This year's Budget was an opening salvo to next year's general election campaign. The Chancellor announced a raft of populist measures across personal and business taxes, with the most unexpected change being the radical shift for pensions. This was all against a backdrop of an ever-sharper focus on eliminating perceived tax avoidance and noncompliance.
Pensioners to benefit
There was good news for pensioners, all of whom are likely to benefit in the long run from proposals to make it more flexible for them to draw their pension. The Government plans to abolish the legal requirement to acquire an annuity from 2015, enabling retirees to choose when and how they take money from their pension pot.
Those on lower and medium incomes will benefit from pensioners' bonds, reducing the starting savings rate to zero, from 10%, and widening the band on which this applies.
Savers rewarded
There was a raft of measures to reward savers, not least a useful change in the individual savings account (ISA) rules. The ISA threshold will increase to £15,000 per annum from 1 July 2014. The allowance will be available for both cash and other ISAs, with a planned expansion of the types of investments allowed and the ability to move funds between them.
Personal allowances
The income tax allowance will increase to £10,500 from April 2015. The higher-rate threshold has been increased, for the first time in this parliament, to £41,865, with a further 1% increase to £42,285 planned from April 2015. Those earning under £100,000 per annum will generally pay less tax to differing degrees.
SEIS made permanent
The Seed Enterprise Investment Scheme (SEIS) is designed to help small, young companies raise equity finance and is already encouraging growth. Subject to meeting the qualifying conditions, investors can potentially benefit from income tax relief at 50% on up to £100,000 of investment per tax year, capital gains tax (CGT) exemption on the disposal of SEIS shares and CGT relief on other gains of up to 50% of the qualifying SEIS investment.
AIA doubled
In a measure welcomed by entrepreneurs, the Annual Investment Allowance (AIA) will be doubled to £500,000 and extended to 31 December 2015. Increasing the allowance should encourage further capital investment by UK companies. However, care needs to be taken to ensure that where accounting periods span the dates when the allowance changes, purchases are timed appropriately so that reliefs are not lost.
R&D tax credits for SMEs increased
The research and development (R&D) tax credits payable to SMEs will increase from 11% to 14.5%. This should provide additional financial support to those companies that incur qualifying R&D expenditure. This is a hugely under-used tax concession that is applicable to a wide range of businesses, not just in research focused sectors such as pharmaceuticals.
The long arm of HMRC
Two new measures will enable HM Revenue & Customs (HMRC) to collect tax revenues more swiftly.
1. The Government plans to give HMRC powers to take money from the bank accounts of those it thinks owes tax but have chosen not to pay. There are concerns about the veracity of HMRC's records in respect of the amounts owed. Given HMRC's tendency to pursue incorrect PAYE debts on occasion, this seems like the wrong time to be bringing in such a measure. There is also a wider human rights issue to consider.
2. It is proposed that taxpayers involved in tax arrangements disclosed under the Disclosure of Tax Avoidance Scheme (DOTAS) rules and those that HMRC challenge under the General Anti-Abuse Rule (GAAR), will have to pay tax and national insurance contributions up front, while the dispute is being resolved.
These measures will need careful design and adequate safeguards, especially at a time when HMRC has been allocated more resources to tackle non-compliance. While tax evasion and the abuse of tax rules should be prevented, it is vitally important that those taxpayers inadvertently caught up in this changing tax environment can rely on a fair justice system.
We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.
