The Budget 2014

Summary

This was a Budget for bingo-playing baby-boomers who have not started to draw their private pensions. George Osborne announced some sweeping reforms to the taxation of pensions and halved bingo duty.

The traditional sin taxes on booze and fuel have largely been frozen or even reduced, although tobacco suffers a 2% above inflation tax rise. The new "sins" appear to be; owning a valuable home through a company and operating a high-stakes gaming machine.
Most individuals aged under 67 will feel the benefit of an increase in personal allowance from £10,000 to £10,500 in 2015. A transferable married couples' allowance of £1,050 will also help basic rate taxpayers from April 2015. Savers will enjoy higher tax-free limits for ISAs and premium bonds later this year, plus a cut in tax on savings income from 2015.

Businesses are encouraged to invest in equipment by an increase in the annual investment allowance to £500,000 from April 2014, and reliefs for investing in small trading companies and social enterprises are enhanced. Small and medium sized companies who undertake R&D are also given additional tax relief.

The losers are those who use tax avoidance schemes, as those sinners will have to pay the tax avoided up front. Several other tax loopholes used by groups of companies are blocked, and the rules for VCT schemes are tightened-up to deter abuse.

This newsletter is a summary of some of the key points form the Budget, based on the documents released on 19 March 2014. It is possible that a different position will be shown by the draft legislation which will be published on 27 March 2014. We will keep you informed of any significant developments.


Individuals

Personal Tax Allowance
• For people born after 6 April 1948, the personal tax allowance for 2014/15 is £10,000. This will increase to £10,500 from 6 April 2015.
• For people born on 5 April 1948 or before, the personal tax allowance for 2014/15 is £10,660.
• From April 2015, spouses and civil partners will be able to transfer 10% of their personal allowance to each other, which means £1,050 in 2015/16.
• To be eligible to make or receive the transfer, neither party must be liable to tax at the higher or additional rate.


Income Tax rates and bands 2014/15

• The basic rate of 20% will be charged on income up to £31,865.
• The higher rate of 40% will be charged on income from £31,866 to £150,000.
• The additional rate of 45% will be charged on income over £150,000.

Business Tax

• The main corporation tax rate will be 21% from April 2014, falling to 20% from April 2015.
• From 1st of April 2014 to 31st December 2015 the AIA cap is doubled to £500,000.

Duties

• AIR PASSENGER – From 1 April 2015, the number of destination bands are going to be reduced from four to two, resulting in long haul flights being charged duty at a lower rate. For example, a family of four visiting relatives in the Caribbean or India, flying in economy class, will pay £56 less in duty.
• BEER – The price of a pint will be cut by 1p from 24 March 2014.
• CIDER/SPIRITS – The duty has been frozen for 2014/15.
• WINE/SPARKLING CIDER – The duty rates for wine and sparkling cider exceeding 5.5% in strength will be increased by the rate of inflation, based on the Retail Price Index. This means an increase of 8p to the price of high strength sparkling cider and 6p to the price of a bottle of wine.
• TOBACCO – Duty will rise at 2% above inflation, based on the Retail Price Index, adding 24p to the price of 20 cigarettes.
• FUEL – The rise planned for September has been cancelled.


VAT Registration and Deregistration Limits

With effect from 1st April 2014, the new thresholds will be:

UK taxable supplies:
Registration - £81,000
Deregistration - £79,000

'Relevant Acquisitions' from other EC Member States:
Registration - £81,000
Deregistration - £81,000

Changes from 2014
• VAT treatment of prompt payment discounts given by suppliers

Others

• From 1 July 2014, cash and shares ISAs are to be merged into a New ISA – NISA – with an annual tax-free savings limit of £15,000. Savers will now have complete flexibility over the cash and shares mix within the overall limit of £15,000.

• From April 2015, the starting rate of tax for savings income will be reduced from 10% to nil. The maximum amount of taxable savings income that will be eligible will rise to £5,000 from £2,880.

• From 1 June 2014, the cap on Premium Bonds will rise from £30,000 to £40,000, increasing further to £50,000 in 2015/16. From August 2014, two £1 million prizes per month will be on offer, instead of the current one.

• HMRC is going to be given debt collection powers to recover money direct from the bank and building society accounts, including ISAs, of debtors who owe over £1,000 of tax or tax credit debts. HMRC will use this route after the debtor has been contacted ‘multiple times’. A minimum of £5,000 will be left ‘across’ debtors’ accounts after the debt has been recovered.

• The 36 month tax free period when a person’s main home is sold is reduced to 18 months for most disposals made after 5th April 2014.

• The annual exemption for capital gains tax increases to £11,000 for 2014/15.

• The inheritance tax nil rate band will remain frozen at £325,000 until 2017/18.

Research and Development

Companies can claim enhanced deductions for expenditure on Research and Development projects at rates broadly dependent on the size of the company as follows:
-Small and medium(SME): 225% of qualifying expenditure -Large: 130% of qualifying expenditure

Pensions

The following changes will be introduced from 27 March 2014:

• A person who wishes to take their pension as "draw-down" instead of buying an annuity will have to prove they have £12,000 of other income in retirement, rather than £20,000.
• The capped drawdown withdrawal limit will increase from 120% to 150% of an equivalent annuity.
• The total pension savings which can be taken as a lump sum will increase from £18,000 to £30,000.
• The maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000; and
• The number of personal pots that can be taken under these small pot rules will increase from two to three.

In addition the chancellor proposes to change the rules for defined contribution pension schemes from 2015 so that:

• individuals will have complete freedom in how they access their pension savings;
• buying an annuity will not be a requirement on retirement;
• the 55% tax charge on withdrawing too much from a pension fund will be removed; and
• everyone will be offered free and impartial advice on how to best use their pension savings.

and Finally…

Tax Avoidance

HMRC is going to seek an upfront payment of tax from people who have invested in disputed tax avoidance schemes.

HMRC Investigation Target

HMRC’s compliance yield target – the money it collects from pursuing tax evasion and tax avoidance –
• has been increased to £24.5 billion in 2014/15 and £26.3 billion in 2015/16.