Is the final budget of the current parliament just a lot of electioneering with a couple of sweeteners thrown in for good measure for SMEs, hard-working taxpayers, pensioners and savers?
- The tax-free personal allowance is to rise from £10,600 in 2015?6 to £10,800 in 2016?7 and £11,000 in 2017?18.
- The 40-pence income tax threshold will rise above inflation from £42,385 in 2014?5 to £43,300 in 2017?18.
- Transferable tax allowance for married couples to rise to £1,100.
- Annual paper tax returns are to be abolished and online tax accounts will replace them.
Comment: of course these rises, in the personal tax allowance, the threshold of 40-pence tax rate and transferable tax allowance for married couples are all very good news. The scrapping of the self assessment tax return is probably a good thing, but feels to me as if it’s very much tied in with long-term HMRC plans to achieve maximum tax revenue: remember the pledge used was a "revolutionary simplification for tax collection". The emphasis being on "collection", one can only assume that visibility rather than easability is the real long-term motive. Read more about crackdowns on our blog.
- Class 2 NI contributions for self-employed to be abolished during the next Parliament.
- National Insurance contributions for under-21s to be abolished in April 2015.
Comment: this is good news for the self employed and for anyone under 21 years. I’m sure all employers are disappointed that the government offered them nothing by way of reduction in employer NI contributions.
- The lifetime allowance for pension savings accumulated annually tax-free will be cut from £1.25m to £1m from April 2016.
- There is no change to the annual allowance for pension savings, which stays at £40,000.
- The pension shake-up will allow over-55s to access all their retirement savings at once from April 2015.
- Pensioners will be able to trade in their annuities for cash pots, with the 55% tax charge abolished and tax applied at the marginal rate.
Comment: for high earners the reduction in the lifetime allowance isn’t good news, but the Chancellor said that it will only affect about 4% of tax-payers. Using your pension allowance is a good tax-saving device, but in terms of whether to choose property, ISAs, pensions or annuities make no rash decisions: take a look at our blog, think carefully about your options, and always get expert advice.
New personal savings allowance
- The first £1,000 interest on savings income to be tax-free for basic rate taxpayers and £500 allowance for 40-pence tax rate payers.
- Annual savings limit for ISAs increased to £15,240.
- The "Fully flexible" ISA will allow savers to withdraw money and put it back later in the year without losing any of their tax-free allowance.
- New "Help to Buy" ISA for first-time buyers: government will top-up by £50 every £200 saved for a deposit.
Comment: this is all very good for savers, everyone who is able and eligible should grab these great tax saving allowances. A very generous give-away for first-time buyers as well, but now government needs to kick-start the construction industry to build more affordable homes for first-time buyers.
- Petrol duty frozen and September’s planned increase cancelled.
Comment: extremely good news for us all as the fuel duty freeze will help keep prices of goods down and help the economy. Haulage, transport, taxi, mini-cab and courier firms will all be very happy.
Business Rates to be reviewed
The review of business rates is long overdue ? it’s scandalous, don’t forget to appeal your business rates.
- New sanctions to penalise tax evasion and avoidance as part of plans to bring an extra £3.1bn to the Treasury over the next five years.
- Contractor accountants and tax advisers will be subject to new anti-avoidance legislation.
- Penalties for those who come forward to admit tax evasion will be toughened up from April 2016, earlier than expected. Currently those who admit evasion face a penalty on top of the tax they owe, but most can expect immunity from prosecution. From April 2016, the leniency ends.
- Review of inheritance tax avoidance through "deeds of variation".
- Tax on "diverted profits" to come into effect in April 2015, aimed at multinational firms moving profits "artificially offshore".
- Umbrella company and agency payroll expenses to be targeted for anti-avoidance measures.
- Changes to Entrepreneurs Relief (ER) could impact on how contractors can extract cash tax efficiently from their limited companies.
Comment: The length of this list should indicate that anti-avoidance is where the government hopes to earn a lot of money over the next few years to reduce the deficit. See our blog for hints and tips, warnings and advice on how to minimise your tax bill legally.
R&D and higher education
- Consultation on the proposal to offer loans of up to £25,000 for UK students studying for PhDs and research-based master’s degrees.
- TV, film and gaming tax credits will support IT contractors and freelancers working in the UK’s creative sector.
Comment: both are very good government incentives to bring the UK’s skill set and knowledge into line with other developed and developing economies. There are already some very attractive tax breaks and incentives for businesses looking to invest in seed enterprises and technology.
I suppose savers were the real winners in this budget, but the Lib Dem pledge to lower the income tax threshold significantly before the end of this Parliament has come to fruition. From now on we’ll have an unsteady pound probably and there’ll be a lot of posturing among the parties. Role on May 2015, because none of the uncertainty is good for the economy or for businesses and until the General Election there will certainly be uncertainty.