Following George Osborne’s delivery of the 2014 Budget, here is a summary of the main tax changes and announcements that will be of interest to those that own and run small businesses:
Personal Tax allowance
The personal allowance for those born after 5 April 1948 will be:
For 2014-15 – £10,000
For 2015-16 – £10,500
Income Tax rate bands
There was significant press commentary prior to the Budget announcements lobbying for an increase in the threshold at which tax payers are liable to the 40% Income Tax rate. The declared higher rate thresholds are:
For 2014-15 – £41,865
For 2015-16 – £42,285
The threshold at which the 45% rate starts is unchanged at £150,000.
There were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).
Transfer between spouses
As previously disclosed, from April 2015, a spouse or civil partner will be able to transfer part of their Personal Tax allowance. This inter-spouse transfer will only be allowed if both spouses/partners do not pay tax at the higher rates of Income Tax. Any transfer of allowance will therefore only benefit the receiving person at the basic rate of tax. Originally, the amount that could be transferred was to be limited at £1,000. In the Budget announcements this was increased to £1,050.
The Budget 2014 confirms that the Tax-free childcare costs cap, against which parents can claim 20% support, will be increased to £10,000 per year for each child. This will mean that eligible parents can now benefit from greater support, worth up to £2,000 per child each year. At the same time the Government is rolling out Tax-free childcare more quickly than previously announced. From autumn 2015, the scheme will be rolled out to all eligible families with children under 12 within the first year of the scheme’s operation.
UK Export Finance
In an effort to support businesses expanding into export markets, UK Export Finance’s (UKEF) lending capacity is to be doubled from £1.5bn to £3bn. The Chancellor also announced that the interest rates applied to this lending will be reduced by one third.
Annual Investment Allowance (AIA)
In response to lobbying by numerous employer and business organisations, the Chancellor has agreed to extend the temporary increase in the AIA from 31 December 2014 to 31 December 2015.
In a welcome move he has also doubled the amount that can be invested in qualifying assets from £250,000 to £500,000. The increase will apply from 6 April 2014 for unincorporated businesses and 1 April 2014 for companies.
It has been confirmed that the Finance Bill 2014 will include legislation to counter the abuse of three aspects of partnership taxation:
- The disguising of employment relationships, and consequential reduction in employment taxes, in relation to salaried members of Limited Liability Partnerships (LLPs).
- The tax-motivated allocation of business profits or losses in all partnerships where the partners include individuals and companies.
- The tax-motivated disposal of assets through partnerships.
The changes will take effect from 6 April 2014. Certain minor amendments have been made to the previously published draft legislation, but the details will not be made available until the Finance Bill 2014 is published together with revised guidance.
VAT registration thresholds
The registration and deregistration thresholds will be changed as follows from 1 April 2014:
- The taxable turnover threshold, which determines whether a person must be registered for VAT, will be increased from £79,000 to £81,000,
- The taxable turnover threshold which determines whether a person may apply for deregistration will be increased from £77,000 to £79,000, and
- The registration and deregistration threshold for relevant acquisitions from other EU Member States will also be increased from £79,000 to £81,000.
- The simplified reporting requirement (three line accounts) for the Income Tax Self Assessment return will continue to be aligned with the VAT registration threshold. From 2013-14, small businesses are able to use the simpler Income Tax cash basis that simplifies the way in which small businesses can calculate their trade profits. The eligibility conditions for the cash basis are linked to the VAT registration threshold in place at the end of the relevant tax year.
Employee share schemes
As announced in the Autumn Statement 2013, legislation is to be included in the Finance Bill 2014 to increase the maximum value of shares that can be acquired under all-employee Share Incentive Plans (SIP). From 6 April 2014 the individual limits under SIP will be increased to:
- £3,600 on the “free” shares companies can award to employees, and
- £1,800 on the “partnership” shares employees can purchase.
The Government are also adopting a number of changes recommended by the Office of Tax Simplification to simplify the tax rules and administrative processes for employee share schemes.
Fuel Benefit Charge and Van Benefit Charge
The multipliers that affect the amount of benefit in kind charges levied for private use of fuel in cars and vans, and private use of a van, will be increased in line with inflation for 2015-16. The increase will be based on the September 2014 RPI figure.
R & D tax credit for loss makings SMEs
The rate of R&D payable credit for loss-making SMEs is being increased to 14.5% from 11% for qualifying expenditure incurred on or after 1 April 2014. This will increase the rate of the cash credit payable to SMEs that conduct R&D, but do not have Corporation Tax liabilities.
Enterprise Zones: Enhanced Capital Allowances (ECAs)
The period in which 100% ECAs are available in Enterprise Zones is to be increased by three years until 31 March 2020.
Savings and investments
Three significant changes were announced in the Budget to support savings and previously announced changes were confirmed:
0% Income Tax band
From 6 April 2015 the maximum amount of an investor’s savings that can qualify for the starting rate of tax for savings will be increased to £5,000 (the limit set for 2014-15 is £2,880).
In a surprising announcement the Chancellor also advised that the starting rate of Income Tax is to be reduced from 10% to 0%. This will be a welcome change for individuals who rely on savings income to make up their disposable income.
Legislation will be included in the Finance Bill 2014 that will make the following changes, all effective from 27 March 2014:
- Reduce the minimum income requirement for accessing flexible drawdown to £12,000,
- Increase the capped drawdown limit to 150% of an equivalent annuity,
- Increase the total pension wealth that people can have before they are no longer entitled to receive lump sums under trivial commutation rules to £30,000,
- Increase the small pots limit, raising the size of a pension pot that can be taken as a lump sum regardless of total pension wealth, to £10,000,
- Increase the number of pension pots of below £10,000 that can be taken as a lump sum from two to three.
Access to defined contribution pension savings
From April 2015, the Government will change the tax rules to allow people to access their defined contribution pension savings as they wish from the point of retirement.
Drawdown of pension income under the new, more flexible, arrangements will be taxed at marginal Income Tax rates rather than the current rate of 55% for full withdrawals. The tax-free pension lump sum will continue to be available. Those who continue to want the security of an annuity will be able to purchase one. Equally, those who want greater control over their finances in the short term will be able to extract all their pension savings in a lump sum.
Those who do not want to purchase an annuity or withdraw their money in one go will be able to keep their pension invested and access it over time.
NISAs and ISAs
A New Individual Savings Account (NISA) is to be made available from 1 July 2014. They will incorporate a number of changes:
The annual subscription limit for cash and stocks and shares ISAs will be equalised at £15,000.
Restrictions on the movement of funds between stocks and shares and cash accounts will be removed.
Certain rules that determine the types of securities and other investments that can be held in an ISA are to be changed.
Social Investment tax relief
As announced at Budget 2013, legislation will be introduced in Finance Bill 2014 to provide a range of Income Tax and Capital Gains Tax reliefs, to provide incentives for investment by individuals in qualifying social enterprises. Income Tax relief will be available at 30% of the amount invested.
These changes will have effect from 6 April 2014.
Thanks to the team at HfM Accountants for their assistance in producing this summary.