Budget 2015

From a tax point of view, the chancellor’s promise regarding the contents of his final Budget of this parliament was substantially fulfilled.

There were no major new changes to business tax, but as expected there was the usual tinkering to make the system fairer.

With an election just around the corner perhaps we had better steer clear of excessive commentary on the benefits of his proposals on “hardworking people”.

Were there major surprises? Perhaps not.

The draft Finance Bill was published some months ago, so our initial commentary concentrates on some of the newly announced tax measures.

Some of these will tackle complex areas, but “simple” seemed to feature prominently in the speech. Simpler taxes, simpler payment and a simpler system.

There is even a plan for the next parliament to make the tax affairs of the self-employed simpler by abolishing class 2 National Insurance contributions. We shall see.

Business tax

By Richard Curtis

Corporation tax did not figure prominently in the Budget speech. Various targeted measures had appeared in the draft Finance Bill legislation with some attracting wider attention such as the restriction on relief for goodwill and the headline-grabbing diverted profits tax.

Brought forward reliefs

One new proposal – flagged up as supporting “a fair tax system” and levelling the playing field between avoiders and non-avoiders – is the introduction of legislation to prevent companies obtaining a tax advantage by way of “contrived arrangements to convert brought forward reliefs into more versatile in-year deductions”.

Corporation tax trading losses, non-trading loan relationship deficits, and management expenses are all within the scope of this measure, with effective from 18 March 2015.

If a company has a loss that cannot be set sideways against other income of its own or a group company, then relief is limited to that available on a carried forward basis.

This measure operates when a company receives profits that would not have been expected without an arrangement having been made and as a consequence brought forward amounts can be deducted from them.

We are told that predominantly commercial arrangements will not be affected, but groups wishing to transfer income around their member companies will need to take a close look at these provisions.

Films and petrol

A loosening of the rules relating to high-end television relief had been suggested in the autumn statement and the Budget confirms that the UK spending requirement will be reduced from 25% to 10% from 1 April 2015.

Those with clients in the media business may also be interested that the rate of film tax relief for all eligible productions will be increased to 25% for all qualifying core expenditure. Subject to EU state aid clearance being given, this is effective from 1 April 2015.

Other corporation tax changes likely to be of interest to a limited number of readers are those that affect petroleum revenue tax.

Leasebacks

Staying under the “business tax” banner, a new measure has been introduced to prevent the avoidance of tax (“supporting fairness”) where assets on which no capital expenditure has been incurred are sold to connected parties or sold and leased back by the owner.

This was announced by HMRC on 26 February 2015. The accompanying explanatory note said that this would apply (from that date) when “expenditure is incurred under a transfer and long funding leaseback, a sale and leaseback, a connected party transaction or a sale and subsequent hire-purchase.

In each case the restriction applies where the seller or transferor (or a person connected with them) has previously acquired the plant and machinery without incurring capital expenditure or an arm’s length amount of revenue expenditure.

Where the restriction applies, the expenditure qualifying for plant and machinery allowances is restricted to nil.”

Entrepreneurs’ relief

Staying with business tax elements, but moving from business to personal implications, three new capital gains tax measures showed up.

The “associated disposals” rules for capital gains tax entrepreneurs’ relief allow the 10% tax rate to apply to privately owned assets if the owner makes a part or full withdrawal from the business or company.

There is concern that the lack of a minimum requirement as to that withdrawal means that the 10% rate is applying without a real change in the business interests. From 18 March 2015, the claimant must also dispose of at least a 5% interest – represented by shares or partnership assets – in the business.

Joint ventures also came under attack. As indicated above, entrepreneurs’ relief is aimed at assets used in a trade and there is concern that joint venture structures have been set up that enable relief to be claimed by individuals who have a small indirect interest only in a trading company.

Again from 18 March, only those who have a 5% directly held shareholding in a genuine trading company will be able to claim the 10% rate.

Wasting assets

The final capital gains tax measure that “improves the fairness of the tax system” relates to wasting assets and prevents more claims being made along the lines of that in The Executors of Lord Howard of Henderskelfe deceased v HMRC [2013] UKUT 0129.

A gain on a valuable painting was held to be exempt because it was plant and therefore a wasting asset in the hands of a business to which it had been lent.

From 1 and 6 April 2015, for corporation tax and income tax, the wasting assets exemption will only apply where the asset has been used in the business of the person disposing of it.

Personal tax

By Allison Plager

Despite reported embargos on Budget measures, several hints about what was planned, as seems now to be the norm, had been drip fed to sections of the media.

As a result, no one was surprised when chancellor of the Exchequer George Osborne announced that the personal allowance would be increased to £10,800 for 2016/17 and £11,000 for 2017/18.

