Published: 16 March 2015
Chancellor George Osborne delivered his final coalition Budget on 18 March 2015 ahead of the General Election. The Finance Bill is to be published before Parliament is dissolved, scheduled for 30 March.
We have to wait until after the General Election to see if the new policy announcements made will remain on the agenda, and what else we can expect to see in the next Parliamentary term.
This Budget provided a degree of reassurance with no further change to corporation tax (20% being the joint lowest corporation tax in the G20), small technical changes to VAT rules and an announcement about a review of business rates. A package of measures to improve the accessibility of Research &Development tax credits for smaller businesses will be introduced over the next 2 years.
The Chancellor has pursued a policy of reducing the UK corporate tax rate and although he boasts of it being amongst the lowest of any advanced economy, this incentive to investment has had to be balanced by anti-avoidance measures driven by a media and public protest.
The Diverted Profits Tax (named by the media as "Google Tax") has been widely criticised as too wide in scope, incompatible with existing tax treaties and generally creating the type of uncertainty multinational businesses dislike. The Diverted Profits Tax will seek to tax profits made in this country (but diverted abroad) at 25%. Large businesses with international transactions need to urgently review whether the rules will apply to them as the legislation is introduced from 1 April 2015 and features an onerous self reporting obligation and upfront payment mechanism.
The Chancellor went on from Diverted Profits Tax announcement confirming the UK will be legislating to introduce country by country reporting of tax and financial information by large corporates from 2016 and also anti avoidance rules regarding use of losses. The country by country rules will provide tax authorities with far greater transparency over corporate tax affairs so such corporates need to review their transfer pricing strategies and documentation without delay. The loss refresh measures seek to prevent the contrived use of carried forward reliefs and whilst the policy may be aimed at relatively narrow arrangements the scope of the legislation and a purpose test will mean that groups with losses may need to consider whether the measure impacts them.
Certain changes were announced to the venture capital tax reliefs which are being introduced to ensure that the reliefs comply with new EU "State Aid" rules and approval can then be provided by the EU. It appears that the Treasury have ensured that the reliefs remain available to the companies in need of support. The changes introduced affect the companies seeking qualifying investment under the reliefs.
To ensure compliance with new EU rules, the Government will also make amendments to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCTs).
There will be some relief among business owners that the allowances for Entrepreneurs Relief remain untouched. Since recent changes in the Autumn Statement there was some tightening of the rules on eligibility to prevent the relief for contrived ownership structures aimed at securing relief which were against the spirit of the legislation.
The new measures have been introduced with effect from 18 March 2015 so that individuals who do not hold at least a 5% stake directly in a trading company will no longer qualify for Entrepreneurs’ relief. This will deny the 10% rate of tax on disposals of shares in companies that are not trading companies in their own right. There is also a reference to partnerships in the legislation, aimed at catching the non-trading company that is ‘trading’ through being a member of various partnerships. Entrepreneurs Relief will no longer be available for disposals on or after 18 March 2015 in these circumstances.
The Chancellor announced a raft of measures to help the North Sea oil industry and to encourage investment, which has fallen recently due to tumbling oil prices, in the North Sea. Petroleum Revenue Tax would be cut from 50% to 35% to help continued production in older fields. The existing supplementary charge for oil companies will also be cut from 30% to 20%, backdated to January
For Private Individuals
The Chancellor has announced there will be an increase in personal allowances to £10,800 in 2016/17 (from £10,600 for 2015/16) and to £11,000 from 2017/18. This means that earners and those with other income below this level will not pay any tax (a measure that has grabbed the headlines but will not impact most tax payers’ pockets a great deal). From 6 April 2016 those earning below £31,900 (£32,300 from 2017/18) will only pay tax at 20%. Under the current changes individuals will pay higher rate tax when income is more than £42,700 in 2016/17 and £43,300 in 2017/18. The personal allowances for those earning over £100,000 will continue to be tapered and so will benefit less. It means that the 60% rate band for individuals with an annual income between £100,000 and £121,600 (up to £122,000 in 2017/18) will be broadened.
The National Insurance upper earnings and upper profits limits will increase to stay in line with the higher rate threshold
One of the headline announcements was the proclaimed abolition of the personal tax return but such a headline hides the reality that taxpayers will still have to confirm their income online and add details of income that HMRC doesn’t know about, such as business or investment income. The Chancellor announced plans to switch to online tax returns by 2020. The Government will publish a roadmap later in 2015 covering the details for the switch and will then work towards implementation for 5 million small businesses and the first 10 million individuals by as early as 2016.
The announcement that from April next year the first £1,000 of the interest earned on savings will be completely tax-free for basic taxpayers will be welcomed by many, while higher rate taxpayers will benefit from a £500 allowance. This initiative, in theory, should help to make the new tax reporting system simpler.
The main news on fuel and consumer taxes was that September’s planned increase in fuel duty was scrapped. Another penny was taken off the price of a pint and tobacco duties were unchanged. The duty on cider and whisky was cut, as the Chancellor sought to build on the success of his last Budget which, the Chancellor claimed, had protected pubs and saved or created 16,000 jobs in the hospitality industry.
The introduction of new Help to Buy ISAs will provide first time buyers with a generous perk. It will be interesting to see what impact this has on the housing market without a significant increase in supply. This new policy, combined with the imminent pensions liberalisation changes and the revised stamp duty system could help to provide upward pressure on house prices at a time when they have started to cool.
It was predicted that the Government would increase the thresholds at which Inheritance Tax is paid. Under plans released ahead of the Budget, the Conservatives were proposing to allow parents to pass their main property worth up to £1 million to their children free of inheritance tax. Instead, an announcement to undertake a review on the avoidance of inheritance tax particularly through the use of deeds of variation (as part of their policy of clamping down on tax avoidance). Currently a will can be varied, if all the beneficiaries agree, within 2 years of death; altering the beneficiary in a will. The Budget announcement is in addition to the Chancellor’s commitment made in the Autumn Statement on the introduction of new rules to target tax avoidance through the use of multiple trusts.
Other inheritance tax measures confirmed in the Budget include the extension of the inheritance tax exemption available for service personnel to members of the emergency services and humanitarian workers.
The Office for Tax Simplification has previously called for a complete review of Inheritance Tax and the continued adapting of the system, rather than a full review, only adds difficulties to an already complex tax system.
The Chancellor announced plans to publish further details of the government’s comprehensive plans for new criminal offences for tax evasion and new penalties for those professionals who assist them.
Although there were no new specific measures mentioned in relation to tax avoidance, the Chancellor continued to highlight the Government’s determination to reduce options for aggressive tax planning and we wait to see what effect the numerous new measures will have in practice.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.