Mitchell Charlesworth's Initial Reaction to the 2015 Budget


With the 2015 General Election just 50 days away, this years Budget (18 March) was used to paint a rosy picture to voters as well as promote the need to keep on the Coalition Government's fiscal path and further reduce the national debt.

As a North West business advisor, it is also pleasing to see that the Government is continuing its efforts to stimulate growth in our region, reduce complexity and promote economic wealth.

Mitchell Charlesworth's initial analysis on the key measures that will affect SMEs and individual taxpayers are listed below (click for further information):

Our Initial Comments:

Tim Adcock

 

"The new personal savings allowance which will allow basic rate taxpayer to receive £1000 (£500 for higher rate taxpayers) of savings related income tax free will be welcome news to many who have worked hard and built a savings pot".

Tim Adcock
Tax Partner

Gemma Gower

 

"The Chancellor announced support for the creative and entertainment industries in the form of an enhancement to the tax credit regime for culturally British TV, Film and Video Game Production. This will support those sector businesses who are based in Merseyside".

Gemma McCaldon-Gower
VAT Manager

 

Graeme Davies

 

"News that the self assessment tax return is to be abolished initially sound favourable for businesses and individuals required to complete tax returns, but the industry will reserve judgment until operational details of its online replacement become available".

Graeme Davies
Tax Manager

Contact us Further:

If you would like to arrange a meeting to discuss any specific issue related to the budget please contact us.

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  • End of the Tax Return:

As was leaked in the morning press, the Chancellor announced that the Government will transform the tax system over the next parliament by introducing digital tax accounts to remove the need for individuals and small business to complete annual tax returns.

Further details of this proposal have been promised during 2015 and a consultation on the Government’s proposals are expected.

Their aim is that by early 2016, all of the UK’s five million small businesses and the first ten million individuals will have access to their own digital tax account. The aim is that taxpayers will be able to use the system much like an online bank account to register, pay their tax and provide HMRC with their information.

It is also proposed that by 2020, businesses will be able to link their accounting software to HMRC to feed data straight into their digital account, so most businesses will simply log-in to check their details with no need to send an annual return.

We will of course keep our clients updated as more information on this becomes available.

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  • Investment into Small and Growing Companies:

The Government will make amendments to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) to ensure, in their view, a continued well targeted support for investment into small and growing companies. This will require that companies must be less than 12 years old when receiving their first EIS or VCT investment, except where the investment will lead to a substantial change in the company’s activity. There will be the introduction of a cap on total investment received under the tax-advantaged venture capital schemes of £15 million, increasing to £20 million for knowledge-intensive companies. The employee limit for knowledge-intensive companies will be increased to 499 employees from the current limit of 249 employees. In a welcome announcement the Government will smooth the interactions between the schemes by removing the requirement that 70% of the funds raised under SEIS must have been spent before EIS or VCT funding can be raised. These changes tinker around the edges although the new 12 year rule may prejudice established businesses from raising finance through this tax advantaged route which is disappointing.

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  • Personal Savings Allowance:

A number of incentives were introduced in the budget for savers.  In an unexpected announcement, the Chancellor outlined the proposed ‘Personal Savings Allowance’.  These changes will take effect from 6 April 2016 and will apply for up to £1,000 of a basic rate taxpayer's savings income, and up to £500 of a higher rate taxpayer's savings income each year, but will not apply for additional rate taxpayers.  The Personal Savings Allowance will be in addition to the tax advantages currently available to savers from Individual Savings Accounts (ISAs).  This will reportedly abolish the tax on savings for 17m people.

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  • Annual Investment Allowance:

The Chancellor today announced that the Annual Investment Allowance (the limit of qualifying plant and machinery expenditure qualifying for 100% capital allowances) will be reconsidered in the 2015 Autumn Statement.

This allowance is currently £500,000 and was due to revert back to £25,000 in January 2016. The Chancellor has promised not to reduce this allowance to that extent, however, he failed to specify how far it will be reduced. Businesses with planned capital expenditure should consider the timing of the expenditure to ensure that the maximum tax relief possible is obtained.

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  • Changes to Capital Gains Tax:

With effect for disposals on or after 18 March 2015 new measures have been introduced which will impact on individuals who wish to benefit from Entrepreneurs Relief (ER) on capital gains tax without holding at least a 5% stake directly in a company carrying on a trade. The new measures will deny ER on a disposal of shares in a company that is not a trading company in its own right.

Previously the ER rules around joint ventures have been used to set up structures under which people with only a small indirect stake in the trading company can benefit from ER. HMRC believe that this is against the policy intention, which is that individuals must have a significant stake in a genuine trading business in order to benefit from ER.

