The Chancellor delivered the Budget 2014 yesterday (19 March). The following is a summary of the main tax points of interest:
Corporation Tax - as previously announced, the main rate for corporation tax will fall from 23% to 21% in April 2014. It will reach 20% in April 2015. The small profits rate remains at 20% meaning that from April 2015 the rates will be aligned.
Corporation Tax - amending loss relief provisions - as announced in Autumn Statement 2013, the rules restricting the availability of relief for corporation tax trading losses where a company changes ownership will be eased. The changes will take effect for any changes of company ownership which occur on or after 1 April 2014.
Employment Allowance - as announced in Budget 2013, a relief for the first £2,000 of employer's national insurance contributions will be introduced from April 2014 to help businesses expand by reducing the costs of employment.
Research and Development ("R&D") tax credits - the rate of the payable tax credit under the SME R&D tax credit scheme will be increased from 11% to 14.5% from April 2014.
Bank Levy - from 1 January 2014, the full rate of the bank levy will be set to 0.156%.
Stamp Duty Reserve Tax ("SDRT") - as announced in Budget 2013, from 30 March 2014, the SDRT charge on unit trusts and open-ended investment companies will be abolished. The legislation will retain an SDRT charge on non pro-rata in specie redemptions.
Stamp Tax on Shares - growth markets - as announced in Budget 2013, from 28 April 2014, the government will abolish stamp duty and SDRT on shares in companies quoted on recognised growth markets. This includes shares listed on AIM.
VAT - place of supply and Mini One Stop Shop ("MOSS") - as announced at Budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services. From 1 January 2015 these services will be taxed in the Member State in which the consumer is located. The government will also legislate for the introduction of a Mini One Stop Shop from 1 January 2015. This will give businesses accounting for VAT due on these types of supplies in other Member States the option of only registering in the UK, using a single return.
VAT thresholds - from 1 April 2014, the VAT registration threshold will be increased from £79,000 to £81,000, the deregistration threshold will be increased from £77,000 to £79,000 and the registration and deregistration threshold for relevant acquisitions from other EU Member States will be increased from £79,000 to £81,000.
Income Tax - personal allowance: as previously announced, the personal allowance will increase from April 2014 to £10,000. A further increase to £10,500 from April 2015 has been announced with the basic rate limit reducing to £31,785. The personal allowance continues to be withdrawn for those with incomes above £100,000 giving a marginal rate of tax of 60% in the band between £100,000 and £120,000. The personal allowance will be increased by CPI from 2016-17. The government intends to consult on whether and how the allowance could be restricted to UK residents and those living outside the UK who have strong economic connections to the UK.
Capital Gains ("CGT") - annual exemption - as previously announced the annual exemption for 2014-15 will be £11,000. For 2015-16, the annual exemption will be £11,100.
Income Tax - savings - the starting rate for savings income will be reduced from 10% to 0% and the band to which it applies extended from £2,880 in 2014-15 to £5,000 from 6 April 2015. The complexity of the calculations remains where the tax payer has other non-savings income.
Scottish Income Tax - provisions are being made for the interaction of the Scottish rate with the rest of the UK tax system.
National Insurance - the National Insurance upper earnings and upper profits limits will be increased in line with the higher rate threshold.
Income tax - 2015-16 - the higher rate threshold will be increased to £42,285 and the basic rate limit will be set at £31,785 for 2015-16. The increase in the 40% threshold will continue to draw more people into paying higher rate income tax.
Income Tax - married couples - from 2015-16, married couples and civil partners will be able to transfer 10% of their income tax personal allowance to their spouse or civil partner where neither is a higher or additional rate tax payer.
Income Tax - relief for qualifying loan interest - from April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies will be extended to investments in such companies which are resident throughout the European Economic Area.
Inheritance Tax ("IHT") - the government will extend the freeze of the IHT threshold at £325,000 until 2017-18.
