The pre budget statement was read, with George Osborne announcing some key changes.
Osborne stated that the Uk is fastest growing economy; higher growth, lower unemployment and falling inflation. Business investment risen by 27%. The chancellor wants to support businesses that create jobs and apprenticeships. There was a big mention of crack down of tax avoidance and evasion; more to follow later.
Support for Carers
The carer’s allowance earnings limit will increase from £102 to £110 per week from April 2015. At the same time the government will extend the £2,000 annual NICs employment allowance to households that employ care and support workers. This means that a family will be able to employ a care worker on a salary of up to £22,500 and pay no employer NICs.
Carers will be exempted from the impact of removing the £8,500 threshold below which employees do not pay income tax on benefits in kind.
Direct recovery of tax debts
The Government has confirmed that it will now be able to utilise powers to recover tax and tax credit debts direct from the taxpayers Bank accounts. This is known as Direct Recovery of Debts or “DRD”. The announcement was already made in the March Budget and was a big concern for anyone that has been involved with HMRC errors in the past and the difficulties in trying to correct them.
As a result of the concerns, and of course, following consultation, certain safeguards will be put in place. Each debtor that is considered for this treatment will initially receive a face-to-face visit from an HMRC agent. This is in order that HMRC can identify vulnerable debtors, most in need of further support. Implementation of DRD will be restricted in year one to allow for feedback and to gain experience
The practical aspect of this remain to be seen and methodology of how to deal with the undoubted errors that will occur will be corrected.
Restricting tax advantage on incorporation
The corporation tax relief a company may obtain following the acquisition of a business through the amortisation of ‘goodwill’ from a related individual or partnership will be
restricted. This will affect acquisitions on or after 3 December 2014.
Peer to peer lending
The Funding for Lending Scheme is to be extended for another year in an attempt to ensure lenders continue to support people looking to set up new businesses in 2015.
Small business rate relief
Small business rate relief has doubled for another year. There is a cap at 2% on business rate rises. A full review of the business rates regime along with a 50% increase in the £1,000 discount for eligible high street shops.
Research and Development Tax Credit
One of the key messages in today’s announcements was the desire to boost science and infra-structure. Several pledges were made regarding science facilities and research investment. This impact on companies carrying out research & development.
The rate of tax relief available to SMEs will increase from 225% to 230% from 1 April 2015. On the same date the ‘above the line’ credit will increase from 10% to 11%.
Legislation will be introduced to restrict qualifying expenditure for R&D tax credits so that costs of materials incorporated in products which are sold are not eligible.
A consultation will be launched in January 2015 on the issues faced by smaller businesses when claiming R&D tax credits. We hope this consultation will address the issues many companies face in relation to the interaction between claiming grants and R&D tax credits.
National insurance payments for buisnesses with young apprentices
Abolishment of National Insurance payments for businesses with young apprentices > 25
moved the 40% tax threshold to £42,385 from April
Personal allowance
The basic rate income tax allowance will rise to £10,600 next year, not £10,500 as originally planned. There will be adjustments to other related allowances and reliefs. The basic rate limit changes to £31,785 (currently £31,865) with the higher rate threshold above which income tax is payable at 40% increasing to £42,385.
ISA’s
The savings limit for an ISA will increase from £15,000 to £15,240 from 6 April 2015. At the same time, the Junior ISA and Child Trust Fund subscription limits both increase from
£4,000 to £4,080.
Legislation will be introduced from 3 December 2014 to allow an additional ISA allowance for spouses and civil partners when an ISA saver dies, equal to the value of that saver’s ISAs.
Umbrella Companies
George Osborne announced a review into the employment intermediary legislation that use overarching contracts to engage with employees, commonly known as ‘Umbrella companies’.
Using an Umbrella company can offer a tax efficient way of making payments to ’employees’ and are used widely in the IT industry.
The official documentation doesn’t indicate exactley where the Government are heading with this, except to say they plan to have a consultation on the subject ahead of the 2015 budget.
The chancellor did suggest that the Government were looking at Umbrella companies that pay below National Minimum Wage to employees. There are Umbrella companies that utilise the use of tax free expenses and benefits, or dividend and loan arrangements, which bring employees’ income below the NMW. This area of the market would appear to be the Chancellor’s key target.
The Google Tax
In a raft of anti-avoidance measures, the most eye-catching being a new tax of 25% (effective from 1 April 2015) on multi-national companies which artificially divert profits overseas. although not particularly relevant to small business it has been given a great name so thought I would mention it (just like the good old Pasty tax!). The so-called “Google Tax” will be complex and is likely to require some international co-operation.
Summary
As is always the case, these announcements are generally subject to changes before being passed by Parliament. The draft 2014 Finance Bill clauses will be published next week and we will issue further updates as we review and analyse these.
For a more detailed review – please review our full document published here