Our Fun Take On The Summer Budget 2015 As Tax Specialists

5‘One purpose, one policy, one nation’. These were the words the Chancellor left us with as he closed his summer 2015 budget – the first conservative only budget for 19 years.

It was one where some announcements had been leaked prior to the speech, however, there were still some surprises, which made for great TV, as the Chancellor had to stop his speech on three occasions as the House had to ‘come to order’.

The chancellor said this was a ‘Budget which puts security first’, a ‘Budget for working people’, ‘higher wages and lower tax’, he said ‘we will be bold’, it’s a ‘big Budget for a country with big ambitions’.

So, Do we agree?

There’s no denying the country’s economy is growing; the Chancellor did spout off numbers and acronyms – but we won’t bore you with that again. One thing he did sneak in though was the announcement that ‘tax receipts are stronger than forecast’. We suspect what he actually mean is – Tax receipts are higher that I previously told you they would be!

So, what did he announce (and what did he not announce) that actually affects us? The people of this great nation.

A welcome announcement was that he is promising an extra £8 billion will be provided to the NHS! A no so welcome announcement was that he would be providing H M Revenue and Customs with an additional £750 million to increase its resources.

He announced there would be a tax lock put on the percentage rates of income tax, national insurance and VAT. However, he did not put a lock on the bandings within those percentages, and so, he has changed those. The personal allowance will increase to £11,000 from April 2016 and the higher rate earnings threshold will increase to £43,000 (£11,000 personal allowance plus £32,000 basic rate band). The chancellor’s aim is for the personal allowance to be £12,500 and the higher rate threshold £50,000 by the end of this parliament. Upon further reading in the notes, there is also a measure so that when the personal allowance does reach £12,500, it will then automatically rise in line with the equivalent 30 hours a week at the national minimum wage.

One of the shock announcements was that the corporation tax rate would be reducing by two percentage points by 2020! Meaning an already low rate of 20% will reduce to 19% in April 2017 and a further reduction to 18% in April 2020. Good news for small business!

Another bit of good news for small business is regarding the Annual Investment Allowance. This was due to reduce from £500,000 to just £25,000 at the end of the year. However, the Chancellor has announced that it will permanently be set at £200,000 from January 2016. Again, great news for small business! We at Premier Tax Solutions did predict this would be an announcement in the summer budget, however, we only predicted £100,000. It’s almost as if we did not believe the Chancellor could be so generous! Tut tut, shame on us.

Some not so good news though for companies is the changes to the relief on goodwill amortisation. This will apply to acquisitions made on or after 8 July 2015, (yes people, the government have cottoned on to the fact you may try and do something before a change comes into place, and by setting the date for the change at the date of the budget, they are stopping you naught lot). And will mean all relief for this is removed! Boo Hiss!

Also from the 8 July 2015, the government will change the rules on controlled foreign companies (CFC’s) to stop the use of losses against tax.

An apprenticeship levy on large firms will be introduced, by which those firms which train apprentices receive more money than they put in.

From April 2017 large companies will be required to make corporation tax payments in the third, sixth, ninth and twelfth months of their accounting period. Where a company is a member of a group, the £20 million threshold will be divided by the number of companies in the group.

The Employment Allowance for employers national insurance contributions will rise from £2,000 to £3,000 from April 2016 & companies where the director is the sole employee will no longer be able to claim the Employment Allowance. The government will consult in autumn 2015 on abolishing Class 2 National Insurance contributions (NICs) and reforming Class 4NICs for the self-employed.

Non-Doms. From April 2017, anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for tax purposes. Furthermore, it will no longer be possible for somebody who is born in the UK to parents who are UK domiciled to claim non-domicile status if they leave but then return and take up residency in the UK. These changes will bring an end to the permanent non-domicile status.

From April 2017 the government will also introduce new rules so that everybody who owns residential property in the UK and would otherwise pay inheritance tax on that property cannot avoid paying it by holding it in an offshore structure.

Inheritance Tax changes was another one of our predictions and one which we (sort of) got right. We predicted a rise in the Nil Rate Band from £325,000 to £500,000. Which effectively did happen, although it’s via the means of a further nil rate band of up to £175,000 which is available where a residence is passed on death to a direct descendant. The value of the two nil rate bands effectively means an individual has £500,000 potentially exempt from IHT. What’s that we hear you say… it says £1 million in the newspapers?! This is because where an individual is married or in a civil partnership, the surviving spouse can claim the nil rate bands of their ‘other half’. If on the first death the individual leaves their entire estate to the surviving spouse, they then inherit with that the nil rate bands. Meaning on the second death there is up to £1 million. So if you’re not married or in a civil partnership, you do not get the £1 million reported.

Again there were further changes in this area which the Chancellor did not actually announce in his speech. This change is around the IHT tax charges on trusts and new rules to target avoidance through the use of multiple trusts. They have also changed the way interest is charged on IHT to support the new digital service.