Given that in 2010/11 the allowance was £6,475, this is one allowance that has increased at a rate well above inflation.

The threshold at which people pay the basic rate of income tax will increase to £31,900 for 2016/17 and £32,300 for 2017/18; the higher rate threshold will rise to £42,700 in 2016/17 and £43,300 in 2017/18.

From 2016/17, there will be one income tax personal allowance regardless of an individual’s date of birth.

Savings

More of a surprise was the personal savings allowance. Under this measure, from 6 April 2016, the first £1,000 of a basic rate taxpayer’s savings will be tax free, while £500 will be available for higher rate taxpayers. Taxpayers who pay the additional rate will not qualify.

This is hardly a giveaway but, given the low rate of interest that savings attract, the new relief is a help for people relying on savings for income and will not affect individual savings account (ISAs) investments.

There was also good news for taxpayers who have ISAs. These are to be made more flexible so that savers will be able withdraw and replace money from their cash ISA without it counting towards their annual subscription limit for that year.

In addition, from 1 July 2015, the list of qualifying investments for ISAs and child trust funds is to be extended to include listed bonds issued by co-operative societies and community benefit societies and SME securities that are admitted to trading on a recognised stock exchange.

There will be a new help-to-buy ISA aimed at taxpayers saving for a deposit to buy their first home. The chancellor explained that, for every £200 saved, the government will top it up with £50 more. So if a 10% deposit on the average first home costs £15,000, an individual can put up £12,000 and the government will add £3,000.

Who said this wouldn’t be a Budget with voters in mind?

Pensions

As with the increases to the personal allowance, further changes to the pensions regime had been well heralded.

First, the less welcome news: the lifetime allowance is to be reduced from £1.25m to £1m from 6 April 2016. The chancellor justified this reduction by saying that the £4bn annual cost to the exchequer of pensions tax relief was “not sustainable”. The measure is expected to save £600m a year.

Fixed and individual protection regimes will be introduced alongside the reduction in the lifetime allowance to protect savers who may be affected by this change. On the positive side, the chancellor said that legislation would provide for increases to the allowance in line with the consumer prices index from 2018.

No change is to be made to the annual allowance (£40,000 a year), but neither is it to be increased in line with inflation.

Lauded by the chancellor as further flexibility for pension savers was the confirmation that pensioners will be able to sell existing annuities to a third party in exchange for a capital sum, taxed at the pensioner’s marginal rate of income tax.

The change will have effect from April 2016 to give the government time to consult on how to remove the barriers to the creation of a secondary market in annuities.

Disclosure facilities

Few will have been expecting the government decision to shorten the disclosure period of the Liechtenstein disclosure facility, changing the end date from April 2016 to December 2015.

The crown dependencies’ disclosure facilities are also to close earlier than planned, at the end of 2015 rather than September 2016.

The government plans to introduce a new time-limited disclosure facility that will run after the others close. It will come with tougher terms, including penalties of at least 30%, and no guarantee around criminal investigation.

As a result, taxpayers who have been dithering about whether to come clean about undeclared income from offshore accounts may choose to make an early decision so they can take advantage of the favourable terms offered by the LDF in particular.

On avoidance more generally, the government is to take action against taxpayers who persistently enter into tax avoidance schemes that fail. New legislation will impose a special reporting requirement and a surcharge on serial avoiders whose latest tax return is inaccurate because of a further failed avoidance scheme.

It is also considering restricting access to reliefs for taxpayers who have a record of trying to claim them using avoidance schemes that do not work. Another measure is on the cards that will name taxpayers who continue to use schemes that fail.

Goodbye, paper

Paper tax returns for individuals and small businesses are to be abolished by 2020. Instead they will manage their tax affairs online using digital tax accounts. In effect, relevant tax information provided by third parties – banks, buildings societies – will be automatically uploaded into the account.

A roadmap setting out the policy and administrative changes will be published this year.

In addition, the government will consult on a new payment process to support the use of digital tax accounts that allow tax and National Insurance contributions to be collected outside PAYE and self assessment.

The politics

By Daniel Selwood

Date: 17 March 2015

Scene: 11 Downing Street; George Osborne is sitting at his desk; Danny Alexander enters

DA: Morning, chancellor!

GO: Ah, Daniel! Come in!

DA: Thanks! It’s Danny, by the way.

GO: Little boys and greyhounds are called Danny. The chief secretary to the Treasury is Daniel. What can I do for you?

DA: I want to discuss the Budget speech.

GO: It’s not quite finished – but I’ve settled on the theme: “Have some money. Vote Conservative.”

DA: Add “or Liberal Democrats” and it’s a winner. You’re going to have to make a few compromises tomorrow.

GO: Such as?

DA: You can’t use my head to thump your points across. And don’t dangle the new pound coin on a string.

