Our thoughts on the Chancellor’s pre-election Budget
As usual, most of the measures announced in the government budget 2015 had been released to the press ahead of the budget speech, with the significant tax measures for the coming year set in the autumn statement late last year. It is important to be aware that the measures announced below as due to take place from 2016 onwards will be subject to change should there be a change in government in the coming election.
Overall, the economic outlook given by the Office of Budget Responsibility was positive, with the data supporting the view that the economy continues to grow well. We see the key challenge to businesses in the coming 12-24 months being the ability to accommodate the growth in minimum wage, along with the cost of meeting pension contribution responsibilities under auto-enrolment.
Read on for our view of the key announcements that could affect you and your business. If you would like to discuss any of the issues in more detail, please don’t hesitate to contact us.
No more personal tax returns!
The most talked about announcement in our office is the stated abolishment of the personal tax return. But what does that actually mean? The government document, “Making Tax Easier” summarises the changes as follows:
“As part of the Government’s vision to modernise the tax system, tax returns will be replaced by digital tax accounts for millions of individuals and businesses. They will bring together each taxpayer’s details in one place, just like an online bank account, so they can register for new services, update their information, and understand quickly and easily what they need to pay — without ever having to complete a tax return again.
By early 2016 five million small businesses and ten million individuals will have access to their own digital tax account, and by the end of the next Parliament every individual and small business in the UK will have one. The digital accounts will be simple, secure, personalised to the taxpayer — and accessible through the digital device of their choice. As time goes on, they will offer more and more services.
This will be one of the biggest-ever changes to the way that people manage and pay their taxes. HMRC will make smarter use of the data it holds, linking it up in ways that weren’t previously possible, so that HMRC does more of the work that taxpayers currently have to do for themselves.
In future, people will only need check their tax information online to know how much they owe. Millions of people will no longer have to complete a tax return at all — while those with more complex tax affairs will be able to use their account to declare income and pay tax in year.
It will also be a major help for small businesses, which will be able to link their accounting software to their personalised tax account and have the option to pay as they go. This will give them more certainty about what they need to pay and when, so they can manage their cash flow better. They will also have access to a wider range of government support via a new Single Business Service.
This is a big leap in modernising our tax system, putting good customer service at its heart, and making it as easy as possible for individuals and businesses to pay the right tax at the right time.
It signals the end of the tax return.”
David Gauke MP, Financial Secretary to the Treasury
We applaud changes which reduce the administrative process of filing returns and the automatic inclusion of PAYE and interest information in a tax payers record will streamline filing immensely which is great news for our clients (and for accountants in January!) . It is clear that the onus is still on the taxpayer to provide additional relevant information in a timely way and so we would assert it is more of a mechanistic change that a complete overhaul.
The move to link HMRC systems directly with client’s accounting packages is also an innovative step; we look forward to seeing how this idea develops.
Class 2 National Insurance
The government intends to abolish Class 2 NICs in the next parliament and consult on reforming Class 4 NICs to include a contributory benefit test.
National Minimum Wage 2015
As previously announced, the government is increasing the national minimum wage rates from 1 October 2015, with the largest increase being to the apprenticeship wage. The table below sets out the new rates.
The government is to toughen sanctions for those who continue to evade tax by closing the existing disclosure facilities for tax evaders early. A tougher ‘last chance’ disclosure facility will be offered between 2016 and mid-2017, with penalties of at least 30% on top of tax owed and interest and with no immunity from criminal prosecutions in appropriate cases. We’ve seen extensive use of the let property disclosure regime in recent years, with some very successful penalty reductions. It is amazing how many people with a rental property do not know that they must report this to HMRC. Even where it is cash-negative due to mortgage repayments, there is often still tax to pay.
Company car tax
The Budget announced that in 2019-20, rates for Ultra Low Emission Vehicles (less than 94 g/km) will increase more slowly than previously announced. The upward trend in company car rates means that when you’re evaluating a vehicle purchase through the company, it is essential to consider the tax position over the lifetime of the vehicle and not just at the date of purchase. The van benefit charge will also be increased from 1 April 2016 by RPI.
New personal savings allowance
A new personal savings allowance will be created from April 2016, exempting the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers. There will be no personal allowance for additional rate payers.
As a result of this, the automatic deduction of 20% income tax by banks and building societies on non-ISA savings will cease from April 2016.
Changes to ISAs
The government will allow ISA savers to withdraw and replace money from their cash ISA, without it counting towards their annual ISA subscription limit for that year, as long as the repayment is made in the same tax year as the withdrawal. This will allow savers to access their ISA savings more flexibly without losing the benefits they’ve built up. These changes will be introduced in autumn 2015, following consultation with ISA providers.
Following technical consultation with the financial services industry, the government is to extend the range of ISA eligible investments in 2015-16 to include listed bonds issued by a co-operative society and community benefit society and SME securities issued by companies trading on a recognised stock exchange. The government will also look further into extending the list to include debt and equity securities offered via crowd funding platforms and will consult in summer 2015 alongside a response to the consultation on how to include peer-to-peer loans
Travel and subsistence for contractors
The government announced a restriction to travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company and under the supervision, direction and control of the end-user. This means that if IR35 applies to a contract, there will be no allowance for travel and subsistence costs. So it will be more important than ever for contractors to ensure that the terms and the working practices of their contract ensure that they are not under the supervision, direction or control of the contracting company during the period of the contract.
Personal allowances will increase to £10,800 and £11,000 respectively in April 2016 and April 2017. They had previously been set at £10,600 from April 2015. It’s helpful to remember that the transferrable allowance also comes into play this year, allowing spouses or civil partners to transfer £1,050 of their personal allowance to their spouse – providing that both are not liable to income tax above the basic rate.
Other points that may affect you or your business
- Pension relief lifetime allowance is reduced to £1m which will increase with inflation from 2018
- The government announced a review and potential overhaul of business rates
- No fuel duty increase in September – this was planned to be £0.54 a litre, but is now scrapped.
If you would like to discuss any of the issues above in more detail, please get in touch.