BUDGET 2015 PETER HUGHES CHARTERED ACCOUNTANT

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1 This newsletter outlines the principal measures announced in the Budget on 18 March Personal tax As announced in the Autumn Statement, the personal allowance for 2015/16 will be 10,600, up from 10,000 in 2014/15. The age allowance for those born before 6 April 1938 will be 10,660, and the married couple s allowance (for which relief is restricted to 10%) where one spouse was born before 6 April 1938 will be 8,355. The income tax basic rate band for 2015/16 will be 31,785, meaning that a taxpayer with the standard personal allowance will start paying higher rate tax at 42,385, compared to 41,865 in 2014/15. The Government intends to raise the personal allowance to 10,800 in 2016/17 and 11,000 in 2017/18. From April 2015 there will be a transferable personal allowance between spouses or civil partners. Up to 1,060 may be transferred, but not where either spouse or civil partner pays tax at the higher rate. Savings Basic rate taxpayers will be able to receive 1,000 of savings income tax-free, while the limit for higher rate taxpayers will be 500. Additional rate taxpayers will receive no allowance. The Chancellor estimates that this will take 95% of savers (17 million people) out of savings tax altogether. There will also be a 0% starting rate for savings income where a taxpayer s non-savings income is less than the personal allowance ( 10,600 in 2015/16) plus 5,000. Currently the limit is the personal allowance plus 2,880, and the tax rate on savings for those taxpayers is 10%. Under the new rules, a taxpayer with a salary of 14,000 and savings income of 2,000 will see 1,600 of the savings income taxed at 0% and 400 taxed at 20%. A Help to Buy ISA will be introduced. For every 200 a first time buyer saves, the Government will provide a 50 bonus up to a maximum bonus of 3,000 on 12,000 of savings. The bonus will be available on homes up to 450,000 in London, and up to 250,000 outside London. A couple will each be able to obtain a bonus. Individuals will be able to withdraw and replace money from their cash ISA during a tax year without the replacement counting towards the annual ISA subscription limit. This is expected to take effect in autumn 2015.

2 Pensions As previously announced, from April 2015 people who are already receiving income from an annuity will be allowed to sell that annuity to a third party, subject to agreement from their annuity provider. The lifetime allowance for pension savings will reduce from 1.25 million to 1 million from April There is likely to be protection for individuals who already have pension savings of over 1 million, along the lines of the fixed and individual protection regimes available from 6 April 2014 for individuals with pension savings of between 1.25 million and 1.5 million at that date. If the lifetime allowance is exceeded, the excess is charged to tax at 25% if the benefits are taken in the form of a pension, or 55% if in the form of a lump sum. This appears to be part of progressive reduction in the lifetime allowance, from 1.8 million in 2010/11 to 1.5 million in 2012/13 to 1.25 million in 2014/15. It was perhaps the worst measure in the Budget. The pensions minister, Steve Webb, has recently warned people in their twenties and thirties that they should be contributing 15% of their salary to a pension scheme in order to have a comfortable retirement, but pensions consultants estimate that a 25-year-old on an average graduate salary of 30,000 would exceed the 1 million threshold before retirement by contributing Mr Webb s suggested 15%. Defined contribution pension savers suffer more than those in a defined benefit plan: an index-linked annuity with a spouse s pension would produce about 28,000 a year if bought with a fund of 1 million; a defined benefit pension scheme producing an annual income of up to 50,000 would still be valued at less than 1 million. The pensions annual allowance limit of 40,000 remains unchanged. Business tax The annual investment allowance limit is currently 500,000 and is due to reduce to 25,000 on 31 December The Chancellor has indicated that a more generous allowance will be set in As announced in the Autumn Statement, the above-the-line credit for research and development expenditure rises from 10% to 11% of the expenditure from 1 April There continues to be a more generous credit of 14.5% of a surrenderable loss for small and medium-sized companies, who will be able to claim 230% (up from 225%) of the qualifying payments as a surrenderable loss, or the actual trading loss if lower.

