When the Government publishes the Budget, the Chancellor gives a speech to Parliament in which he sets out the key decisions on tax, borrowing and spending, and his reasons for taking those decisions. This speech is known as the Budget Statement. And that’s what Chancellor George Osborne did yesterday. “This is a Budget for building a resilient economy,” he said.
The official forecast on which the Chancellor bases the Government’s Budget is provided by the Office for Budget Responsibility (OBR). Their duty is to examine and report on the sustainability of the public finances and it is required to do so objectively, transparently and impartially.
The Finance Bill 2014 will be published on 27 March 2014.
Brief history of the Budget
The Chancellor of the Exchequer is the most senior minister at HM Treasury and acts as the nation’s primary finance minister. A bit like a finance director.
The Treasury itself dates back to the time of the Norman Conquest. Even before 1066, the Anglo-Saxon Treasury collected taxes (including the Danegeld, first levied as a tribute to the Vikings to persuade them – sometimes unsuccessfully – to stay away) and controlled expenditure.
The first “Treasurer” was probably “Henry the Treasurer”, who owned land around Winchester; the site of most royal treasure of both the Anglo-Saxons and the Normans. Henry is referred to in the Domesday Book and is believed to have served William the Conqueror as his Treasurer.
The Chancellor predicts growth of the UK economy in 2014 of 2.7%, and 2.3% next year, higher than previously forecast by the Office for Budget Responsibility and the biggest upward revision to growth between Budgets for at least 30 years.
- Taken together, the UK economy will be £16bn larger than was forecast just four months ago in the autumn statement. The annual Budget deficit will disappear by 2018-19, on current trends.
- The UK now has a higher employment rate than the USA – for the first time in 35 years.
- The IMF is impressed and believes the UK is “achieving the largest reduction in both the headline and the structural deficits of any major advanced economy in the world”.
- But faster growth alone will not balance the books, and more hard decisions are needed, as well as more cuts and pay restraint in the public sector, the Chancellor said.
- Tax avoiders had better pay attention (as well as their taxes) – the Chancellor said he is increasing HMRC’s budget to stop non-compliance and give HMRC modern powers (which most other Western countries have) to collect debts from bank accounts of people who can afford to pay but have repeatedly not done so.
- Buying a home at £500,000 and above through a company will be more expensive from now on as there will be 15% stamp duty to pay. Interest rates to exporters will be cut by a third and the amount of government credit available to support overseas sales has also been doubled, to £3bn. The government wants UK exports to reach £1 trillion by 2020, and for 100,000 more UK companies to be exporting by 2020.
- The annual limit on business investment tax relief currently stands at £250,000, but was due to fall back to £25,000 from the beginning of 2015.
- House-buyers will have a new “right-to-build-your-own home” and the equity loan element of the current Help to Buy scheme will now last until 2020.
- The government is to extend the grant for small businesses to support 100,000 more apprenticeships.
- Business rates discounts and enhanced capital allowances will be extended in enterprise zones for another three years, the Chancellor said.
- The Annual Investment Allowance (capital allowances on purchase of assets) will be doubled to £500,000, until the end of 2015.
- Bingo! The number of bingo halls has “plummeted” by three quarters over the last 30 years and so bingo duty will be halved to 10%. But is Bingo past its expiry date?
- Lots of small changes in personal allowances including abandoning of the 10% tax rate on savings income and small changes too in tax thresholds. Small changes too in the VAT threshold limits.
- Exciting news for some savers: There’s to be a new pensioner bond (maximum investment per taxpayer of £10,000) available from 1 January nest year to anyone aged over 65 but we won’t know the exact rates until the autumn. Indications are 2.8% for a one year bond and 4% on a three year bond. Be quick though: Only £10bn of these bonds will be issued.
- The regime for ISAs – tax-free individual savings accounts – is to be shaken up from 1 July 2014. Cash and stocks and shares ISAs will be merged into one New ISA (NISA) and the annual limit for saving in an ISA will be raised to £15,000.
