Budget Spring 2015
We’re all aware that this budget comes very soon before the general election on 7th May 2015. The proposals in this budget may not become law, and anything could be amended. Many of the announcements related to changes we already know about, but there were one or two surprises.
Personal Taxation
Basic Personal Allowance and Transferable Allowance for 2015/16
The personal allowance for those born after 5 April 1938 will be £10,600 for 2015/16. As a corollary, the transferable allowance for married couples and civil partners (10% of the personal allowance) will be £1,060. This is available to certain couples, subject to qualifying criteria.
The higher rate threshold (i.e. the aggregate of the personal allowance and the basic rate limit) will be £42,385.
Personal Savings Allowance
It is proposed that a new Personal Savings Allowance be introduced from 6 April 2016. For a basic rate taxpayer, this will exempt from income tax the first £1,000 of savings income, such as bank and building society interest. For a higher rate taxpayer, only the first £500 will be exempted.
The Personal Savings Allowance will not be available to additional rate taxpayers. At the same time, the deduction of basic rate tax at source from interest paid by banks and building societies will be abolished for all savers.
Online Tax Accounts
Over the last decade or so, we’ve seen a steady decrease in the numbers of paper forms being submitted to all governmental departments, and an increase in online services. The government seems keen to extend the transition by planning to abolish the paper tax return for millions of individuals and small business through the introduction of digital tax accounts. A roadmap setting out the policy and administrative changes will be published later this year.
In addition, the Government will consult on a new payment process to support the use of digital tax accounts that allow tax and National Insurance contributions to be collected outside of PAYE and self-assessment. This will be legislated for in the next Parliament.
How (or if) this will work in practice we have yet to find out. The principles of NI and taxation are not changing, but the new methods of reporting and paying could be significant changes for self-employed people.
Direct Recovery of Debts due to HMRC from Taxpayers’ Bank Accounts
Again, this is not a new announcement, and the government intends to legislate for it in a firure finance bill. It is something to be aware of if your tax affairs are not up-to-date. HMRC will be able to collect payment of tax and duties directly from credit balances in debtors’ bank and building society accounts, including ISAs, without first having to apply to the courts. HMRC will only take action against debtors who owe over £1,000 of tax or tax credits. They will always leave a minimum aggregate of £5,000 across debtors’ accounts, and will only put a hold on funds up to the value of the debt. Secondary legislation to be published shortly will set out details of the process and safeguards for taxpayers.
This is intended to be used when taxpayers fail to pay on time, and by the time things reach this stage, any taxpayer should be fully aware of all attempts made by HMRC to recover the debt.
Employment Taxation
Abolition of the £8,500 Threshold for Benefits in Kind
The £8,500 earnings threshold that determines whether employees pay income tax on all of their benefits in kind and expenses, and whether employers pay Class 1A National Insurance contributions (NICs), is to be abolished for 2016/17 onwards.
Currently, an employee whose earnings for the tax year are less than £8,500 pays tax only on certain employee benefits. The abolition of the threshold will mean all employees will be taxed on their benefits and expenses in the same way. The employer’s NICs treatment will follow the income tax treatment.
Statutory Exemption for Trivial Benefits in Kind
A statutory exemption is to be introduced for 2015/16 onwards that will allow employers to identify and treat certain low value benefits provided to employees or former employees as trivial. These benefits will then be exempt from income tax and Class 1A National Insurance contributions and will not need to be reported to HMRC. A benefit will be trivial if it meets all the following conditions:
- the benefit is not cash or a cash voucher;
- the cost of providing it does not exceed £50;
- the benefit is not provided under salary sacrifice arrangements or any other contractual obligation; and
- it is not provided in recognition of particular services performed, or to be performed, by the employee.
An annual cap of £300 will be introduced for office holders of close companies (broadly those controlled by 5 or fewer people) and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of exempt trivial benefits each year.
Employee Expenses: Dispensations
The current system whereby an employer can apply to HMRC for a dispensation to pay expenses free of tax in certain circumstances will be scrapped for 2016/17 onwards. Instead, expenses provided to employees will automatically be exempt in any case where the employee would have been eligible for a deduction had he incurred and paid the equivalent expense himself. The exemption will also allow the employee to be paid a scale rate rather than be reimbursed the actual expense he has incurred. This can either be a rate set by HMRC or a rate that the employer has agreed with HMRC. The exemption will also apply to benefits in kind provided by employers in respect of expenses incurred by their employees It will not apply to expenses/benefits provided as part of a salary sacrifice arrangement or in conjunction with other arrangements that seek to replace salary with expenses. Similar rules will apply for NIC purposes.
Collection of Tax on Benefits and Expenses through Voluntary Payrolling
Legislation is to be introduced to allow HMRC to make changes to the PAYE Regulations to provide for voluntary payrolling of certain benefits in kind. The intention is that employers will be able to opt to payroll benefits for cars, car fuel, medical insurance and gym membership for 2016/17 onwards. Where employers do so, they will not have to make a return on Form P11D for these benefits. Instead, they will report the value of the benefits through Real Time Information, and that value will count as PAYE income liable to deduction using the PAYE Tax Tables. The amended Regulations will determine the value to be placed on the benefit for this purpose.
Van Benefit Charge for Zero Emission Vans
The van benefit charge for zero emission vans will increase from £nil, beginning in 2015/16. The van benefit charge for such vans will be 20% of the van benefit charge for vans which emit CO2 in 2015/16, 40% in 2016/17, 60% in 2017/18, 80% in 2018/19 and 90% in 2019/20. From 2020/21, the van benefit charge for zero emission vans will be the same as the van benefit charge for vans which emit CO2.
National Insurance Contributions
NICs for the Self-Employed
Class 2 contributions will be abolished in the next Parliament. Class 4 contributions will be reformed to introduce a new contributory benefit test. The Government intends to consult on the proposals later in 2015.
Business Taxation
Research and Development
Legislation will be introduced to restrict qualifying expenditure for research and development (R&D) tax credits so that the cost of consumable items incorporated in products that are sold in the normal course of a company’s business are not eligible for R&D relief, with effect from 1 April 2015. Qualifying expenditure on consumable items will be limited to the cost of only those items fully used up or expended by the R&D activity itself which do not go on to be sold as part of a commercial product. This restriction will not apply where the product of the R&D is transferred as waste, or where it is transferred but no consideration is given.
In addition, from 1 April 2015, the rate of the above the line credit for large companies will increase from 10% to 11% and the rate of the relief for the SME scheme will increase from 225% to 230%.
VAT
VAT Registration Thresholds
With effect from 1 April 2015, the VAT registration threshold will be increased from £81,000 to £82,000. The deregistration threshold will be increased from £79,000 to £80,000. The registration and deregistration thresholds for acquisitions from other EU member states will be increased from £81,000 to £82,000.
This is a summary of announcements most likely to affect owners of small UK businesses. Things could change after the general election but in the meantime if you’d like more information on how the changes may affect you please get in touch.