THE 2015 BUDGET
George Osborne delivered his pre election budget on 18 March 2015. Many of his proposals are not due to take effect until 2016/17 and depending on the result of the forthcoming general election there may be a second budget in 2015 which may result in changes to some of the proposals.
This summary looks at some of the measures with particular emphasis given to those which will be of interest to small businesses, particularly freelance workers.
- Personal Allowances and Tax Bands
The allowances and tax bands applying for 2015/16 were announced in the 2014 Autumn Statement. In the budget, allowances and tax bands for 2016/17 and the 2017/18 were announced. The rates of tax applying for 2015/16 and 2016/17 are set below:
Taxable Income 2015/16 2016/17
Up to £10,600 0% 0%
£10,601 – £10,800 20% 0%
£10,801 – £42,385 20% 20%
£42,386 – £42,700 40% 20%
£42,701 – £100,000 40% 40%
£100,001 – £121,200 60% 60%
£121,201 – £121,600 40% 60%
£121,601 – £150,000 40% 40%
Over £150,000 45% 45%
An individual may transfer up to 10% of their personal allowance to their spouse or civil partner so long as that person is not a higher rate tax payer.
- The Personal Savings Allowance
An entirely new allowance will be introduced from 6 April 2016. This will exempt from tax the first £1,000 of interest for basic rate tax payers and £500 of interest for higher rate tax payers. It won’t be available to those paying the 45% tax rate.
Also from 6 April 2016 banks and building societies will stop deducting basic rate tax from interest.
- National Insurance
The rates of National Insurance for 2015/16 will be:
Class 1 Employees NI Employers NI
Up to £8060 0% 0%
£8061 – £8111 12% 0%
£8111 – £42385 12% 13.8%
Over £42,385 2% 13.8%
The rate is increased by 5p to £2.80 per week. Class 2 National Insurance will be abolished from 6 April 2016
The rate is increased by 20p to £14.10 per week.
Up to £8060 0%
£8061 – £42,385 13.8%
Over £42,385 2%
The first £2,000 liability of a business to employers National Insurance is waived as a result of the Employment Allowance. No employers National Insurance is due in respect of workers under 21 who earn at a rate less than £42,385.
- Capital Gains Tax
The annual exemption is increased by £100 to £11,100. The rates remain at 18% for basic rate and non tax payers, and 28% for higher rate and additional rate tax payers. The 10% rate for Entrepreneurs Relief remains with an unchanged lifetime allowance of £10 million. There were some minor changes to deny Entrepreneurs Relief for convoluted arrangements aimed at getting round the minimum 5% holding condition.
- Inheritance Tax
The nil rate band and rate remain at £325,000 and 40% respectively. There were no changes to note although the government are going to look at the use being made of Deeds of Variation.
- Tax Efficient Investments
For the 2015/16 tax year the maximum ISA investment is increased to £15,240 and £4,080 for the Junior ISA. An important change announced is that an individual who takes a withdrawal from an ISA will be able to re-invest that withdrawal in the same tax year.
A Help to Buy ISA will be introduced to run alongside existing ISA’s. They will be open to first time buyers and will come with a 25% top up of up to £3,000 to be paid at the point when the individual buys their first house. An initial deposit of up to £1,000 can be made and the maximum monthly subscription thereafter will be £200. The maximum house purchase value eligible for the scheme will be £450,000 in London and £250,000 elsewhere.
There were no changes to EIS. SEIS and VCT investment limits, but some minor changes were announced to more clearly focus on reliefs where the government would like to see them used.
The 2014 budget announced a major change effective from 6 April 2015 with the removal of the requirement to purchase an annuity. The Chancellor has said he wants to go further by allowing those who have already purchased an annuity to swap it for a lump sum taxed at their marginal tax rate.
The other change is a further reduction in the Lifetime Allowance from £1.25 million to £1 million effective from 6 April 2016.
- The Annual Investment Allowance of £500,000 which had been due to revert to its original level of £25,000, on 1 January 2016 is still set to reduce, but to an as yet to be announced, more realistic level.
- Corporation Tax
There were no major changes; the rate from 1 April 2015 will be 20%
The registration and deregistration limits are each increased by £1,000 to £82,000 and £80,000 respectively. The new limits are effective from 1 April 2015.
- Tax Avoidance and Evasion
There are a number of measures which target those involved in tax avoidance and evasion.
- The Tax Return
Plans have been announced to phase out the annual tax return. Tax payers will instead have digital accounts which will be pre-populated with information the HMRC already hold such as salary, pension and benefit information. Taxpayers will be able to update their digital account and make payments during the tax year instead of waiting until after the end of the tax year.
The government seem now to regard tax avoidance and tax evasion as one and the same. They also in some instances seem to have lost sight of what constitutes legitimate tax planning. There is for example included in a section on Avoidance and Evasion a stated intention to stop persons using personal service companies from claiming site based travelling expenses in some circumstances.
There were two big surprises which are perhaps linked. These are the Personal Savings Allowance and end of the tax returns. For most tax payers the PAYE system is good enough to relieve them of the burden of completing a tax return. An exception has always been higher rate tax payers who are in receipt of interest. A £500 allowance coupled with todays low interest rates means that for most the problem is no longer there. Dividends from listed shares are not included in the Personal Savings Allowance, but perhaps that will change in the future.
This document has been produced for general guidance only and does not constitute tax advice. Whilst every care has been taken in its preparation, Warr & Co Limited will not accept liability for any loss incurred as a result of any use made of this document or its contents. We will be happy to offer specific advice to clients when requested. Should you have any queries or wish to discuss any of the points raised please contact Tim Warr, Peter Edwards or Suresh Dhokia on 0161 477 6789.