Yesterday, George Osborne presented what was possibly the most important Autumn Statement of his time as Chancellor.
Many of the changes outlined were, as expected, highly political and therefore may not be relevant to the majority of taxpayers. Those measures will not be explored here as we will focus on the items that are more likely to be relevant to you. Our full round-up of the Autumn Statement can be found here.
From 6 April 2015 the personal allowance (tax free amount for individuals) will increase from the £10,000 it is currently, to £10,600. The Chancellor had previously announced in March’s budget that the allowance would be £10,500 which in real terms is worth £20 to each person.
At the same time, the income level at which higher rate tax becomes payable will increase from £41,865 to £42,385 which is worth £104 to higher rate taxpayers.
Married couples and civil partners can transfer 10% of their unused personal allowance to their spouse, if neither are a higher or additional rate taxpayer. This means the transferrable amount will increase to £1,060 for 2015/16 – potentially a benefit of £212 to couples in those circumstances.
ISAs were repackaged into NISAs in July 2014 and from 6 April 2015 the maximum tax free investment increases £240 from £15,000. George also announced that surviving spouses will be able to invest inherited ISA funds from their deceased partner into their own ISA and maintain the tax free status.
Peer-to-peer loans are something that is increasing in popularity, particularly due to low levels of bank lending and the economy being in a position where growth is possible. Unfortunately, not all businesses that are lent to will prosper and could result in the loan debt “going bad” for the lender. From 6 April 2015, individuals will be able to obtain relief for these losses against any peer-to-peer income they have.
Major changes are ahead for pensions! A lot of this was announced previously by the Chancellor and the theme is that you will have choice and flexibility over what you do with your pension. There is no longer a requirement to purchase a lifetime annuity. There is an option to allocate part of a pension fund into a “flexi-access drawdown account” from which any amount (which would be subject to tax) can be taken at any time, or to take a series of lump sums directly from the pension fund. The rules relating to pensions are complex so we recommend you speak to an independent financial advisor. If you do not have a financial advisor, please get in touch and we will introduce you to our preferred advisors.
In line with the plan that has been in place for a number of years now, from 1 April 2015 the main rate of corporation tax will be reduced from 21% to 20% – this means that effectively we will have a flat rate of corporation tax across all sizes of company.
Relief on research and development for companies will increase from 225% to 230%. While this increase is fairly insignificant, it serves as a reminder that huge tax breaks are available for companies undertaking R&D activities. This is a highly specialist area and we can help you to maximise the amount you could claim under the scheme. R&D relief may be available to you if you work on projects that are aiming for a technological or scientific improvement on what is already out there. If you think you may qualify for this generous relief, please get in touch.
One of the major announcements for those in the construction industry is improvements to the operation of the Construction Industry Scheme (CIS). We welcome the proposals to simplify and improve the compliance and turnover tests that will allow more subcontractors to access and keep gross payment status (this is to receive money from their contractors without CIS deduction). For companies, getting a refund of the CIS suffered is a lengthy process, so it will be a great thing if more subcontractors can be paid gross.
From 6 April 2015 self employed persons will pay their Class 2 National Insurance along with their income tax and Class 4 National Insurance through their tax return, based on the number of weeks of self employment. For those that wish to spread the cost (currently Class 2 NI can be paid monthly by direct debit), HMRC will retain a facility for this. Those with income of less than the relevant threshold will no longer have to apply for an exception, reducing the paperwork burden on self employed people with low income.
One of the announcements that could have a detrimental effect on small business is the abolition of corporation tax relief for goodwill on incorporation. Currently, when a sole trader or partnership transfers their business to a limited company, the goodwill in the business is sold to the company. The company then gets corporation tax relief as the goodwill is written off over the years, and the individual(s) pay capital gains tax at the Entrepreneur’s rate of 10% of the sale proceeds (after deducting the annual exemption). Both of these preferential treatments are being taken away – companies will no longer get corporation tax relief and individuals won’t get Entrepreneur’s Relief so will pay Capital Gains Tax at 18% or 28%, depending on their level of income. The justification for this is that the Government feel the old system was unfair to businesses that had always operated as companies.
From 6 April 2015, employers will no longer have to pay Employer NIC on employees aged under 21 on amounts paid to them under £42,385 per annum. As most 21 year olds are paid much less than this, this is a real saving for employers that would ordinarily have to pay 13.8% on earnings over approximately £150 per week.
Another Employer NIC break was announced for apprentices up to 25 years old on earnings in the same way as above, however this will not come into force until 6 April 2016.
The Employer Allowance which can be offset against the first £2,000 of Employer NIC remains in force for next year. If you have not yet claimed the allowance for the current tax year, please contact us, it’s not too late!
As mentioned in the Business Taxes section, a major change that affects small businesses going forward is the removal of Entrepreneur’s Relief when transferring from a sole trade or partnership to a limited company.
A positive step in this area is that gains which are eligible for Entrepreneur’s Relief but are deferred through Enterprise Investment Scheme or Social Investment Tax Relief will remain eligible for the Entrepreneur rate when the gain is realised.
Another, and probably the headline announcement of the Autumn Statement is the major reform of Stamp Duty Land Tax (SDLT). From today (4 December 2014) each new SDLT rate will be payable only on the proportion of the property value which falls within each band. This is a huge step in the right direction as it removes the distortion in the current system, where the amount of tax due jumps at each at the thresholds. Where contracts have been exchanged but not completed on or before 3 December 2014, the purchaser will have the option of the old or new structure. Anyone purchasing a property under £967,000 (which is the majority of buyers) will benefit from these changes. For example, a purchase of £130,000 will give a saving of £500, and a purchase at £275,000 will give a saving of £4,500! This is great for buyers and sellers alike – while the buyers benefit from the lower tax, sellers will benefit too as buyers will no longer be put off purchasing just above one of the limits, as the cliff edge approach will no longer apply.
A major headline that was expected was the devolution of many tax powers to Scotland. The Chancellor went further and announced proposals for devolution to Northern Ireland and Wales also, albeit not as devolved as Scotland.
A particularly relevant announcement is the Direct Recovery of Debts (DRD) powers given to HMRC. Under this they will be able to recover outstanding debt directly from the bank accounts of taxpayers. As scary as that sounds, we are assured there are a number of safeguards in place to protect taxpayers including a minimum debt limit of £1,000, a guarantee that all debtors will receive a face-to-face visit from HMRC before the debt is considered for DRD, that HMRC will not take any more debt than would leave the taxpayer with less than £5,000 in the bank and thankfully, the option of appeal to County Court. HMRC say they will use this power only in a small minority of cases (approximately 17,000 per year out of 400,000 debt cases – around 4%). If you are struggling with tax debt, please get in contact with us – we can help you work with HMRC to come to an agreement which would hopefully avoid them resulting to these powers.