Highlights of the Autumn Statement 2014
The Chancellor’s Autumn Statement was cautious; he offered a select few sweeteners to the general electorate, all tax payers and SMEs. This autumn statement felt like the General Election campaign for the Conservative government has already begun!
Who wins and who loses?
Home-buyers are the big winners, with stamp duty made fairer with immediate effect; vehicle owners – haulage firms, cab and taxi drivers, in particular no doubt – will be pleased to hear that there’s to be no rise in fuel duty; and SMEs are winners too, with more money available to lend and more money from government for R&D. Hit badly are those buying properties over 1.5 million; and multinationals, who could be made to pay 25% of all profits generated in the UK that they then try to shift to other countries to avoid tax. Umbrella companies were also hit hard potentially, which may directly impact on the contractor and freelancer market in the future.
From 4 December 2014 stamp duty will be paid according to a banding system. This means no tax will be paid on the first £125,000 of a property, followed by 2% on the portion up to £250,000, 5% up to £925,000, 10% up to £1.5 million and 12 % on everything over that.
Mr Osborne said that, as a result, stamp duty would be cut for the 98% of homebuyers who pay it. This he says is a tax cut worth £800 million a year.
Although apparently the UK is the fastest growing economy among the G7 nations, the tax receipts are not as healthy as originally forecast: tax receipts up to 2017–18 are forecast to be £23 billion lower than predicted. Be warned, therefore, that alongside other measures, HMRC’s anti-avoidance strategy is bound to be stepped-up.
Personal tax allowance
The personal tax allowance is to increase by £100 more than the sum announced earlier this year, to £10,600 from April 2015.
The higher rate income tax threshold is to rise to £42,385 from next April also.
Businesses will no longer have to pay National Insurance for young apprentices.
Savings and pensions
The ISA threshold is to increase from £15,000 to £15,240 from next April. ISAs are to be transferrable between spouses/civil partners tax free; at present, any savings in an ISA lose their tax-free status when somebody dies and their spouse starts paying tax on those savings. Dependents of people who die under the age of 75 are to receive a tax free annuity.
Small businesses will see relief on their annual business rates doubled for the next year. The way that business rates are calculated (at present, according to the value of the property) is to be reviewed; many businesses have seen their rates rise by 25% in the past six years due to the rise in commercial property prices. These measures to support businesses will also help to enliven high streets, which have suffered as a result of online traders.
Research and development
Research and development tax credits are to be doubled to 230% for SMEs, and government is making efforts to extend support to small businesses by promising £500 million of bank lending plus £400 million government-backed venture capital funds which invest in SMEs. See our blog about R&D tax relief.
Investment in higher education
New £10,000 student loans for postgraduate students doing masters degrees.
Fuel duty is to be frozen. Air passenger duty will be cut for all under-12s in 2015 and for all under-16s in the following year.
Umbrella companies (IR 35)
The Chancellor hit out at umbrella companies (particularly popular among construction industry workers) and stated that he will stop tax relief being claimed on reimbursed business expenses when they are paid in conjunction with a salary sacrifice scheme and put in place a new penalty regime for employment intermediaries, to take effect from 6 April 2015, for the late filing or non-submission of quarterly returns from employment intermediaries. A discussion paper will be published "shortly" he announced, which is designed to set out "possible action" to be taken at the budget 2015. We will blog further about this in the near future.
To sum up, then, this Autumn Statement, which is supposed to set out the next stage of the government’s plans to bring about responsible economic recovery, seems to offer sweeteners that will cost the exchequer dear while at the same time still insisting that it’s possible to cut the deficit. Raising revenue by fining the banks, collecting fines and money owed through tax avoidance and taxing the very wealthy a bit more will only breach half the gap. In our view, hitting out at umbrella companies and the people who work through them is not good for contractors and nor will it be good for the economy, because it is bound to restrict self employment by making life very difficult for umbrella companies, increasing compliance, and, most importantly, restricting the choices for self employed and freelance workers.