IHT - simplification of trusts - the filing and payment dates for IHT relevant property trust charges will be simplified. Income which arises in such trusts and is not distributed for 5 years will form part of the trust capital when calculating the 10 year anniversary charge. The government will consult further on the proposal to split the IHT nil-rate band available to trusts and simplify the trust charges with legislation in Finance Bill 2015.
New ISA - from 1 July 2014, a new ISA will be introduced for cash and stocks and shares with a higher annual limit of £15,000 and no restriction on what proportion can be invested in cash.
ISA - the Junior ISA and Child Trust Fund annual subscription limits will both be increased to £4,000 from 1 July 2014.
Flexible Pension Benefits - March 2014 - from 27 March 2014 drawdown has been increased to 150% of the equivalent annuity, under the flexible drawdown provisions the amount of other guaranteed pension income required is being reduced to £12,000 (previously £20,000), and it will be easier to commute small pension pots to a lump sum payable immediately.
Pension Contributions - the cap on annual pension contributions falls to £40,000 per annum from 6 April 2014. Unused relief from the previous three years can be carried forward.
Flexible Pensions Benefits 2015 - legislation will be introduced to allow those with a defined pension contribution to draw down any amount they like from it after the age of 55 from April 2015, subject to the marginal rate of income tax. Additional changes will also be made to give greater choice over how defined contribution pensions can be accessed.
Enterprise Investment Scheme ("EIS") and Venture Capital Trusts ("VCTs") - as previously announced, a number of changes to EIS and VCTs scheme will be made from April 2014, as follows:
- from the date of Royal Assent of Finance Bill 2014, companies benefiting from Renewables Obligation Certificates and/or the Renewable Heat Incentive will be excluded from the schemes (this will also apply to SEIS)
- from the date of Royal Assent of Finance Bill 2014, investors will be allowed to subscribe for VCT shares via nominees
- from 6 April 2014, income tax relief will be restricted on investments in VCTs that are conditionally linked to a share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT
- from 6 April 2014, VCTs will be prevented from returning capital within 3 years of the end of the accounting period in which shares were issued to investors that does not relate to profits on investments
- from 6 April 2014, notwithstanding the general time limits for making assessments to recover tax, HMRC will be able to withdraw tax relief if VCT shares are disposed of within 5 years of acquisition.
Furthermore, due to the government's concerns about the use of contrived structures to allow investment in low-risk activities that benefit from EIS or VCT, there will be a wider consultation and evidence gathering exercise over summer 2014.
EIS and SEIS - the government will consult on the need to accommodate the use of convertible loans in EIS and SEIS.
Seed enterprise investment scheme ("SEIS") - the government will make the SEIS permanent. In addition, the associated capital gains tax reinvestment relief will be a permanent feature of SEIS, providing relief on half the qualifying gains that individuals reinvest in SEIS qualifying companies in 2014-15 or subsequent years.
Social investment tax relief - as previously announced, from 6 April 2014 the government will introduce a range of income and capital tax reliefs on investments by individuals in social enterprises, with the rate of income tax relief being set at 30%. This rate will allow eligible social enterprises to receive a maximum of around £290,000 investment over 3 years.
Partnerships - as has already been widely announced, the government will introduce legislation that will take effect from April 2014 to counter the disguising of employment relationships in limited liability partnerships, prevent the tax motivated allocation of business profits to corporate partners, and the tax-motivated disposals or assets through partnerships.
Partnerships - The government will publish a draft partnership manual for comment in April 2014 linking all HMRC partnership guidance. The government will implement 6 additional short term fixes identified in the OTS's interim review and examine the feasibility of 3 further OTS recommendations by the end of 2014.
Employer-funded occupational health treatments - as announced in Budget 2013, there will be a tax exemption for amounts (up to £500) paid by employers for medical treatment for employees. The tax exemption is expected to become available with the rollout of the Health and Work Service in October 2014.
Employer provided benefits in kind - beneficial loans - as announced in the Budget 2013, the threshold for the small loans exemption limit will be increased from £5,000 to £10,000 from April 2014.