GO: I’m feeling very sleepy…

DA: Also, if you insist on wearing a towering blue hat, it’ll need a yellow brim.

GO: Okay, no topper. Can you lend me a fiver for a haircut?

DA: Hey, we’re all millionaires here! Take a tenner. Get yourself a nice grey tie, too.

GO: I was going to wear my t-shirt with the big blue C on it.

DA:  ...

GO: Gosh, I loathe the Budget.

DA: It’s kind of your main job…

GO: But it’s so samey! And the sums hurt my tum-tum! It’s no fun at all.

DA: Oh, that’s not true! You get to congratulate yourself and do those jokes. “All in this together” always gets a good laugh.

GO: I am great. It is a hilarious line.

DA: And there are the ad hominem attacks on Ed Miliband…

GO: Mr Two-Kitchens Who Has a Brother, I call him.

DA: Yeaaah… we’ll work on that later*. Have you picked your arch-enemy? We need to direct people’s hatred away from us and towards others.

GO: It’s called the Daily Mail manoeuvre. I was thinking about poor people.

DA: Duncan Smith’s already baggsied them. How about multinationals?

GO: Yawn!

DA: The super-rich?

GO: …

DA:  Pfft! All right, then: tax evaders.

GO: I love it! It’s zeitgeisty, it’s vague, and it means we can make sanctimonious pronouncements.

DA: Well, I’m glad that’s decided. What about the rest of the speech?

GO: Oh, you know: “Blah, blah… austerity… blah, blah… all Labour’s fault… blah, blah… long-term plan… blah, blah… on track… blah, blah… hardworking families… blah, blah… reducing the burden… blah, blah… northern powerhouse… blah, blah… getting Britain back to work.” Copy and paste the latest OBR report; smile for the nans; shout-out to nurses; don’t mention food banks or the NHS; and that’s your lot.

DA: And don’t mispronounce simple words.

GO: I plomise.

DA: Right, I’ll leave you to practise your braying for the opposition’s response. I’m off for my nap, and then Vince Cable’s going to take me for a gallop around St James’ Park.

^* They didn’t

Modern life is rubbish

This year’s Budget was all about turning taxpayers into Tories ahead of the general election – but the chancellor missed a true blue opportunity to win votes through special prohibitive levies on life’s latest annoyances. Here’s what GGO Osborne should’ve taxed:

• Selfie sticks
• Unsolicited messages about PPI
• Hipster beards
• The phrase “life hack”
• Vaguebooking
• Eateries that serve their fayre on/in anything that isn’t crockery
• TV singing competitions
• Clickbait
• Wine on draught
• Electronic handbrakes
• Meggings
• Anthropomorphic product labels
• Door-to-door chuggers
• Movie reboots
• Purple rosettes
• Jessie J

Give yourself a tweet

All I ask is that one MP shouts "that's Numberwang!" during tomorrow's Budget.

— Jason (@NickMotown) March 17, 2015

George Osborne wakes up early and reads his Budget speech one last time. With a sigh, he deletes the line "KILL ALL FIRSTBORN".

— Dave Turner (@mrdaveturner) March 18, 2015

George Osborne raises his budget box to the press. The lock breaks, the box opens and a hundred tea bags fall out. He runs away. The End.

— Michael Spicer (@MrMichaelSpicer) March 18, 2015

So many large shiny foreheads! #Budget2015

— Ffion Edge (@Ffion_Edge) March 18, 2015

I didn't realise George Osborne was auditioning for a new 300 film. #Budget2015

— strawbs (@AaronTheHuman) March 18, 2015

STAGE YOUR own family budget by having the kids noisily wave their rolled-up Beanos as you read out your credit-card bill. /via @mothmun

— Twop Twips (@TwopTwips) March 18, 2015

Vince Cable has got the same face on I used to wear when I had to spend Christmas with my family.

— Frankie McGinty (@FrankieMcGinty) March 18, 2015

Are people tested on their ability to cackle before they are allowed to become an MP? #Budget2015

— Katie Brooks (@Katiielou580) March 18, 2015

Can't believe the new pound coin features '4 plants associated with the UK', and they're not marijuana, hops, Robert, and Sellafield.

— James Martin (@Pundamentalism) March 18, 2015

Those hands, flying around. It's like watching a octopus trying to unhook a bra. #rEd #budget2015

— RtHonJon (@RtHonJon) March 18, 2015

Did @edballsmp just sniff @Ed_Miliband? #Budget2015

— Sipech (@TheAlethiophile) March 18, 2015

Whichever MP used the phrase "Do one" has just won #Budget2015.

— Jason Bournemouth (@EczemaBoy) March 18, 2015

Issue: 4493 / Categories: Comment & Analysis , Budget 2015 , Admin , Budget/Finance Act