George Osbourne has full control of the UK’s financial reigns
In my Blog on July 8th, ‘The Big “Emergency” Budget’ I said that I would revisit many of the Tax changes once the detailed information was published for the necessary Finance Bill and the full implication of the changes known. Well now the Finance Bill and all of its explanatory notes has been published and whilst MPs will not debate the bill until September; the bill is expected to be passed by 20th October 2015.
I have detailed below, a summary of the points in the Finance Bill likely to be of interest to small businesses and individuals, and also what is missing. I’ve listed the topics in order of importance, not in the order they appear in the bill
- Dividend tax
- Let properties
- Annual Investment Allowance
- Personal allowances
- Direct recovery of debts
- Client notification
- Corporation tax
- Inheritance tax
- Tax locks
Dividend Tax
The increase in tax on dividends by 7.5% was the biggest surprise in the Summer Budget. It is supposed to reduce tax-driven incorporations, but the new law is not in the Finance Bill.
Also absent from the Bill is the £5,000 personal dividend allowance, so we are still in the dark about exactly how that tax-free allowance for dividend income will interact with the personal allowance, although it is due to come into effect from 6th April 2016.
Let properties
The restriction of tax relief for financing buy-to-let properties has sent landlords into a spin. Although the reforms don’t start to bite until April 2017 the alterations restricting tax relief are in the Bill at clause 24.
An individual can’t avoid the interest relief restriction by forming a partnership to hold the let property, and borrowing to invest in the partnership. The interest relief on the loan to invest in that partnership will be restricted in the same fashion as for directly investment in properties.
The abolition of wear and tear allowance and replacement with statutory renewals basis is now subject to a consultation exercise and will take effect from April 2016. The law will be amended by Finance Act 2016.
Annual Investment Allowance
The AIA is to reduce from £500,000 to £200,000 for expenditure incurred on and after 1 January 2016. The Chancellor promised the AIA would be fixed at this level, but that promise is not written into the bill.
Personal Allowances
The personal allowance for 2016/17 is fixed at £11,000 and at £11,200 for 2017/18. The basic rate threshold (above which 40% tax applies) is also fixed at £32,000 for 2016/17 and £32,400 for 2017/18.
Direct recovery of debts
On 20th October 2015, following Royal Assent of the Bill, HMRC will have the power to collect tax debts directly from taxpayers’ bank accounts.
Client notification
Tax advisers and Accountants will be required to notify their customers about the Common Reporting Standard, the penalties for tax evasion and the opportunities to disclose offshore evasion to HMRC. The information will have to be sent in a manner and form to be specified by regulations.
This is likely to prove a significant administration burden for all Accountants and has the potential to damage the relationship between adviser and client. There is no indication of when this requirement will come into effect. I will keep you informed.
Corporation tax
The rate of corporation tax is set at 19% for the financial years starting 1 April 2017 to 2019, and will reduced to 18% from 1 April 2020.
Orchestra relief will be introduced from April 2016, but will be included in the 2016 Finance Bill.
Inheritance tax
The nil rate band is fixed at £325,000 until April 2021, but a new home-related nil rate band of £100,000 is introduced from 2017, to rise to £175,000 by 2020. I’ll explain in much more detail in a future Blog.
Changes to IHT payable by non-domiciled individuals will come into effect from 2017, but those changes will be included in Finance Bill 2016 and Finance Bill 2017.
Tax locks
George Osborne promised a “tax lock” on Income Tax, VAT and National Insurance for the duration of the parliament before the election. The main income tax rates have been fixed at 20%, 40% and 45% for the parliament, but income tax on dividends will increase by 7.5%, so no effective lock there.
The standard and lower rates of VAT have been fixed at no more than 20% and 5% respectively. However this Bill will allow HMRC to reinterpret the law and move items out of the list of VAT exempt into the chargeable list quite easily.
The tax lock on National Insurance will have to be legislated in a separate NIC bill, but we know is won’t apply to NI for the self-employed, as we are expecting a consultation on the merger of class 2 and class 4 NIC later in 2015.
A Tax Accountant’s View
Whilst it was nice to get some ‘meat on the bones’ on the Chancellor’s Budget announcements, the unexpected and really scary twist is the granting of powers to HMRC to be able to raid your bank account. Everyone from the accountancy bodies to the Citizens Advice Bureau have inundated the Treasury with cogent and eminently reasonable arguments as to why this is a truly bad idea, but it’s still coming in.
Methinks Big Brother time has finally arrived!
If any of you would like more detailed information on any aspect of Summer Finance Bill, send me an e-mail and I’ll be pleased to advise further.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.