Employee ownership - as announced in the Budget 2013, the government will introduce a package of tax reliefs to support the employee ownership sector.
Share Incentive Plans ("SIP") and Save as You Earn Limits ("SAYE") - as announced in the Autumn Statement 2013, from April 2014, the annual limit for SIPs will increase to £3,600 per year for free shares and to £1,800 per year for partnership shares. The monthly limit for SAYE arrangements will increase from £250 to £500.
SDLT - 15% rate - the 15% SDLT rate applied to residential properties purchased by certain non-natural persons will be extended to properties purchased for over £500,000 with effect from 20 March 2014.
Annual Tax on Enveloped Dwellings ("ATED") - The government will introduce two new bands for ATED. Residential properties worth over £1 million will be brought into the charge with effect from 1 April 2015. The charge for these properties in 2015-16 will be £7,000. Properties worth over £500,000 will be brought into the charge with effect from 1 April 2016. The charge for these properties in 2016-17 will be £3,500. These charges will be increased by CPI each year.
CGT - The government will extend the related CGT charge on disposals of properties liable to ATED for residential properties worth over £1 million with effect from 6 April 2015 and for residential properties worth over £500,000 with effect from 6 April 2016. The government will consult over summer 2014 on possible options to simplify the administration of ATED.
Capital Gains ("CGT") - non-residents - as announced in Autumn Statement 2013, from April 2015, CGT will be introduced on gains made by non-residents disposing of UK residential property. A consultation on how to best implement this will be published shortly.
Capital Allowances - Annual Investment Allowance ("AIA") - the AIA will be increased to £500,000 for expenditure on plant and machinery made on or after 1 April 2014 (for corporation tax) or 6 April 2014 (for income tax) until 31 December 2015, after which it will return to £25,000.
Capital Allowances - Enterprise Zones - the period in which enhanced capital allowances are available in Enterprise Zones will be extended by 3 years until 31 March 2020.
Capital Allowances - Enhanced Capital Allowances ("ECA") for zero emissions goods vehicles - the ECA for zero emissions goods vehicles will be extended to 31 March 2018. The availability of the ECA will be limited to businesses that do not claim the government's Plug-in Van Grant.
Business Premises Renovation Allowance ("BPRA") - with effect from April 2014, changes to the BPRA regime will be made to limit it to building and renovation work and associated services, but the time period in which works must be undertaken will be extended to 36 months.
ECA - energy saving and water efficient technologies - the list of designated energy-saving and water-efficient technologies qualifying for ECA will be updated during summer 2014, subject to state aid approval.
Capital Gains - private residence relief - as announced in Autumn Statement 2013, the final period exemption will be reduced from 36 months to 18 months in most cases from 6 April 2014.
Stamp Duty Land Tax ("SDLT") - charities relief - from the date of Royal Assent of the Finance Bill 2014, the legislation will make it clear that partial relief from SDLT is available where a charity purchases property jointly with a non-charity. The charity will be able to claim relief from SDLT on the proportion of the purchase attributable to it.
SDLT - authorised property funds - the government will consult on the SDLT treatment of the seeding of property authorised investment funds and the wider SDLT treatment of co-ownership authorised contractual schemes.
Business rates - Enterprise Zones - the deadline by which businesses need to have located in an Enterprise Zone in order to claim business rates discounts will be extended by 3 years until 31 March 2018.
HMRC and tax administration
Self service time to pay - the government will introduce a new online system to enable people in financial difficulty to set up a payment plan for self-assessed income tax.
Customs civil penalties - Following consultation, the government will implement changes to bring the customs civil penalty regime in line with other HMRC penalties.
Self-employed National Insurance contributions ("NICs") - from April 2016, Class 2 NICs for the self-employed will be collected through Self Assessment.
