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The 2015 Budget – Headlines and Summary

With the general election just over seven weeks away, the Chancellor sought to be the bearer of good tidings to businesses and individuals alike.

The UK’s Gross Domestic Product grew by 2.6% in 2014. Although this fell short of the 3.0% growth which had been previously predicted, the Chancellor claimed that the UK economy had nonetheless grown, ‘faster than any other major advanced economy in the world.’

The Office for Budget Responsibility revised its forecast for UK growth for 2015 to 2.5%, up from 2.4%.

Inflation is predicted to fall to 0.2% in 2015 and to remain at that level throughout the following three years.

The Chancellor announced plans to scrap the annual tax return, the abolition of class 2 National Insurance contributions and to increase the National Minimum Wage to £6.70 per hour for workers aged 21 and over. Whether or not these plans become a reality may well, of course, depend on the outcome of the general election.

There are, of course, a number of changes that have either already taken effect or will come into effect on 6th April. These are the main ones:

PERSONAL TAXATION

Income Tax rates

The threshold at which an individual becomes liable to pay income tax will remain at £10,600 for the 2015/16 tax year. It will, however, increase to £10,800 for 2016/17 and £11,000 for 2017/18. The upper taxable earnings limit for the basic rate tax band will fall in 2015/16 to £31,785 but will increase to £31,900 in 2016/17 and £32,300 in 2017/18.

Transfer of personal allowances

Married couples and civil partners will be able to transfer their unused personal allowances between them commencing in 2015/16. However, both partners must be taxed at 20% to qualify, and a maximum allowance of £1,060 can be transferred in a tax year. This means that the maximum annual tax saving would be £212.00.

Savings – personal savings allowance

From 6th April, 2016, a personal savings allowance will be introduced. This means that up to £1,000 of a basic rate taxpayer’s, and up to £500 of a higher rate taxpayer’s, income from savings will be exempt from income tax each year. However, this allowance does not apply to additional rate taxpayers. The government claims that this will abolish savings tax for 95% of people.

Savings – ‘help to buy’ ISA

A new form of ISA for people saving up to buy their first house will be introduced in the autumn of this year. Individuals over 16 will be able to save up to £200 per month using this ‘help to buy’ ISA and will be given a 25% tax free bonus by the government on those savings up to a maximum bonus of £3,000.

The ISA will be launched in the autumn, but savers can make a £1,000 initial deposit to the scheme between 18th March, 2015, and the launch date. The ISA must be specifically used in part payment of a house in the UK, up to a maximum purchase price for properties in London of £450,000 and £250,000 for properties elsewhere in the UK.

As the bonus is awarded on a per person rather than per house basis, couples who are saving up to buy a house can both take advantage of the scheme and thereby double the amount of the bonus.

EMPLOYMENT TAX

National Insurance Contributions

With effect from 6th April, 2015, employers will no longer require to pay National Insurance contributions for employees aged under 21 who earn under £42,385 per annum. National Insurance will, however, remain payable on earnings over that amount.

INDIRECT TAXES

Fuel duty.

This remains unchanged.

Value Added Tax

The threshold for VAT registration has been increased to £82,000 for 2015-16, a rise of £1,000. Likewise, the threshold for deregistration has also risen by £1,000 to £80,000 for 2015-16.

CORPORATE TAXES

Diverted Profits tax. A new diverted profits tax will be introduced with effect from 1st April, 2015. This tax is aimed at multinational companies trading in the UK who enter into artificial arrangements in order to divert profits and thereby significantly reduce their liability to UK taxes.

Annual bank levy.

This has been increased to 0.21%, a move that the government anticipates will raise an additional £900 million in tax. In addition, banks will be unable to set off payments made for mis-selling products against their profits.

Income tax averaging for farmers.

With effect from April, 2016, self-employed farmers will be able to average their profits for income tax purposes over a period of five years rather than the current period of two years.

Annual Investment Allowance.

The annual investment allowance, which allows businesses to claim 100% tax relief on qualifying plant and equipment expenditure in the year it is incurred, will retain its current limit of £500,000 until 1st January, 2016. It will thereafter be subject to change, but the Chancellor indicated that it would not fall back to its pre-2013 level of £25,000 per annum.

TAX AVOIDANCE SCHEMES

Contrived loss arrangements

New rules were introduced to prevent companies from gaining a tax advantage through converting carried over tax reliefs from previous years into more versatile in-year deductions.

The new rules apply in the calculation of a company’s taxable profits for accounting periods commencing on or after 18th March, 2015.

Any profits of a company with an accounting period that straddles 18th March, 2015, must be allocated to notional periods falling before and after that date. The company will need to make this allocation on a time proportionate or other just and reasonable basis.The new rules will apply to the notional period commencing on 18th March, 2015.

The new rules apply where:

A company receives profits from which it can deduct any of the relevant tax reliefs it has carried forward; and

It is reasonable to assume that the profit has only arisen because of the avoidance arrangement; and

The company, or a company connected with it, is entitled to bring a deductible amount into account as a consequence of the arrangement; and

The main purpose, or one of the main purposes, of entering the arrangement is to obtain a tax advantage involving the use of both the deduction and the carried forward reliefs.

The new rules apply to carried forward trading losses, non-trading loan relationship deficits, and management expenses. Where applicable, they prevent the company from being entitled to use those reliefs against profits arising from the avoidance arrangement.

Capital allowances – plant and machinery.

Additional measures have been introduced to prevent tax avoidance arising from the disposal and acquisition between connected parties of, and sale and leaseback arrangements relating to, plant and machinery.

These measures prevent the person acquiring the plant and machinery from claiming relief for any qualifying expenditure if the person disposing of the asset acquired it without incurring capital expenditure or qualifying revenue expenditure (being either an arm’s length price or the cost of an acquisition by a manufacturer who has incurred all the normal costs of manufacturing the asset)

Where the new measures apply, the person acquiring the asset will be treated, for the purposes of plant and machinery allowances, as having no qualifying expenditure. The new measures also apply where the person disposing of the asset (or a person with whom they are or were connected) has incurred expenditure but, for capital allowance purposes, is deemed to have no expenditure.

However, the new measures do not apply in cases where the person disposing of the asset (or a person with whom they are or were connected) is deemed to have incurred expenditure for the purpose of plant and machinery allowances, such as where an asset is gifted.

The new measures apply to arrangements where the relevant transaction (e.g. the leaseback or connected party transaction) occurs on or after 26 February 2015.

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