2014 Budget Review

2014 Budget Review

Key Announcements in 2014 Budget

UK Chancellor George Osborne announced the 2014 Budget as the “Budget for makers, doers and savers”. The Budget included significant reform to the UK pension system and offered benefits to Britain’s Pensioners and Savers. The rise in the Personal Allowance to £10,000 for 2014/15 and the proposed increase to £10,500 will be a significant benefit to low earners. In fact, the Budget will serve to reduce taxes to all taxpayers earning below £150,000.

Whilst the Budget benefits most taxpayers in the form of a reduction in taxes, there was little in the Budget to benefit small businesses in the UK. The increase in the Annual Investment Allowance was the most significant benefit to small businesses whilst large corporations will benefit from a further reduction in the main rate of corporation tax.

The most significant changes announced in the 2014 Budget are as follows:

Income tax personal allowance

The income tax personal allowance will increase from £9,440 to £10,000 in 2014/15, and further increase to £10,500 in 2015/16. The higher allowances for those born before 6 April 1948 will not be increased.

The basic rate limit will reduce from £32,010 to £31,865 in 2014/15 and further reduce to £31,785 in 2015/16.

However, the higher rate threshold will increase from £41,450 to £41,865 in 2014/15 and further increase to £42,285 in 2015/16.

Transferable tax allowances for married couples and civil partners

With effect from 6 April 2015 it will be possible for one spouse or civil partner to elect to transfer £1,050 of their personal allowance to their fellow spouse or civil partner, providing that neither the transferor nor transferee are higher rate taxpayers. This will provide a financial benefit where one spouse or civil partner has an income less than their personal allowance.

From 2016/17 the transferable amount will be 10 per cent of the personal allowance.

National Insurance Employment Allowance

The National Insurance Employment Allowance was introduced in tax year 2014/15 and provides businesses with a reduction in their employer class 1 NIC of up to £2,000 a year.

Corporation tax rates and bands

As previously announced, the main rate of corporation tax will be reduced to 21 per cent from April 2014 and further reduced to 20 per cent from April 2015. The small profits rate remains unchanged at 20 per cent.

Annual Investment Allowance

The Annual Investment Allowance (“AIA”) for Companies will increase from £250,000 to £500,000 from 6 April 2014 until the end of 2015.

This represents a significant increase to the £25,000 AIA proposed in the previous Budget. The proposed reduction in the AIA is now scheduled to be cut to £25,000 on 1 January 2016.

Director Loans

The exempt threshold for director loans increases from £5,000 to £10,000 from April 2014.

Research and development (R&D) tax credit

There will be an increase in the rate of the R&D tax credit for loss making small and medium sized enterprises (SMEs) from 1 April 2014. The rate of the cash credit payable to SMEs conducting qualifying R&D activities will increase from 11 per cent to 14.5 per cent from 1 April 2014.

Other announcements for Businesses

The Seed Enterprise Investment Scheme (SEIS) is to be made permanent.

Anti avoidance measures to be introduced to clampdown on profit transfers from UK business to overseas entities for the avoidance of tax.

Tax payable in respect of schemes disputed with the HMRC must now be paid up front. Taxpayers will only be able to recover the funds if they are successful at tribunal.

HMRC now has the power to take money directly from bank accounts of those it claims owe unpaid tax.

Pensions

From April 2014 pensioners will be allowed to withdraw some or all of the funds from their pensions when they retire. Chancellor George Osborne’s sweeping reform of the pension system will remove the need for pensioners to buy poorly performing annuities. Anyone over 55 with a defined contribution scheme will be permitted to withdraw their pension funds as a lump sum. Pensioners who withdraw their entire pension will be taxed at their marginal rate on the amount over the 25% tax free lump sum.

The standard lifetime allowance for pensions is reduced from £1.5m to £1.25m from 6 April 2014.

The annual allowance for pension contributions is reduce from £50,000 to £40,000 for 2014/15 onwards.

The 10% starting rate tax for savers in the low earnings threshold is to be abolished from April 2015. Plans are also in place for the tax free starting rate band for savings to be increased to £5,000.

Individual Savings Accounts (ISA’s)

ISA Allowance increased from £11,520 to £15,000. From 6 April 2014 the allowance will increase to £11,880. From 1 July there will be a further increase to £15,000 and the New Cash ISA will provide savers with the flexibility to invest the full allowance in either cash or stocks and shares.

Property

The 15% stamp duty threshold will be reduced from £2m to £500,000 for properties purchased through the use of Limited Companies. Buy to let investors will not be affected by the change.

The government’s Help To Buy Scheme has been extended by four years to 2020. The government initiative supports buyers with small deposits.

Salaried Partners in Limited Liability Partnerships

New rules are being introduced to tackle “disguised employment” in Limited Liability Partnerships (“LLP’s”). The impact of the new rules means that some salaries partners in LLP’s will be taxed as employees.