The chancellor announced changes in the way banks would be charged, by a reduction in the bank levy from 0.21% to 0.18% from January 2016 and this will continue to decrease each calendar year until 2021. This effectively is being replaced by a bank corporation tax surcharge of 8% on their profits. Banks are also being denied relief on the payments they make for compensation and associated expenditures, relating to misconduct issues.

Pensions next. Changes are being made to the pension’s tax rules to reduce the tax charge that applies to taxable lump sum death benefits paid from a pension scheme. It is to change the rate of tax from 45% to the recipient’s marginal rate of tax from April 2016. There will also be a tapering to the annual allowance for pension contributions where the individual making the contribution earns over £150,000. It will be tapered down from £40,000 to £10,000 and have effect from April 2016. The chancellor also announced that he would be consulting on changes to pensions, to possibly have them treated like ISA’s. You will have to ‘watch this space’ on this one.

Are you a landlord or letting a room out in your own home? Then listen up… this bits for you. Where you rent a room out in your own home you can currently claim £4,250 relief against this income. The chancellor has now increased this relief to £7,500 per year and this takes effect from April 2016. If you are a landlord who rents out whole properties you can currently claim tax relief on the interest element of your mortgage payments. From April 2017, change will be made to gradually change this so that eventually landlords will only be able to claim relief on this expenditure at the basic rate of tax. This means that if you are already only a basic rate tax payer this will not affect you. However, this does not apply to landlords who own qualifying furnished holiday lets. In addition to all this, from April 2016 the wear and tear allowance will be replaced by a new system that only allows relief when furnishings are actually replaced.

Dividend Reforms! The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. But dividend tax rates are going up from zero to 7.5% for basic rate income tax payers, from 25% to 32.5% for higher rate taxpayers, and from 30.56% to 38.1% for additional rate payers.

Are you a university or charity that currently claims Research and Development expenditure credit? From 1 August 2015 you will no longer be able to claim this either on your own independent research or on the research you may carry out as a sub-contractor under the scheme. This however, would not affect any trading companies that you own.

Vehicle Excise Duty! For purchases of cars after April 2017 the rates will be levied based on CO2 emissions, meaning most cars will have a standard charge of £140, except zero emission cars – which are free and premium cars – which are tho0se costing more than £40,000 – where there will be a £310 annual charge.

HMRC will informally consult financial institutions and tax advisers (Argh! That’s us!) to develop targeted and cost effective communications to be given to their clients in respect of advice that they may have given or may be aware of, regarding the use of an offshore account.

Bank recovery of debts by HMRC. This s something the chancellor mentioned in the past but did not touch on in his summer budget speech. Where an individual or business owes HMRC £1,000 or more and has £5,000 or more in their bank accounts… HMRC will collect the money they owe themselves! This measure will take affect after the date of Royal Assent of the summer finance bill 2015.

A Northern Powerhouse was also announced! Manchester will have an elected Mayor given power over fire services and children’s services, as well as establishing a land commission. The government is working towards further devolution deals with the Sheffield City Region, Liverpool City Region, and Leeds, West Yorkshire and partner authorities, to be agreed in parallel to the Spending Review.

Welfare System Reforms were widely debated before the summer budget and this was an area many believed the conservatives would ‘go to town on’. Here is a brief roundup of the changes:

  • Working-age benefits, including tax credits and Local Housing Allowance, will be frozen for 4 years from 2016-17 (excludes Maternity Allowance, maternity pay, paternity pay and sick pay)
  • The household benefit cap will be reduced to £20,000 (£23,000 in London).
  • Support through Child Tax Credit & Universal Credit will be limited to 2 children for children born from April 2017. Will be exceptions for multiple births.
  • Those aged 18 to 21 who are on Universal Credit will have to apply for an apprenticeship or traineeship, gain work-based skills, or go on a work placement 6 months after the start of their claim. Must earn or learn.
  • Rents for social housing will be reduced by 1% a year for 4 years, and tenants on higher incomes (over £40,000 in London and over £30,000 outside London) will be required to pay market rate, or near market rate, rents.
  • Housing benefit will not automatically be paid to 18 to 21-year-olds.
  • From 2017, all working parents of three- and four-year olds must work if they want universal benefit, but also get 30 hours of free childcare each week, up from 15 hours.

From April 2016, the level of earnings at which a household’s tax credits and Universal Credit award starts to be withdrawn for every extra pound earned will be reduced from £6,420 to £3,850. The equivalents in Universal Credit (work allowances) will be reduced to £4,764 for those without housing costs, £2,304 for those with housing costs, and removed altogether for non-disabled claimants without children. The government will also increase the rate at which a person’s or household’s tax credit award is reduced as they progress in work, by increasing the taper rate in tax credits from 41% to 48%.

And the big news! Dun dun dun…

The National Living Wage Introduction

From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced which will rise to over £9 an hour by 2020.

For more information on any of the subjects mentioned or if you would like to book a one to one appointment to see how we can help you and your business, contact us on 01782 479 699.

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