Monthly Archives: July 2015

Summer Budget 8th July 2015

Summer Budget 8th July 2015

The Chancellor, George Osborne, opened his Summer 2015 Budget on 8 July 2015 with “A bold budget…with big ambitions”, then followed with “we shouldn’t go faster, we should go slower”. So what are we to make of this bold but slow Budget?

Osborne set out Parliament’s intentions to tackle tax evasion and other tax non-compliance by extending HMRC’s resource; a total of £60m to pursue more criminal investigations into wealthy individuals, those with net wealth between £10m-20m with, the aim of raising £600m in tax, a £300m fund for the non-compliance by small and mid-sized businesses, public bodies and affluent individuals with the aim of raising over £2bn in tax, and a further £36m to take on serious non-compliance by trusts, pension schemes and non-domiciled individuals.

The aim is for there to be nowhere for the tax evader to hide, and the government will require accountants and tax advisers, along with “financial intermediaries”, to notify their clients about the penalties for tax evasion and the various options available for full disclosure of all tax irregularities to HMRC (the Common Reporting Standard).

The agenda on evasion was set a number of years ago – and now HMRC has been given some financial muscle behind the strategy.

In addition to the backdrop of making sure the right amount of tax is paid by all there were changes in tax rules for business and individuals which could affect you, see below for more details.

Please call us if you’d like to talk through any of the Summer Budget announcements.

 

Kind Regards,

Martin Arthur

Accountancy Coop

 

 

 

 

 

Individuals

 

Tax Lock –  there is to be a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and NICs rates, ensuring that they cannot rise above their current (2015-16) levels.

 

Personal allowance increase – an increase the income tax personal allowance from £10,600 in 2015-16 to £11,000 in 2016-17. It will increase to £11,200 from 2017-18.

 

Higher rate threshold increase – an increase in the higher rate threshold from £42,385 in 2015-16 to £43,000 in 2016-17 and to £43,600 in 2017-18.

 

Dividend taxation – the abolition of the Dividend Tax Credit from April 2016 and the introduction a new Dividend Tax Allowance of £5,000 a year.  The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

 

 

 

 

Landlords

 

Reform of the Wear and Tear Allowance – from April 2016, the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. There will be a technical consultation before the summer.

 

Restricting finance cost relief for landlords – a restriction of the relief on finance costs for individual landlords of residential property to the basic rate of tax. The restriction will be phased in over 4 years, starting from April 2017.

 

Increasing the level of the Rent-a-Room relief – an increase in the level of Rent-a-Room relief from £4,250 to £7,500 from April 2016.

 

 

Business

 

Increasing the employer NIC Employment Allowance – an increase in the annual Employment Allowance from £2,000 to £3,000 from April 2016.

Corporation tax rates – A reduction in the corporation tax rate from 20% to 19% in 2017 and 18% in 2020.

 

Annual Investment Allowance (AIA) – an increase in the permanent level of the AIA from £25,000 to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

 

Dividend taxation – the abolition of the Dividend Tax Credit from April 2016 and the introduction of a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

 

Research and development (R&D) tax credits: universities and charities – the correction of an anomaly in the R&D tax credits legislation so that universities and charities are unable to claim the R&D Expenditure Credit (RDEC), in line with the original intention of the policy. This will apply to expenditure from 1 August 2015.

 

Restriction of corporation tax relief for business goodwill amortisation – the government will restrict the corporation tax relief a company may obtain for the cost of ‘goodwill’ (the reputation and customer relationships associated with a business). This will affect all acquisitions and disposals on or after 8 July 2015.

 

 

Pensions

 

Lifetime Allowance for pension contributions –

a reduction in the Lifetime Allowance for pension contributions from £1.25 million to £1 million from 6 April 2016. Transitional protection for pension rights already over £1 million will be introduced alongside this reduction to ensure the change is not retrospective

 

 

Reduced Annual Allowance for top earners – a restriction in the benefits of pension’s tax relief for those with incomes, including pension contributions, above £150,000 by tapering away their Annual Allowance to a minimum of £10,000. This policy will come into effect from April 2016. And a consultation on whether and how to undertake a wider reform of pensions tax relief.

 

Non- domiciles

 

Eligibility of non-domicile status for UK born individuals – from April 2017, individuals who are born in the UK to parents who are domiciled here, will no longer be able to claim non-domicile status whilst they are resident in the UK.

 

IHT on UK residential property of non-domiciles, including non-domiciles who are not UK resident – new legislation to ensure that, from April 2017, IHT is payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.

 

IHT and non-domiciles – the government will bring forward the point at which an individual who is classed as a non-domicile is deemed domiciled for inheritance tax purposes to 15 out of 20 years. It will also treat individuals who were born in the UK to parents who are domiciled here, as UK domiciled whilst they are in the UK. This aligns inheritance with the changes to the income tax and capital gains tax regime, taking effect from April 2017.