3 Capital gains tax BUDGET 2015 The annual exempt amount rises from 11,000 in 2014/15 to 11,100 in 2015/16. From Budget Day, entrepreneur s relief will be denied on the disposal of shares in a company where the company is not a trading company in its own right. The definitions of a trading company and the holding company of a trading group will not take account of activities carried on by joint venture companies in which a company has invested, or of partnerships of which a company is a member. The relief will also not be available on a disposal of personal assets used in a business carried on by a company or a partnership where the withdrawal from the business is less than 5% of the shareholding in the company, or a 5% share in the partnership assets. Inheritance tax The nil rate band remains at 325,000. Not mentioned in the Budget was the Conservatives plan to exclude the family home from inheritance tax up to a value of 175,000 per person. It would mean that if both spouses use the allowance and add it to the existing threshold, there would potentially be no inheritance tax on an estate of 1 million. Corporation tax There are no changes in the corporation tax rates previously announced. The small companies rate stays at 20%, and the main rate falls from 21% to 20% on 1 April The result is that the small companies and main rates are aligned, and there will no longer be any need to calculate marginal relief for companies with profits between 300,000 and 1.5 million. VAT The registration threshold rises from 81,000 to 82,000 on 1 April 2015, and the deregistration threshold rises from 79,000 to 80,000. If a partially exempt business has foreign branches, the income of those branches can no longer be taken into account in calculating the deductible proportion of input tax on UK overheads. This is a response to the ECJ case Crédit Lyonnais. A new section 33E to the VAT Act 1994 will be introduced. This will refund to named nondepartmental public bodies, and similar public bodies, the VAT incurred as a part of shared services arrangements used to support their non-business activities. Usually input tax is claimable only if it relates to business activities.

4 VAT refunds will be allowed to search and rescue charities, palliative care charities and medical courier charities on their non-business activities. It would have been surprising if the standard rate of VAT had been raised so close to a General Election. However, while 20% was the median rate in the EU in January 2011 when it took effect in the UK, there are now only four EU member states (Germany, Cyprus, Luxembourg and Malta) with a standard rate lower than 20%. It remains to be seen whether the upward trend in Europe continues in the UK after the Election. Charities The limit of donations which can be claimed through the Gift Aid Small Donation Scheme will be increased from 5,000 to 8,000. Benefits in kind From 6 April 2015, there will be an exemption from tax on trivial benefits in kind costing less than 50, and an annual cap of 300 on the amount of such benefits which can be received free of tax by office holders and their close family members. From 6 April 2016, the 8,500 earnings threshold below which employees do not pay tax on benefits in kind will be removed. Future legislation will specify that the appropriate percentage of the list price subject to tax will increase by three percentage points for cars emitting more than 75 CO 2 grams/kilometre to a maximum of 37% in 2019/20. There will be a three percentage point differential between the 0-50 and CO 2 grams/kilometre bands and between the and CO 2 grams/kilometre bands. There will be a consultation with a view to restricting 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 of the services of the worker. Changes will take effect from 6 April End of the tax return It is intended that by 2020 individuals and businesses will be able to manage their tax affairs via a digital tax account. This will be pre-populated with information which HMRC already holds. The idea is that no tax return will be needed.

5 Details of how this will work are sketchy, but taxpayers will still have to check that the digital tax account is correct and tell HMRC of any errors and of any income or gains that are not included. There will be an option to pay tax as you go rather than at the end of the year; there has been no indication that this will be compulsory. MY PRACTICE AND CONTACT DETAILS I am a chartered accountant practising independently in York but with clients across the UK and a few in other countries. My two areas of specialism are VAT and financial reporting, and I am available for consultancy work, whether it be an answer to a simple question or a more complex request for advice. I can visit your premises if needed. I also offer training courses in VAT and financial reporting, principally on an in-house basis, although I am also available to speak at public events. The training courses section of my website gives more details. 11 Sails Drive, Heslington, York YO10 3LR Tel ; Mobile P.D. Hughes Consultancy Services Ltd Company No (Registered in England & Wales) peter@pdhughesconsultancy.co.uk 23 March, 2015