Penny Bowen, personal tax manager from Oxford accountancy firm Shaw Gibbs, comments:
"The killer blow for many business people will be the abolition of 10% ER on incorporation of small businesses – especially professional firms looking to incorporate following the changes to the LLP rules which came into effect in April 2014.
"There is encouragement for small businesses claiming R&D tax credits, which rise again, albeit by a small amount (they were already generous), along with the introduction of an assurance scheme for first-time claimants. This is relevant to companies operating at Oxfordshire’s science parks and tech companies.
"Stamp duty is elevated for those wealthy individuals who can afford to buy an expensive home, and smoothed for everyone else.
"Good to see employer’s NIC being abolished for apprentices up to age 25 from April 2016, and student loans being extended to post grad students, also from April 2016.
Growth & borrowing forecasts
The chancellor, using figures supported by the OBR (the Office for Budget Responsibility) expects UK growth of 3% this year. His forecasts for 2015 to 2019 fall between 2.2% to 2.4%.
Borrowing is expected to be £91.3 billion by the end of this year, falling to £75.9b by the end of next year.
If effective, the Government's annual spending and taxation plans will move the UK into £4b surplus by 2018-19. This is achievable provided disappointing tax receipts can be offset by lower interest charged on the UK’s national debt.
The tax-free personal allowance will increase to £10,600 from April 6, 2015, and the 20% basic rate limit will be £31,785. This means we won’t pay the 40% higher rate of income tax until income reaches £42,385.
• ISAs and death
The unexpected announcement is that for deaths after December 3, 2014, ISAs can be passed to a spouse or civil partner and retain their ISA status.
As from April 6, 2015, a widow, widower or surviving civil partner will also be able to use their deceased husband/wife/partner’s ISA allowance on top of their own. A shot in the arm for the savers amongst us.
• Pensions and death
The chancellor confirmed the removal of the 55% tax charge on lump sum death benefits where a pension member dies before age 75.
This applies to payments of death benefits after April 6, 2015, whether as a lump sum or income.
Where death occurs after age 75, income from the pension will be taxed at whatever rate of income tax applies to the beneficiary and lump sums at 45% (this is intended to be changed from April 6, 2016).
This also applies to death benefits on second and subsequent deaths and so allows pension funds to pass down the generations.
In addition, where an annuity has been bought which pays a continuing income to a spouse after the annuitant has died, this income will become tax free in the hands of the surviving spouse.
• Post-graduate student loans
From April 2016, post-graduate students under age 30 will now be able to apply for student loans of up to £10,000 to fund their post-graduate studies.
• Transport taxes
The cut in fuel duty will remain.
From May 2015, Air Passenger Duty (APD) for children under 12 will be abolished, and from May 2016 APD for children under 16 altogether will be scrapped.
Non-doms who have been UK resident for 12 of the past 14 years will pay £60,000 to preserve their non-dom tax status, and those who have been UK resident for 17 of the past 20 years will pay £90,000.
• Stamp duty land tax rates for residential property
With effect from December 4, 2014:
• No tax on the first £125,000 paid
• 2% on the portion up to £250,000
• 5% on the portion up to £925,000
• 10% on the portion up to £1.5 million
• 12% on everything above that.
"As a result stamp duty will be cut for the 98% of homebuyers who pay it."
• Welfare & benefits
Total welfare spending to be set to be £1b per year lower than forecast at the Budget. This will be achieved by Universal Credit work allowances being frozen for a further year, and unemployment benefits being stopped for migrants with no prospect of work.
• Transport taxes
The cut in fuel duty will remain.
• National insurance contributions
From April 2016 employer National Insurance Contributions up to the upper earnings limit for apprentices aged under 25 will be abolished.
From April 2015 the £2,000 annual Employment Allowance for employer National Insurance Contributions will be extended to care and support workers.
• R&D tax credit
Relevant to Oxfordshire’s science and tech companies, with effect from April 1, 2015:
- The rate of the credit will increase from 10% to 11%
- The rate of the small and medium (SME) scheme will increase from 225% to 230%.
An advance assurance scheme for small businesses making their first claim to R&D tax credits is to be introduced along with new guidance.
• Entrepreneurs’ relief
The bad news …
The killer blow for a number of business people will be the abolition of 10% entrepreneur’s relief (ER) on incorporation of small businesses, for example, professional firms looking to incorporate following the changes to the LLP rules which came into effect in April 2014.
For transfers on or after December 3, 2014, individuals will be prevented from claiming ER on disposals of the reputation and customer relationships associated with a business (‘goodwill’) when they transfer the business to a related close company.
With immediate effect, individuals incorporating small businesses will be subject to 18% or 28% capital gains tax on the disposal of goodwill, rather than the 10% they have been enjoying.
And the good news ….
Gains on disposals on or after December 3, 2014, which are eligible for ER, but are deferred into investments which qualify for the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR), will remain eligible for ER when the gain is realised.
Potentially, this reduces to 10% the capital gains tax charge on gains which previously would have been chargeable at 18% or 28%. However, the gains are not taxable until EIS shares are sold so this is a relief which may never be enjoyed, if there is a change in government and so a change in the CGT rates.
• Business rates
Business rates relief is to be doubled for a further year, with inflation-linked increase in business rates capped at 2%.
The rates discount for high street shops, pubs and cafes is to be increased to £1,500 next year.
• New tax on multinational firms
The chancellor announced the introduction of a new 25% tax on profits generated by multinationals from their activity in the UK. But how will this be calculated?