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In a series of moves designed to incentivise UK businesses, the Chancellor announced future reductions in corporation tax to 18%. The Annual Investment Allowance will be set at £200,000 from 1 January 2016, while the Employment Allowance will be increased by 50% to £3,000 from April 2016. Meanwhile, a new apprenticeships levy will be applied to all large firms.
Key announcements on personal taxation include an increase in the basic income tax personal allowance threshold to £11,000 next year, and a rise in the basic rate limit to £32,000. The pensions tax relief annual allowance for the highest earners will be reduced from next year, and a new Green Paper will propose radical changes to the pension saving system.
A new, compulsory National Living Wage will apply for those aged 25 and above from next April, while working parents will receive up to 30 hours a week of free childcare for 3-4 year olds from September 2017.
Changes to the inheritance tax rules will include a new main residence allowance starting at £100,000 and rising to £175,000 by 2021. This could allow families to pass on up to a total of £1m to their children without paying inheritance tax.
Further measures to clamp down on tax evasion and aggressive tax avoidance are expected to raise an additional £5bn and the Government will abolish permanent non-dom status from April 2017.
Other measures announced include a freeze in fuel duty for the remainder of the year, a planned relaxation of Sunday trading laws for England and Wales, and a new Roads Fund which will be supported by Vehicle Excise Duty.
The corporation tax main rate will be 19% for the financial years beginning 1 April 2017, 1 April 2018 and 1 April 2019, and 18% for the financial year beginning 1 April 2020.
The Annual Investment Allowance (AIA) maximum amount is currently £500,000 for all qualifying expenditure on plant and machinery from 1 April 2014 for corporation tax and 6 April 2014 for income tax. This limit will be reduced to £200,000 (instead of the previously announced £25,000) with effect from 1 January 2016.
Legislation will be introduced to remove corporation tax relief for companies who write off the cost of purchased goodwill and certain customer related intangible assets. This will apply to accounting periods beginning on or after 8 July 2015, but not in respect of acquisitions made before 8 July 2015. Any losses arising on a disposal, on or after 8 July 2015, of goodwill that is subject to the new rules, will be treated as non-trading debits and will not be included in the calculation of trading losses.
The Government will introduce new corporation tax payment dates for companies with annual taxable profits of £20m or more. Where a company is a member of a group, the £20m threshold will be divided by the number of companies in the group. Affected companies will be required to pay corporation tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period. This will apply to accounting periods starting on or after 1 April 2017.
Legislation will be introduced to make an institution of higher education or a charity ineligible to make a claim for the Research & Development Expenditure Credit in relation to any expenditure incurred on or after 1 August 2015. This change does not affect 'spin out' companies used by universities or charities to commercialise their research.
Legislation will be introduced to stop losses and other surplus expenses from being set off against the Controlled Foreign Companies (CFC) charge on the profits of CFCs. This will apply to profits arising on or after 8 July 2015.
Apprentices – Employer NICs up to the upper secondary threshold for apprentices aged under 25 will be abolished from April 2016.
From April 2016 the Employment Allowance will increase to £3,000. However, companies where the director is the sole employee will no longer be able to claim this allowance.
It was announced that the NICs Upper Earnings Limit will increase to remain in line with the income tax higher rate threshold, which will rise to £43,000 in 2016/17 and to £43,600 in 2017/18.
The Government has previously announced its intention to abolish Class 2 NICs and reform Class 4 NICs to introduce a new benefit test. The Government will consult on the detail and timing of these reforms later in 2015.
Car and fuel benefits – the taxable petrol and diesel car benefit is based on the car’s CO2 emissions. It is calculated using the car’s UK list price and applying the ‘appropriate percentage’ as shown in the table on the right. The car fuel benefit is calculated by applying the same percentages to the fuel benefit charge multiplier, which for 2015/16 is £22,100.
From April 2015, the five year exemption for zero carbon and the lower rate for ultra-low carbon emission cars came to an end. Two new bands were introduced for ultra-low emission vehicles (ULEVs). These were set at 0-50 g/km and 51-75 g/km.
The appropriate percentages for the remaining bands have increased by 2% for cars emitting more than 75 g/km, to a new maximum of 37%.
Future changes – From April 2016, all the appropriate percentages will be increased by 2% up to the maximum of 37%. In addition, new European standards which come into force in September 2015 require diesel cars to have the same air quality emissions as petrol cars. The 3% diesel supplement will therefore be removed in April 2016, so that diesel cars will then be subject to the same level of tax as petrol cars.
The appropriate percentage will increase by 2% for cars emitting more than 75 g/km to a maximum of 37% in each of years 2017/18 and 2018/19.
VAT on fuel for private use in cars – Where businesses wish to reclaim the input VAT on fuel which has some degree of private use, they must account for output VAT for which they may use the flat rate valuation charge. Contact us for details of the VAT that is chargeable.