Employee share schemes - as announced at Budget 2013, the government will implement 9 OTS recommendations to simplify the taxation of employment-related securities. Following consultation, the government has decided to delay introducing new rules for employment-related securities held by internationally mobile employees until April 2015, after which time all employment-related securities will be subject to these rules. The government will additionally consult on the OTS recommendation to introduce a 'marketable security' into rules for taxing employment-related securities and on the proposal to introduce an employee shareholding vehicle.
Construction Industry Scheme (CIS) - The government will consult in summer 2014 on options to improve the operation of the CIS for smaller businesses and to introduce mandatory on-line filing for contractors.
Avoidance and evasion
Upfront payments - users of disclosed tax avoidance schemes and schemes covered by the General Anti-Abuse Rule ("GAAR") will be required to pay tax upfront.
High risk promoters - The government will provide HMRC with new powers to tackle non-cooperative promoters of tax avoidance schemes. These powers will include the ability to issue conduct notices, breaches of which will trigger enhanced information powers with large financial penalties for non-compliance.
Marketed tax avoidance schemes - the government will legislate to provide that HMRC may issue a notice to the user of a tax avoidance scheme that they should settle their dispute with HMRC when the claimed tax effect has been defeated in other litigation. If the taxpayer does not settle, they risk a penalty and must make upfront payment of the tax in dispute.
Disclosure of Tax Avoidance Schemes regime (DOTAS) - the government will consult on extending the existing "hallmarks", and strengthening HMRC's powers to take non-compliance.
Avoidance schemes using charities - as announced in the Autumn Statement 2013, the government is consulting further on measures to deter the use of charities established for the purpose of tax avoidance.
Compensating adjustments - as previously announced legislation will be introduced, with effect from 25 October 2013, to prevent abuse of the rules relating to compensating adjustments in the transfer pricing code.
Employment intermediaries facilitating false self-employment - As announced at Autumn Statement 2013, the government will amend existing legislation to prevent both on-short and off-shore employment intermediaries being used to avoid employment taxes by disguising employment as self-employment, with effect from April 2014.
Dual contracts - As announced at Autumn Statement 2013, the government will legislate to prevent high earning non-domiciled individuals from avoiding tax by artificially dividing the duties of one employment between the UK and overseas.
Transfer of corporate profits - with effect from 19 March 2014, where profits are transferred between group companies as part of tax avoidance arrangements, the relevant company's profits will be taxed as if the transfer had not occurred.
Direct Recovery of Debts - the government will strengthen HMRC's powers to recover tax debts directly from debtors' bank and building society accounts, including ISAs. This will focus on debtors who owe at least £1,000 and have been contacted multiple times by HMRC to pay. A minimum aggregate balance of £5,000 will be left across all accounts, including ISAs, after the debt is recovered. The government will consult on the implementation of this measure shortly after Budget 2014.
VAT - reverse charge - secondary legislation will be introduced to prevent missing intra-community fraud in the wholesale gas and electricity sectors through a reverse charge.
Community Amateur Sports Clubs ("CASCs") - as announced at Autumn Statement 2013, the government will legislate to allow tax relief for donations of money from companies to CASCs.
Gambling - Bingo duty will be reduced to 10% and the duty on fixed odds betting terminals will be increased to 25%.
Sporting events - secondary legislation will be introduced to enable income and corporation tax relief to be given in relation to major sporting events.
Theatres - with effect from 1 September 2014, a new theatre tax relief will be introduced at 25% for qualifying touring productions and 20% for other qualifying productions.
Film Production - as announced at Autumn Statement 2013, from April 2014, for small and large budget films, relief will be available at 25% on the first £20 million of qualifying production expenditure and 20% thereafter. The minimum UK expenditure requirement will be reduced from 25% to 10% and the government will modernise the cultural test.
Aggregate levy rates - the aggregate levy rate will remain at £2 per tonne in 2014-15.
Landfill tax rates - from 1 April 2015, the standard and lower rates of landfill tax will increase in line with the RPI, rounded to the nearest 5 pence.
Air passenger duty - the government will reform air passenger duty by abolishing bands C and D from April 2015.