20 Mar Budget 2015
Budget 2015 Report
Chancellor George Osborne announced his budget on Wednesday 18th March below of which is a summary of the main changes affecting the UK tax system.
Personal Income Tax
The basic personal allowance will rise to £10,600 from the 6th April 2015 with a further rise to £10,800 from the 6th April 2016 and £11,000 from the 6th April 2017.
The rate at which an individual starts to pay tax at the higher rate of 40% is on all earnings over £42,385 from the 6th April 2015 which is an increase from the 14/15 year where it was £41,865.
Dividend tax rates remain unchanged at 10% for the basic rate and 32.5% for the higher rate.
From the 6th April 2015, a new transferable tax allowance for married couples and civil partners is being introduced. Where one spouse is not liable for tax at the higher rate (i.e. not earning in excess of £42,385) they will be able to transfer £1,060 from the unused personal allowance of their spouse or civil partner.
The government is still pursuing measures to legislate on the ability to collect payment of overdue tax direct from debtors’ bank and building society accounts where more than £1,000 is owed in tax or tax credits without first applying to the courts. This is expected to be legislated in a future Finance Bill.
Corporation Tax for Limited Companies
The rate of corporation tax is 20% on all companies irrespective of profits effective for all financial years commencing in 2015.
Capital Gains Tax
Rates remain unchanged at 18% for the standard rate and 28% for the higher rate. The annual exemption rate rises to £11,100 from the 6th April 2015 from £11,000 in the last tax year.
The final period of private residence relief exemption is being reduced to 18 months where it was previously 36 months. This applies to taxpayers who have sold a property which they have not consistently resided in throughout their ownership. There are exemptions and specific rules to claiming private residence relief and it is judged on a case by case basis.
The scope of capital gains tax is to be extended to include disposals by non-UK residents of residential property in the UK from the 6th April 2015.
The rate of value added tax remains unchanged at 20%, although the compulsory registration threshold has increased to £82,000.
National Insurance Contributions
Class 1 (employee) contributions remain the same at 12% but now for all earnings over £155.00 per week (rising from £153.00).
Class 1 (employer) contributions remain the same at 13.8% but now for all earnings in excess of £156.00 per week (rising from £153.00). Contributions for employees under the age of 21 and apprentices under the age of 25 will be abolished from April 2015.
Class 2 (self-employed) contributions will rise to £2.80 per week (from £2.75) with the earnings threshold exemption rising to £5,965 of taxable profits. From April 2016, Class 2 NICs will be collected via self-assessment.
It is proposed that Class 2 national insurance contributions will be abolished during the next parliament and Class 4 national insurance contributions will be reformed to introduce a new contributory benefit test. Government consultations will take place later during the year.
Class 4 (self-employed) contributions remain the same at 9% for all profits between £8,061 and £42,385, after which, the rate falls to 2%.
The current system of the employer needing to apply to HMRC for a dispensation to pay expenses free of tax will be scrapped in most circumstances in the 2016/17 tax year. This will be replaced with a scale rate rather than reimbursement of the actual expense incurred.
Trivial benefits in kind will be exempt from income tax and Class 1A National insurance contributions from the 15/16 tax year. If the benefit is of low value, is not cash or a cash voucher and does not exceed £50.00 it will be exempt. There will be an annual cap of £300.00 per employee which will be introduced subject to certain conditions.
Exemption Threshold for Employment-related Loans
The current limit with which you must declare an employment related loan (such as a Director’s Loan) on your self-assessment tax return is £5,000. From the 6th April 2014, this limit will increase to £10,000.
Tax-free Childcare Scheme
A tax-free childcare scheme is to be introduced in the autumn of 2015 which will equate to 20% toward the first £10,000 paid out in childcare for each child. All families who are working and not receiving tax credits or universal credit will qualify as long as neither parent earns more than £150,000 a year.
This remains at the first £2,000 of employer national insurance contributions and is still administered through the payroll RTI system.
Annual Investment Allowance (AIA) is set to fall to £25,000, however in his budget, the Chancellor stated that this is ‘not acceptable’ and a revised limit is to be announced in the autumn statement.
The September fuel duty increase has been scrapped.
Tobacco and gaming duties are frozen.
Duty on beer, spirits and low strength cider are reduced by 2%. Duty on wine (below 22%) and high strength sparkling cider has been frozen.
From April 2016, the first £1,000 of interest on personal savings will be exempt from income tax (£500.00 for higher rate taxpayers). Additionally, the deduction of basic rate tax at source from interest paid by banks and building societies will be abolished for all savers.
From Autumn 2015, you will be able to withdraw money held within an ISA and repay it within the same tax year without this second transaction counting toward the overall ISA subscription limit in any same tax year.
The government will introduce new digital tax accounts which will abolish the current system of completing a tax return for millions of taxpayers. At this stage, these proposals are a White Paper and a roadmap setting out the policy and administrative changes will be published later on this year. It is a proposal of radical change and simplification but no legislation has yet been laid down in Parliament.