 

 

 

 

Inheritance tax and Trusts

 

IHT and the main residence nil-rate band – an introduction an additional nil-rate band when a residence is passed on death to direct descendants.  This will be £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. It will then increase in line with CPI from 2021-22 onwards. Any unused nil-rate band will be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants. This element will be the subject of a technical consultation. There will also be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

 

IHT and the nil-rate band – the inheritance tax nil-rate band is currently frozen at £325,000 until April 2018. The government will continue to freeze the nil-rate band at £325,000 until April 2021.

 

 

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Analysis of the Summer 2015 Budget

Chancellor of the Exchequer George Osborne presented the post-election Summer Budget on July 8 – the first Conservative only ‘red briefcase’ speech since 1996.

 

He described it as a Budget for working people and a continuation of the Government’s aim of creating a ‘higher wage, lower tax and lower welfare’ country. It was crammed full of expected cuts and rises but also contained a good deal of surprises.

 

So what as your accountant and tax advisor, should we make of the Summer Budget of 2015 – basking in the sunshine or nervously awaiting a downpour?

 

As in all Budgets economic aspirations frame and drive the main changes.

 

For this Conservative government these centre around a commitment to keep debt falling as a share of GDP until a budget surplus of 0.4% is reached in 2019-20.

 

To help achieve that the Government has identified £12billion of annual savings from the welfare system, and the debate on whether the mix of benefit cuts combined with rises in personal allowances and changes to the “living” or should that be “enhanced minimum” wage will continue for some time to come. But more pertinently for us accountants, £5billion of increased revenue has also been identified from ‘tackling tax evasion, avoidance, planning and imbalances’ in the tax system.

 

That includes cracking down on tax avoidance from foreign companies in the UK, ensuring that investment fund managers pay full capital gains tax on their carried interest and ‘naming and shaming’ serial users of avoidance schemes.

 

On more prosaic business matters there was a crucial and largely unexpected change on corporation tax with the rate falling from the present 20% to 19% in 2017 and 18% by 2020. This should be a boon to UK firms both large and small.

 

However companies with profits over £20million a year may be less keen to hear that corporation tax payments dates will be brought forward “so tax is paid closer to the point at which profits are earned”.

 

Large firms may also shudder at the prospect of an apprenticeship levy to encourage more youngsters into the workforce and to plug the nation’s skills gaps.

 

Banks will be pleased by a gradual reduction on their bank levy rate but will also have to deal with a new 8% surcharge on bank profits from January 1, 2016.

 

But it is perhaps small businesses who have to be particularly wary of some of the Budget changes.

 

Small and medium-sized firms will be cheered by news that the Annual Investment Allowance will not fall to £25,000 but be set at £200,000 “both this year and every year”.

 

This will surely spur investment.

 

National Insurance contributions will also fall with the Government’s new Employment Allowance increasing by 50% to £3,000 from next year.

 

But owner-managed businesses who take a dividend as their company salary may be hit by the chopping of the Dividend Tax Credit from next April. It is being replaced by a new Dividend Tax Allowance of £5,000 a year with the rates on dividend income above that level set at 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers.

 

Dividends paid within pensions and ISAs remain tax-free.

 

Businesses will also face extra costs with the introduction of a National Living Wage for workers over 25 of £7.20 by April next year and over £9 by 2020. This could hit SMEs more than their larger rivals.

 

The ICAEW said the Budget would “inevitably mean more regulation and tax law that everyone, including me as your Accountant and tax advisor, will need to cope with. This is from a Government that wants to simplify the tax system and reduce the regulatory burden”.

 

There is sense in that argument but to be fair to the Government it also announced an intention to publish a business tax roadmap by next April outlining plans for business taxes over the rest of the Parliament and that is welcome guidance.

 

The establishment of the Office of Tax Simplification (OTS) on a permanent basis is another positive. It will advise the Government on how to deliver a simpler tax system.

 

The government will also consult in autumn 2015 on abolishing Class 2 NICs and reforming Class 4 NICs.

 

When it comes to individual taxation the Chancellor is committed to ensuring that people keep more of their hard-earned cash in their pockets.

 

As tipped he outlined plans to legislate a tax lock which would set a ceiling for the main rates of income tax, VAT and NIC. In short they will not exceed 2015/16 levels in the life of this Parliament.

 

Further good news for workers came with a planned rise in the tax-free personal allowance from £10,600 to £11,000 next year. This is part of a longer term aim to increase it to £12,500 by 2020 so it is likely that another climb may come next year.

 

The higher rate tax threshold, 40%, also climbs from £42,385 to £43,000 from next year. Again the longer term aim is to have a £50,000 threshold.

 

‘Non-doms’ however were in the Government’s cross-hairs, with those resident in the UK for over 15 of the last 20 years becoming obliged to pay full UK taxes on worldwide income and gains from April 2017.

 

Property also saw significant tax changes. The Government will retain mortgage interest relief for landlords on residential property but this will now be restricted to the basic rate of income tax.

 

However home owners renting out their attics or spare room to a ‘Roger the Lodger’ will be able to earn £7,500 tax-free from them each year.

