Chancellor George Osborne’s speech was a bit of a mixed bag with most of the proposals designed to show long term competence, with his hope that the Conservatives will be voted in with a majority in May.
So this pre-election Budget included what the government has done in the last five years and what Mr Osborne plans to do if his party is in power in the next parliament, but this could all change radically depending upon who wins the election. As whoever does, will undoubtedly set out another Budget in the summer.
However, some measures announced by the chancellor will take effect relatively soon, so what do these announcements mean for you and your business finances?
Because of the vast amount of detail contained in the report by the Office for Budget Responsibility (OBR), which accompanied the Budget; I will give you the highlights and will post a number of separate pages on the key areas of Personal tax, Business tax, The Economy and a Tax Tables guide, for those of you who need a little more “flesh on the bones”..
- The state of the economy
- Public borrowing/deficit/spending
- Help for Savers
- Pension Reform
- Alcohol, Tobacco and Fuel
- Personal Taxation
- Business tax
The state of the economy
The UK grew 2.6% in 2014, faster than any other advanced economy, with a 2.5% growth forecast in 2015, up from 2.4% predicted in December, followed by 2.3%, 2.3%, 2.3% and 2.4% over the next four years.
Unemployment in the UK has fallen to a record 5.3% this year and set to fall to below 5% by the end of 2015.
Trade deficit figures “the best for 15 years”, though in my opinion they’re still pretty dire.
For More on the state of the Economy please follow to Tax Accountant’s Reaction to the Budget: The Economy
As a share of national income, the deficit has halved since 2010, but the overall UK government debt still stands at an eye-watering £1.377 trillion. Plus, even Mr Osborne’s plans see continued, albeit falling, borrowing until 2017 before we finally get into surplus in 2018-9 with debt as a share of GDP falling to 71.6% in 2019-20
Public spending squeeze to continue for the next three years, with an additional £30bn savings needed. However the squeeze is set to end a year earlier than planned in 2019-2020, with spending from then to grow in line with total economic growth
Welfare bills set to be an average of £3bn lower each year than predicted in December, and interest charges on government gilts £35bn lower; plus the sale of £13bn Northern Rock and Bradford & Bingley mortgage assets will help.
Help for savers
There is to be a new personal saving allowance, with the first £1,000 interest on savings income to be tax-free for basic rate taxpayers, with a reduced £500 allowance for 40p tax ratepayers and nothing if you earn over £150,000.
The annual savings limit for ISAs is increased to £15,240 and a “Fully flexible” ISA introduced that will allow savers to withdraw money and put it back later in the year without losing any of their tax-free allowance
On top of the pension reforms announced last year, pensioners already taking an annuity will be able to trade in them in for a pot of cash. Also the punitive 55% tax charge is abolished and tax applied at the marginal rate.
Alcohol, tobacco and fuel
Beer duty is to be cut by 1p a pint and cider by 2%. Scotch whisky and other home produced sprits will see a 25 fall in excise duty with wine duty frozen.
There are no changes to tobacco and gambling taxes, with tobacco duties set to rise by 2% above inflation, this amounts to 16p on a packet of 20 cigarettes.
The tax-free personal allowance to rise from £10,600 in 2015-6, to £10,800 in 2016-7 and £11,000 in 2017-8. The threshold at which people start paying 40p income tax, is to rise by above inflation from £42,385 in 2014-5 to £43,300 in 2017-8. The chancellor also plans to raise this further by the end of the next Parliament to £50,000.
The annual paper tax returns are to be abolished and replaced by digital accounts. This sounds great, but given the problems that HMRC are having with their computer systems and software, the jury’s out on that one!
The transferable tax allowance for married couples is to rise to £1,100
Class two national insurance contributions for the self-employed to be abolished in next Parliament, giving the self-employed an annual saving of around £150.
The much heralded “Google Tax” (Tax on Diverted Profits) aimed at multinational firms moving profits “artificially offshore”, will be brought in next month.
The Annual Bank Levy will rise to 0.21%, raising an extra £900m and banks will no longer be allowed to deduct fines and compensation for miss-selling from corporation tax.
The oil companies have been helped, with the supplementary charge on North Sea oil producers being cut by a third to 20% and the petroleum revenue tax is to fall from 50% to 35%. Also a new tax allowance to encourage investment in North Sea is being brought in.
Automatic gift aid limit for charities to be extended to £8,000
Farmers, who have seen their incomes yo-yo in recent years, will in future be allowed to average incomes for tax purposes over five years.
And finally, the long-awaited review of business rates will start later this year.
If any of you would like more detailed information on any aspect of PAYE, send me an e-mail and I’ll be pleased to advise further.