The revised rules ensure that those who benefit from ER have a 5% directly – held shareholding in a genuine trading company. It does not, however, affect shareholdings in companies whose investment in a joint venture is part of their own trade. It is thought that these measures are aimed at structures that may secure ER for employees who have a minor stake in the business but could well impact on bona fide joint venture arrangements.

In a related announcement new provisions have been introduced whereby ER will not be available to reduce capital gains tax on gains which accrue on personal assets used in a business carried on by a company or a partnership, unless they are disposed of in connection with a disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets. Previously ER would have been available on such an associated disposal irrespective of the percentage of shares/partnership interest sold at the same time.

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  • Inheritance Tax:

In a very brief announcement it is understood that the Government will review the use of deeds of variation for tax purposes. Provided that a deed of variation is executed within two years of death such a document has the effect of re-writing the Will of the deceased and this can provide a very useful mechanism for post death tax planning. Over the years there have been a number of rumours that HMRC were reviewing the operation of deeds of variation although no new provisions have ever been brought forward. The announcement in the Budget today suggests that this issue is now very much back on the agenda and may possibly mark the demise of this very flexible tax planning tool.

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  • Creative Industry Tax Relief:

Today’s Budget announced enhancements to the tax relief available to companies that produce qualifying films and high end television or animation programmes.  The payable tax credit for the production of qualifying films will increase to 25% for all films, and the minimum UK spend requirement for high end television programme production will reduce from 25% to 10%.

The rate of film tax relief credits is currently 25% for the first £20 million of qualifying expenditure, and 20% thereafter (up to a maximum of 80% of the film’s total budget). To qualify a film must be certified as culturally British by the Department for Culture, Media and Sport, and in addition must have 25% of its budget spent on UK qualifying production expenditure.

Today’s announcement will mean that the rate of film tax credits will be 25% for all qualifying expenditure for all eligible film productions.

To qualify for high end television tax relief at least 25% of the production costs must relate to activities carried out in the UK. Subject to state aid clearance, this minimum UK spending requirement will be reduced from 25% to 10%.

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  •  Tax Rates:

General:
In terms of income tax rates the Chancellor announced that the personal allowance (the amount of taxable income an individual can receive before they start to pay income tax) for 2015/16 will be £10,800, and will increase to £11,000 in 2017-18. 

Personal _allowance _table

The Chancellor also announced that the higher rate threshold (the amount an individual can earn before they start paying income tax at 40%) will increase from £42,385 in 2015 -16 to £43,300 during 2017-18.

Company Cars:
The Chancellor announced that from 2019-20 rates for Ultra Low Emission Vehicles will increase more slowly than previously announced.  The company car tax rates for other cars will increase by 3%.

Value Added Tax – Registration and Deregistration:
VAT registration threshold has been increased from £81,000 to £82,000 and the deregistration threshold from £79,000 to £80,000.

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  • Tax Avoidance Schemes - New Measures for Serial Avoiders:

Following consultation, legislation will be introduced in a future Finance Bill to introduce tougher measures for those who persistently enter into tax avoidance schemes that ultimately do not work.

In a further measure to tackle what HMRC perceive to be unacceptable tax avoidance planning, the Government have announced a number of possible introductions to the tax regime. These include:

  • Special reporting requirements for persistent users of tax avoidance schemes,
  • Surcharges over and above the usual penalty regime,
  • The restriction of relief for taxpayers who constantly seek to “abuse” them
  • The naming of individuals who use avoidance schemes that ultimately fail, and
  • The widening of the scope of the legislation against promoters of tax avoidance schemes.

In addition to the above announcement, the Government have also confirmed that following a review of the accelerated payment notice system, 21,000 notices over and above the number originally expected will be issued. 

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  • Individual Savings Accounts (ISAs)

ISAs will be more flexible under announcements made today.  Savers will have the freedom to withdraw and replace funds without losing the tax free status.  In order to qualify, the funds must be replaced in the same tax year to avoid it being counted towards the ISA subscription limit. 

A new ‘Help to Buy’ ISA scheme will also help first-time buyers get onto the property ladder. For every £200 saved, the Government will top up with an additional £50. This bonus will be available for up to £15,000 of deposits only. By way of an example, a first-time buyer who has saved £12,000 under the scheme will receive an additional £3,000.  Savers will be able to withdraw funds from the ISA for another purpose, but the top-up can only be spent on a home purchase.  The Help to Buy ISA will only be available on houses worth £250,000 or less (or £450,000 or less in London).

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