The Chancellor of the Exchequer, George Osborne announced his annual Autumn Statement to Parliament on 3rd December 2014. The statement provided an update on the Government’s plans for the economy based on the latest forecasts from the Office for Budget Responsibility.
Income Tax - Personal Allowance
The personal allowance was expected to increase to £10,500 from 2015/16. However, today’s Autumn Statement announced it would increase by a further £100 to £10,600. Furthermore, the higher rate threshold for 2015/16 will increase in line with inflation for the first time in 5 years taking it to £42,385. These increases will be worth £120 to a typical basic rate taxpayer and £172 to a typical higher rate taxpayer.
The Autumn Statement confirmed that agreement has been reached with the Welsh Government on full devolution of business rates policy. A fully devolved regime will be operational by April 2015.
There were a whole raft of benefits announced in the Autumn Statement with regards to business rates:
- Support for small businesses by extending the Small Business Rate Relief to April 2016; around 385,000 of the smallest businesses will continue to receive 100% relief from business rates until April 2016, with around a further 190,000 benefiting from tapering relief
- Additional support for the retail sector by increasing the £1,000 business rates discount for shops, pubs, cafes and restaurants with a rateable value of £50,000 or below, to £1,500 in 2015-16, benefitting an estimated 300,000 properties
- The Government will carry out a review of the future structure of business rates and will report its findings by Budget 2016
- Support for all businesses paying business rates by extending the 2% cap on the RPI increase in the business rates multiplier to April 2016
However, please note that the Government will change the rules so that alterations to rateable values can only be backdated to the period between 1st April 2010 and 1st April 2015 for alterations made before 1st April 2016, and appeals must be made before 1st April 2015.
Funding for Small Business
£500 million has been pledged to small to medium sized businesses through the Enterprise Finance Guarantee Scheme, plus there has been a £400 million extension to the British business bank Enterprise Capital Funds scheme. There has also been an extension to the Funding for Lending scheme to boost bank lending to small to medium sized businesses. This is welcome news for small business owners seeking vital finance for growth, but we will watch closely to see how these measures are actually delivered.
Tax Reliefs when a Sole Trader or Partnership business is transferred into a Limited company
The Government has closed the door on some of the tax reliefs that can be claimed when a sole trader or partnership transfers its business into a related limited company (also known as incorporation).
Usually, when an incorporation takes place, the individual(s) will be deemed to have sold the reputation and customer relationships of the business to the limited company. This is commonly known as goodwill. This is treated as a sale by the individual to the company, and depending on the value of this goodwill, the individual may have to pay Capital Gains Tax (CGT).
If CGT is due then previously the individual could claim Entrepreneurs’ Relief, which means that the gain would be taxed at 10% rather than 18 or 28%. Entrepreneurs’ Relief will no longer be available for incorporations that take place on or after 3rd December 2014.
The second major change relates to the tax relief that the company can claim in respect of the goodwill. Previously a company could claim Corporation Tax relief on the value of the Goodwill purchased, however this relief will not be available for incorporations taking place on or after 3rd December 2014.
Incorporation has historically been seen as a way for an individual to reduce their tax liabilities, however the changes announced in the Autumn Statement will cause many to rethink their options.
Fuel Duty Freeze
The government announced it will freeze fuel duty, which will help mobile businesses and tradesmen.
Research and Development Tax Reliefs (R&D Tax Relief)
The rate of Research and Development relief for Small and Medium Enterprises will increase from 225% to 230% from 1st April 2015. This means that for every £100 spent on qualifying costs the business will be able to claim an additional £130 against profits. There will however be new restrictions imposed on certain types of expenditure.
Stamp Duty Land Tax (SDLT)
From 4th December 2014 in England, Wales and Northern Ireland, SDLT rates will only apply to the part of the property price that falls within each band; similar to the structure of Income Tax. The effective rate of SDLT will rise steadily as property values increase; unlike the existing system where the amount of tax due jumps at the thresholds in a so-called “slab basis”. Transitional rules will allow buyers who have already exchanged on a home but not completed before 4th December 2014 to choose whether to pay SDLT under the existing or new rules.
The Scottish Parliament has legislated for Land and Buildings Transactions Tax (which will replace Stamp Duty Land Tax) and Scottish Landfill Tax (which will replace UK Landfill Tax). The new taxes are expected to take effect from 1st April 2015 and because they are designed for Scotland, are aligned with Scots law and practice.
Individual Savings Accounts (ISAs)
The 2015/16 ISA limit will be increased to £15,240. The Junior ISA and Child Trust Fund limits will both be increased to £4,080.
As previously announced, employer’s National Insurance will be abolished for under 21s earning less than the upper earnings limit from April 2015. The Chancellor has extended this to include apprentices aged under 25 from April 2016.
The Government will extend the annual £2,000 Employment Allowance for employer National Insurance to care and support workers. This will come into effect from April 2015.
Devolution of Tax Powers
Northern Ireland businesses have long been asking for a corporation tax cut to be able to compete with the Republic of Ireland. Work undertaken by HMRC and HM Treasury has concluded that this could be implemented, provided that the Northern Ireland Executive is able to manage the financial implications.
Within the Autumn Statement, the Government has made clear that it is supportive of this change, provided the right conditions are met. The parties in the Northern Ireland Executive are currently taking part in talks aimed at resolving a number of issues. These include agreeing budgets for 2015/16 and putting the Northern Ireland Executive’s finances on a sustainable footing for the future. As any future decision to reduce the Corporation Tax rate in Northern Ireland will mean a reduction in the Northern Ireland Executive’s budget, the government will introduce legislation in this Parliament subject to satisfactory progress on these issues in the cross-party talks.
Devolution of Tax Powers
The Smith Commission was established on 19th September 2014, as a cross-party process to decide what new powers should be transferred to the Scottish Parliament. The Smith Commission reported on 27th November 2014 and the Government has announced it will now prepare draft legislative clauses to implement the Heads of Agreement.
As a result of the tax and welfare powers in the Heads of Agreement, the Scottish Parliament will be responsible for more than 50% of its funding. The Smith Commission report included the announcements that the Scottish Parliament will be given the power to set the rates of Income Tax and the thresholds at which these are paid for the non-savings and non-dividend income of Scottish taxpayers. The personal allowance will remain reserved. The first 10 percentage points of the standard rate of VAT will be assigned to the Scottish Government. Aggregates Levy and Air Passenger Duty will be fully devolved.