pensions

The lifetime allowance will be reduced to £1 million (previously £1.25 million) from 6 April 2016.  The allowance will be indexed by inflation from 2018.

The annual allowance remains at £40,000.

Pension annuities

From April 2016, the government will therefore change the tax rules to allow people who are already receiving income from an annuity to sell that income to a
third party, subject to agreement from their annuity provider.
The proceeds of the sale could then be taken directly or drawn down over a number of years, and would be taxed at their marginal rate, in the same way as those taking their pension after April 2015.
Previous changes to pensions
A reminder that, from April 2015, significant changes are happening to introduce more flexibility into how money can be drawn from pension pots.
You can find an outline of the new rules here.

Budget 2015 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits have been increased with effect from 1 April 2015 to £82,000 and £80,000 respectively

Prompt payment discounts

A reminder that, from 1 April 2015, businesses will have to account for VAT on prompt payment discounts.

Currently, no VAT is charged on the discount, even if the customer pays the full amount.

An example: Say business invoices £1,000 plus VAT with a 10% early settlement discount offered.

Under the current rules, the invoice would be for £1,180 (£1,000 plus VAT on the amount due after the discount).

Under the new rules, the invoice would be for £1,200 – £1,000 plus VAT on the whole amount at 20%.

Budget 2015 – Capital Gains Tax

The capital gains tax (CGT) annual exempt amount will be £11,100 for 2015-16 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is £5,550.

For capital gains above the annual exempt amount the CGT rate for basic and higher rate tax payers will remain at 18 and 28 per cent respectively.

Entreprenuer’s relief and incorporation

In the Autumn Statement, the Chancellor restricted relief for goodwill on incorporations for transactions after 3 December 2014.

Prior to this, a sole trader could sell the goodwill of his or her business to their own limited company and claim Entrepreneur’s relief and pay tax on the gain over the CGT exempt amount at only 10%.  The company could then claim a tax deduction for the goodwill, and save tax, usually at 20%.

From 3 December 2014, the individual is no longer able to claim Entrepreneur’s relief and the company cannot claim a tax deduction for the goodwill.

 

 

Budget 2015 – Motoring Costs

Fuel prices

The fuel duty increase due in September has, again, been cancelled.

Business mileage payments

HMRC sets an approved mileage allowance payment (AMAP) rate. This is the rate at which employers may reimburse business mileage tax free.

The AMAP rate will remain at 45p for the first 10,000 miles per annum and 25p per mile for any excess.

Company Cars

Car benefit

Car benefits are based on a percentage of the list price of the car.  The percentage depends on the CO2 emissions of the vehicle.

As usual, the increases to the percentages were announced, so that a higher percentage is payable for each CO2 band.  So, for example, a car with 50g CO2 emissions has a multiplier of 7% in 2016-17, 9% in 2017-18, 13% in 2018-19 and 16% on 2019-20.  One with 160g emissions is 29%, 31%, 33% and then 36%.  The highest rate remains at 37%.

Van benefit

The van benefit in kind charge will increased from £3,090 to £3,150 for 2015-16.

As announced at Budget 2014, legislation will be introduced in Finance Bill 2015 to increase the current van benefit charge of £nil for vans which do not emit CO2 (zero emission vans), beginning in 2015-16. The van benefit charge for zero emission vans will be 20% of the value of the van benefit charge for vans which emit CO2 in 2015-16, 40% in 2016-17, 60% in 2017-18, 80% in 2018-19 and 90% in 2019-20. From 2020-21, there will be a single van benefit charge applying to all vans.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase to £22,100 (from £21,700) with effect from 6 April 2015.

The van fuel benefit charge multiplier will be £594 (increased from £581) for 2015-16.

Budget 2015 – Other Matters

Inheritance tax (IHT)

There was no change to the Inheritance tax threshold of £325,000, which was frozen until 2017-18 in the 2013 budget.

The Government confirmed the extension of the IHT exemption for armed forces personnel who die on active service to all emergency services and humanitarian aid workers who die in the line of duty, or whose death is hastened by injury incurred in the line of duty.  It will have effect for deaths on or after 19 March 2014.

Stamp Duty (SDLT – stamp duty land tax) – changes in the Autumn Statement

Prior to the Autumn Statement (on 3 December 2014), SDLT was charged on the whole purchase price at a flat rate dependent on the price paid.  So, if you bought a house for £250,000, your stamp duty rate was 1% – ie £2,500.  Increase that to £250,001 and your rate leapt to 3% on the whole amount – ie £7,500.03.  That extra £1 paid for the property cost a whopping £5,000 in tax.

From 3 December 2014, the tax is charged on the marginal purchase price only, at the following rates:

Capture

So, if you buy a property at £250,001, you will pay nothing on the first £125,000, 2% on the next £125,000 and then 3% on the extra £1 – a total of £2,500.03 – a hole lot better than £7,500!

The Chancellor said that 98% of house sales will attract less SDLT as a result of these changes.

 

 

 

This summary is published for the information of clients. It provides only an overview of the main proposals announced by the Chancellor of the Exchequer in his Budget Statement, and no action should be taken without consulting the detailed legislation or seeking professional advice.