Company vans – the taxable benefit for the unrestricted private use of vans is £3,150. There is a further £594 taxable benefit if the employer provides fuel for private travel.
Zero emission vans – as previously announced, the van benefit for zero emission vans is to be increased on a tapered basis so that there will be a single van benefit charge applying to all vans by April 2020. For 2015/16 the charge will be 20% of the value of the standard van benefit charge (i.e. £630). There is no fuel benefit for such vans.
Motorists (private or business) purchasing new qualifying ultra-low emission cars can receive a plug-in grant of 25% towards the cost of the vehicle, up to a maximum of £5,000. The scheme also covers new qualifying ultra-low emission vans, where the available grant will be 20% towards the cost of the vehicle, up to a maximum of £8,000. Vehicles with CO2 emissions of 75 g/km or less, including electric, plug-in hybrid and hydrogen-fuelled cars, are all potentially eligible for the subsidy. There are strict criteria to be met before specific vehicles can be confirmed as eligible under the rules of the scheme.
With effect from 26 May 2015, the maximum financial penalty for employers who flout the NMW has increased to £20,000 per worker. This compares with a previous penalty of 100% of the total underpayment which was subject to a maximum of £20,000 per notice.
From April 2016 a new National Living Wage (NLW) in the form of a premium on top of the NMW will be introduced for workers aged 25 and above. Initially set at £7.20, it is expected to rise to over £9 by 2020.
From April 2016 the Dividend Tax Credit will be abolished and a new Dividend Tax Allowance of £5,000 a year will be introduced. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
New legislation will mean that landlords will no longer be able to deduct all of their finance costs from their residential property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs. This will be introduced gradually from 6 April 2017.
The Government will, with effect from April 2016, replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings.
From April 2016 the level of Rent-a-Room relief will be increased from £4,250 to £7,500.
For those with income (including the value of any pension contributions) above £150,000, the benefits of pensions tax relief will be restricted by tapering away their Annual Allowance to a minimum of £10,000. This will be effective from 6 April 2016.
In order to facilitate the taper, legislation will also be introduced to align pension input periods with the tax year as well as transitional rules to protect savers who might otherwise be affected by the alignment of their pension input periods.
As previously announced, with effect from April 2016, a tax-free Personal Savings Allowance is to be introduced for interest income. This will apply for up to £1,000 of a basic rate taxpayer's savings income and up to £500 of a higher rate taxpayer's savings income each year. It will not be available for additional rate taxpayers, but will be in addition to the tax advantages currently available to savers from ISAs.
From April 2016 banks and building societies will no longer automatically take 20% in income tax from the interest earned on individuals' non-ISA savings.
As previously announced, changes will be made with effect from April 2016 to allow people who are already receiving income from an annuity to sell that income to a third party as and when they choose. There will be a consultation on how best to remove the barriers to the creation of a secondary market in annuities.
Also as previously announced, the Government intends to reduce the pension lifetime allowance to £1m with effect from 6 April 2016. Fixed and individual protection regimes will be introduced alongside the reduction in the lifetime allowance to protect savers who think they may be affected by this change. Provisions to increase the allowance in line with CPI from 2018 will be included.
The IHT nil-rate band was previously frozen at £325,000 until April 2018. It will now remain frozen until April 2021.
The Government will introduce an additional nil-rate band when a residence is passed on death to a direct descendant. This will be £100,000 in 2017/18 and will increase by £25,000 each year until it is £175,000 in 2020/21.
This will affect individuals, with direct descendants, who have an estate (including a main residence) with total assets above the IHT threshold (or nil-rate band) of £325,000.
Legislation will be introduced to modernise and strengthen HMRC's powers to recover in certain circumstances tax and tax credit debts of over £1,000 directly from debtors' bank and building society accounts, including funds held in cash ISAs. Safeguards will be put in place, including a county court appeal process and a face-to-face visit to every debtor before they are considered for debt recovery.
HMRC's funding will be increased by a total of over £60m by 2020/21 to allow it to step up its criminal investigations into serious and complex tax crime.
The Government will extend HMRC's powers to acquire data from online intermediaries and electronic payment providers to find those operating in the hidden economy. The Government will also create a digital disclosure channel which makes it simple for taxpayers to disclose unpaid tax liabilities.
An investment of around £300m will be made by the Government over five years from 2016 to tackle non-compliance by small and mid-sized businesses, public bodies and affluent individuals.
The Government will consult on how to 'improve the effectiveness' of existing intermediaries legislation ('IR35'). A discussion document will be published after the Budget.
A new levy will be introduced on large UK employers to increase the number of apprenticeship starts. Employers in England will be able to access this funding for apprenticeship training. Details will be set out in the Spending Review.
As previously announced, the averaging period for farmers will be extended from two years to five years as of April 2016. The Government will publish a consultation at a later date.