- A shake-up too for pensions: If people choose to take their pension savings early, it will be taxed at a normal marginal tax rate (typically 20%), rather than 55%. The income requirement for flexible pensions’ drawdown will fall from £20,000 to £12,000; the capped drawdown limit will fall from 120% to 150%; the size of the lump sum small pot will rise five-fold to £10,000; and the total pension savings you can take as a lump sum will almost double to £30,000.
- All remaining tax restrictions on how pensioners have access to their pension pots will be removed. Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. With no caps or drawdown limits and nobody will have to buy an annuity.
Extra detail on some points
Income Tax, personal allowances, rates of tax and thresholds for 2015 to 2016: For 2015 to 2016 the personal allowance for those born after 5 April 1948 will increase to £10,500 and the basic rate limit will be £31,785 for 2015 to 2016. For 2015 to 2016 the starting rate for savings income will reduce from 10% to 0%, (see below) and the maximum amount of an individual’s savings income that can qualify for this starting rate will increase to £5,000. Savers who are not liable to pay Income Tax on their savings income can register to receive interest payments from their bank or building society without tax being deducted.
Cutting the 10% tax rate on savings income: The government announced at Budget 2014 that from April 2015, it is abolishing the 10% ‘starting-rate’ of tax for savings income and replacing it with a new 0% rate, to provide further support for the lowest earners. It is also increasing the amount of savings income that the new 0% rate applies to, from £2,880 to £5,000. This means that anyone with a total income of less than £15,500 will not pay any tax on their savings. From April 2015, if total income (things like wages, pension, benefits and savings income) is less than the personal allowance, plus £5,000, a taxpayer will be eligible to register for tax-free savings, with their bank or building society.
Personal allowances for non-residents: To ensure the UK personal allowance remains well targeted, the government intends to consult on whether and how the allowance could be restricted to UK residents and those living overseas who have strong economic connections in the UK, as is the case in many other countries, including most of the EU.
Capital Gains Tax (CGT): non-residents and UK residential property: As announced in Autumn Statement 2013, legislation will be introduced to charge CGT on future gains made by non-residents disposing of UK residential property. A consultation on how best to produce the charge will be published shortly after the Budget. These changes will have effect from April 2015. Legislation will be in Finance Bill 2015.
National Insurance contributions: simplification for the self-employed: The government will introduce legislation when parliamentary time allows to simplify the administrative process for the self-employed by using Self-Assessment to collect Class 2 National Insurance contributions alongside Income Tax and Class 4 National Insurance contributions. These changes will have effect from April 2016, however customers will start to see the benefits after April 2015.
Increasing Small and Medium Enterprises (SMEs) payable Research and Development (R&D) tax credit: Legislation will be introduced in Finance Bill 2014 to increase the rate of R&D payable credit for loss-making SMEs to 14.5% from 11% for qualifying expenditure incurred on or after 1 April 2014. This will increase the rate of the cash credit payable to SMEs that conduct R&D, but do not have corporation tax liabilities.
Enterprise Zones (EZ): Enhanced Capital Allowances (ECAs): Legislation will be introduced in Finance Bill 2014 to extend the period in which 100% ECAs are available in EZs by 3 years until 31 March 2020, and to include a power to make future extensions to the duration of ECA schemes by Treasury Order. A pilot EZ will also be established in Northern Ireland. ECAs are available to companies investing in qualifying plant and machinery on designated sites within EZs. These changes will have effect from Royal Assent to Finance Bill 2014.
Enhanced Capital Allowances (ECA) for zero emission goods vehicles: The government will extend the ECA for zero emission goods vehicles to March/April 2018. However, to comply with EU State aid rules the availability of the ECA will be limited to businesses that do not claim the government’s Plug-in Van Grant. Legislation will be in Finance Bill 2015.
