Delivering the first Conservative-only Budget in nearly 20 years, Chancellor George Osborne announced a series of bold measures affecting business, tax and welfare in his 2015 Summer Budget.
Heralding the Second Budget as a ‘big Budget for a country with big ambitions’, the Chancellor unveiled his announcements with the stated aim of moving from a ‘low wage, high tax, high welfare economy to a higher wage, lower tax, lower welfare country’.
Business Tax and Investment incentives
Corporation tax rates are as follows:
Financial year to 31 March 2016 31 March 2015
First £300,000 20% 20%
Next £1,200,000 20% 21.25%
Over £1,500,000 20% 21%
The corporation tax main rate will be 19% for the financial years beginning 1 April 2017, 1 April 2018 and 1 April 2019, and 18% f or the financial year beginning 1 April 2020
Annual Investment Allowance (AIA)
The maximum amount of AIA is currently £500,000 for all qualifying expenditure on plant and machinery from 1 April 2014 for corporation tax and 6 April 2014 for income tax. This limit will be reduced to £200,000 (instead of the previously announced £25,000) with effect from 1 January 2016.
Legislation will be introduced to remove corporation tax relief for companies who write off the cost of purchased goodwill and certain customer related intangible assets. This will apply to accounting periods beginning on or after 8 July 2015.
Any losses arising on a disposal, on or after 8 July 2015, of goodwill that is subject to the new rules, will be treated as non-trading debits and will not be included in the calculation of trading losses.
Corporation tax payment dates
The Government will introduce new payment dates for companies will annual taxable profits of £20m or more. Where a company is a member of a group, the £20m threshold will be divided by the number of companies in the group. Affected companies will be required to pay corporation tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period. This will apply to accounting periods starting on or after 1 April 2017.
Research and development
Legislation will be introduced to make an institution of higher education or a charity ineligible to make a claim for the Research & Development Expenditure Credit in relation to any expenditure incurred on or after 1 August 2015. This change does not affect 'spin out' companies used by universities or charities to commercialise their research.
Employer NICs up to the upper secondary threshold for apprentices aged under 25 will be abolished from April 2016.
Changes to the Employment Allowance
From April 2016 the Employment Allowance will increase to £3,000. However, companies where the director is the sole employee will no longer be able to claim this allowance.
Upper Earnings Limit
It was announced that the NICs Upper Earnings Limit will increase to remain in line with the income tax higher rate threshold, which will rise to £43,000 in 2016/17 and up to £43,600 in 2017/18.
Class 2 and Class 4 NICs
The Government has previously announced its intention to abolish Class 2 NICs and to reform Class 4 NICs to introduce a new benefit test. The Government will consult on the detail and timing of these reforms later in 2015.
NATIONAL MINIMUM WAGE (NMW)
With effect from 26 May 2015, the maximum financial penalty for employers who flout the NMW has increased to £20,000 per worker. This compares with a previous penalty of 100% of the total underpayment which was subject to a maximum of £20,000 per notice.
From April 2016 a new National Living Wage (NLW) in the form of a premium on top of the NMW will be introduced for workers aged 25 and above. Initially set at £7.20, it is expected to rise to over £9 by 2020.
PERSONAL ALLOWANCES (PA)
Restricting finance cost relief for individual landlords
New legislation will mean that landlords will no longer be able to deduct all of their finance costs from their residential property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs. This will be added gradually from 6 April 2017.
Reform of the Wear and Tear Allowance
The Government will, with effect from April 2016, replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings.
From April 2016 the level of Rent-a-Room relief will be increased from £4,250 to £7,500.
Pensions: reduced Annual Allowance for top earners
For those with income (including the value of any pension contributions) above £150,000, the benefits of pensions tax relief will be restricted by tapering away their Annual Allowance to a minimum of £10,000. This will be effective from 6 April 2016.
Eligibility for 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.
Abolition of non-domicile status for long domicile residents
Legislation will be introduced so that from April 2017 anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for tax purposes. A technical consultation will be published later in the year.
Overall investment limit £15,240
Junior ISA and CTF limit £4,080
Regulations will be introduced in Autumn 2015, following consultation on technical detail, to enable ISA savers to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for that year.
Personal Savings Allowance
As previously announced, with effect from April 2016, a tax-free Personal Savings Allowance is to be introduced for interest income. This 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. It will not be available for additional rate taxpayers, but will be in addition to the tax advantages currently available to savers from ISAs.
As previously announced, changes will be made with effect from April 2016 to allow people who are already receiving income from an annuity to sell that income to a third party as and when they choose. There will be a consultation on how best to remove the barriers to the creation of a secondary market in annuities.
Pension lifetime allowance
Also as previously announced, the Government intends to reduce the pension lifetime allowance to £1m with effect from 6 April 2016. Fixed and individual protection regimes will be introduced alongside the reduction in the lifetime allowance to protect savers who think they may be affected by this change. Provisions to increase the allowance in line with CPI from 2018 will be included.
Inheritance tax (IHT) nil-rate band
The IHT nil-rate band was previously frozen at £325,000 until April 2018. It will now remain frozen until April 2021.
IHT – main residence nil-rate band
The Government will introduce an additional nil-rate band when a residence is passed on death to a direct descendant. This will be £100,000 in 2017/18 and will increase by £25,000 each year until it is £175,000 in 2020/21.
IHT and non-domiciles
From April 2017, the point at which an individual who is classed as a non-domicile is deemed to be domiciled for IHT purposes will be brought forward to 15 out of 20 years. The Government will also treat individuals who were born in the UK to parents who are domiciled here, as a UK domiciled whilst they are in the UK. This aligns IHT with the changed to the income tax and CGT regimes.
IHT on UK residential property of non-domiciles
The Government will legislate to ensure that from April 2017, IHT is payable on all UK residential property owned by non-domiciles including property held indirectly through an offshore structure. This will apply regardless of their residence status for tax purposes and so will also include non-domiciles who are not UK resident. A full consultation will take place later in the year.
The Government will consult on how to ‘improve the effectiveness’ of existing intermediaries legislation (‘IR35’). A discussion document will be published after the Budget.
EXTENDING AVERAGING FOR FARMERS
As previously announced, the averaging period for farmers will be extended from two years to five years as of April 2016. The Government will publish a consultation at a late date.
For the full article with detailed tables please see a paper copy of Power In Numbers Issue 19, available at any Rothmans branch.