 

Perhaps more striking were the changes to Inheritance Tax. From 2017 there will be an extra £175,000 inheritance tax allowance for those who leave their homes to their children or grandchildren, on top of the £325,000 standard inheritance tax allowance currently.

 

The threshold and new allowance are both twice as high for married couples and civil partners, meaning they will now be able to inherit up to £1million tax-free from each other.

 

Changes to pension taxation were also significant. Those earning over £150,000 will have their tax-free contributions allowance tapered away from its current £40,000 per year to a minimum of £10,000. The Government is also consulting on a novel ISA-style pension where savers would pay tax on the income they put in but not when they take it out.

 

This was a more complex and varied Budget than expected. Businesses and individuals, circumstances permitting, will welcome many of the changes but certainly for SMEs and owner-managers it may be worth spending more time than usual poring over the details to get a true grasp of the tax and regulatory changes.

 

Well… what else are summer evenings for?!

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The Summer Budget 2015 was surprisingly jam packed of tax and relief changes that will affect businesses

The Summer Budget 2015 was surprisingly jam packed of tax and relief changes that will affect businesses, many in a positive way, however, on some changes the jury is still out. The following is just a brief overview of the main items that I believe will affect SMEs and is not meant to be a full list of changes as some of the full budget is still being disseminated.

 

Overview of the market:

 

The current market overview was presented as positive with GDP growth forecast to be 2.3-2.4% per annum to 2017. One of the government’s favourite phrases was once again used when forecasting a surplus from 2020, that they will be “fixing the roof whilst the sun is shining” and will be building up reserves, however, that is still a long way off in 2020 and much can change in the next 5 years so I won’t be betting on a surplus just yet. Another positive factor was employment, with another buzz phrase of “full employment” mentioned, unemployment has continued to decrease and the Office for Budget Responsibility is forecasting approximately 1 million new jobs during this parliament, however, Mr Osborne has higher ambitions and is aiming for 2 million new jobs.

 

Personal Tax:

 

Lots of interesting changes in this area, with the main areas discussed listed below:

 

Personal Allowances – these will continue to increase each year with the Government aiming to reach £12,500 by the end of the parliament.

 

Higher Rate Thresholds – these are to be increased, however, if you look at the last 5 years figures these have been decreased in many years, which is demonstrated in the table below:

 

40% Threshold

 

2010    £43,875

2011    £43,875

2012    £42,475

2013    £42,475

2014    £41,450

2015    £41,865

2016    £42,385

2017    £43,000

2018    £43,600

 

Dividends – a major overhaul of how dividends are to be taxed has been announced with the abolition of the 10% dividend relief (which most people didn’t understand) and the introduction of a £5,000 tax free amount along with a basic rate of 7.5%. The full detail still needs to be disclosed but it appears that many business owners who are paid via a small salary with dividend mix, are likely to end up paying more tax. Once full details are disclosed full comparisons will be calculated.

 

Pension Relief – As already widely known, the Lifetime allowance will be reduced from £1.25m to £1m from April 2016 and the annual tax deductible allowance is to be gradually tapered to £10,000 per year for those with income over £150,000.

 

Property Letting by Individuals – This area was speculated upon pre-budget, and indeed some relief against mortgage interest is to be reduced for buy-to-let landlords, as the relief is to be for basic rate only from 2020/2021. At the moment it appears to just affect landlords that own properties personally and not via a property company.

 

Non-Doms – This area is to be tightened up, including the change that if anyone resident in the UK for more than 15 of the last 20 years will be UK domiciled from, April 2017.

 

Inheritance Tax – Standard nil rate band to remain at £325,000 (£650,000 per couple) until 2021.

 

Additional nil rate band when residence passed on death to a direct descendant.

 

2017/18 £100,000 2018/19 £125,000 2019/20 £150,000 2020/21 £175,000

 

Will allow a £1m residence to be left inheritance tax free. Relief also applies when property downsized. Phased out for estates exceeding £2m.

 

Vehicle Excise Duty – various changes including increasing the first year rate for many new cars.

 

Business Tax:

 

Corporation Tax – the rate is to continue decreasing from 20%, lowering to 19% in 2017 and 18% in 2020.

 

Employment Allowance – Current £2,000 allowance to increase to £3,000 from 2016 which reduces employer’s national insurance payments. However, allowance will not be available to single director companies whose sole employee is the director.

 

Tax Relief for Capital ExpenditureAnnual Investment Allowance is to be at a permanent limit of £200,000 from 1st January 2016, which gives more predictability for businesses. However, relief from goodwill and other intangible assets is to be abolished from acquisitions from Budget Day.

 

New National Living Wage – To be introduced at £7.20 per hour from April 2016 increasing to £9 per hour for 25s and over from 2020.

 

Conclusion: There are lots of changes for businesses to digest and not all positive. However, on balance many SMEs will certainly welcome the future decrease in corporation tax and the increase in employment allowance.

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