Extending the Seed Enterprise Investment Scheme (SEIS): Legislation will be introduced in Finance Bill 2014 to remove the time limit from SEIS and make it permanent. The legislation will also make permanent the CGT relief for reinvesting gains in SEIS shares. These changes will come into force from Royal Assent to Finance Bill 2014 and, for CGT reinvestment relief, have effect for 2014 to 2015 and subsequent years.
Theatre tax relief: Legislation will be introduced during the passage of Finance Bill 2014 for a new Corporation Tax relief for theatrical productions and touring theatrical productions. The government will consult shortly after Budget 2014 on the design of the relief.
Annual Tax on Enveloped Dwellings (ATED): Finance Act 2013 introduced the ATED on certain non-natural persons owning UK residential property valued at more than £2 million. Legislation will be introduced in Finance Bill 2014 to reduce this threshold to £500,000. From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500. There will be a transitional rule for the £1 million to £2 million band requiring returns to be filed on 1 October 2015 and payment by 31 October 2015.
Anti-avoidance, fairness and planning
Venture Capital Trusts (VCT) share premium accounts: Legislation will be introduced in Finance Bill 2014 to prevent VCTs returning capital subscribed by investors within 3 years of the end of the accounting period in which the shares were issued. These changes will have effect from 6 April 2014.
Accelerated payment in tax avoidance cases: This is a very contentious area: As announced in Autumn Statement 2013, legislation will be introduced in Finance Bill 2014 to change tax administration to require taxpayers who have used avoidance schemes which are defeated in another party’s litigation, and who do not settle the dispute, to pay the disputed amount to HMRC on demand. Following consultation, further legislation will be introduced in Finance Bill 2014 to extend accelerated payment of tax to users of schemes disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, and to taxpayers involved in schemes subject to counteraction under the General Anti-Abuse Rule (GAAR), so that the amount in dispute is held by HMRC while the dispute is resolved. These changes will take effect from Royal Assent to Finance Bill 2014.
Avoidance schemes involving the transfer of corporate profits: Legislation will be introduced in Finance Bill 2014 to prevent companies from obtaining a Corporation Tax advantage by transferring profits between companies within a group. The legislation will provide that where as part of tax avoidance arrangements a company transfers all or a significant part of its profits to another group member, then the company’s profits will be taxed as though the transfer had not occurred. These changes will have effect for any transfer of profits made on or after 19 March 2014.
Disclosure of Tax Avoidance Schemes (DOTAS): The government will consult on extensions to the DOTAS ‘hallmarks’ (the descriptions of schemes required to be disclosed) to be introduced by secondary legislation later in 2014, and proposals to strengthen HMRC’s powers to tackle non-compliance with the rules, with a view to legislating in a future finance bill.
VAT Avoidance Disclosure Regulations (VADR): The government will consult on proposals to improve the VAT Avoidance Disclosure Regulations (VADR) regime, including placing the obligation to disclose primarily on the scheme promoter. Legislation will be in a future finance bill.
Direct recovery of debts: Another contentious area: Legislation will be introduced to allow HMRC to recover tax and tax credit debts of £1,000 or more directly from taxpayer accounts, subject to rigorous safeguards. The government will also consult on the draft primary and secondary legislation and on the implementation of the measure, including safeguards to prevent hardship. Legislation will be in Finance Bill 2015.
Want more information?
Further information on various measures announced by the Chancellor can be found at:
- The Budget 2014 speech in full
- HMRC Overview
- Overview of Tax Legislation and Rates
- Freedom and choice in pensions’ consultation and fact sheet
- Fact sheet – Abolishing the 10% rate of tax on savings income
- Fact sheet – The New ISA
- OTS competitiveness review: initial thoughts and call for evidence
- Tackling aggressive tax planning in the global economy: UK priorities for the G20-OECD project for countering Base Erosion and Profit Shifting
- Avoidance schemes involving the transfer of corporate profits
- National Infrastructure Plan: finance update
The Bizezia Online Business Library now includes the 2014 Budget Summary as a PDF. You can view it online here.