Wednesday 18 March saw George Osborne deliver what could possibly be his last budget and to say it was a tad political would be an understatement, however it is an election year and we would have been surprised if there had not been any tactics involved!
There are key changes aimed at helping young people into work and also into buying their own homes. Also there are changes coming in from April 2015 that whilst not in the budget, people need a reminder that they are there.
In terms of taxable pay, employees earning less than the higher rate tax threshold are better off by about £12 per month, whilst higher rate tax payers are £15 per month better off. Sadly the highest earners via PAYE are around £3 per month worse off.
The maximum salary a company director can pay themselves without suffering national insurance contributions is £671 per month.
The £2,000 national insurance credit for businesses continues. This is an exemption from paying the first £2,000 of employers national insurance.
There is a further measure coming in from April 2015, whereby employers pay no national insurance in respect of employees under the age of 21, up to the upper earnings level of £815 per week.
The maximum dividend that can be drawn after taking the above salary is £30,899 before any higher rate tax is due, assuming there is no other income. This represents a small tax saving for company directors.
Click here to see the full list of rates and allowances for tax and national insurance.
There were no changes to the corporation tax rates.
The main rate of corporation tax will fall to 20% from April 2016 for companies with profits in excess of £300,000. In the meantime, small companies with profits below £300,000 will continue to pay corporation tax at 20%.
Plans were announced to tackle the claiming of travel expenses by personal service companies. At this stage all we can do is keep an eye on the news for updates. Nothing yet has been implemented. We have a number of clients that may be affected by this proposed change and we will keep them updated with any developments.
Research and Development
The profit uplift for R&D was increased from 225% to 230%.
To remind you, when money is spent on R&D you can now claim £2.30 against profit for every £1 spent on research and development.
Are you developing new products? Are you overcoming technological or scientific uncertainties? Are you making scientific or technological advances in your field?
If so, you could claim enhanced expenses on consumable materials, employee costs, utilities costs and software. Contact us for more detail or to discuss if you think you might qualify.
Please note that another change brought in in the budget is that materials incorporated into products for sale are not eligible for this tax credit.
There were no announcements on capital allowances, which means that the enhanced first year allowance of 100% deduction for the first £500,000 spent on plant and machinery will come to an end from 31 December 2015. In the absence of any further update, first year allowances will not be available and so any new equipment purchases will qualify for only 18% capital allowances at most.
Seek advice from your tax adviser before making any investment decision, especially if your year end is not 31 December as this will affect how the allowances are pro-rated over the year.
Company Cars & Vans
In order to get 100% capital allowances on a new car, the emissions have to be75g/km. The main 18% capital allowances is only be available for cars with emissions of 130g/km or lower.
If you are planning on getting a fuel efficient car, then there can be benefits of buying it through the company. This does need to be assessed on a case by case basis, by balancing both the company position and the personal tax position of the director. Essentially, if you are looking at a car with CO2 emissions of below 95g/km, check with your tax adviser before deciding how to buy it.
A reminder from last year’s budget: If you have a van through the company, the benefit in kind is based on a flat £3,000. If you have a fuel efficient company van with zero emissions, then the benefit in kind will be 20% of the normal rate, i.e. £600. This is set to increase each year until 20/21 when it will be in line with the main rate.
Typically, basic rate employees will be £12 per month better off. People earning in the higher rate band up to £100,000 will also be better off. People earning over £150,000 will sadly be approximately £3 per month worse off. The worst pay level to be in has changed to between £100,000 - £121,200, where the marginal rate of tax on this element of the income is 60%!
There are options to keep this income down, particularly by looking and pension contributions and tax efficient salary sacrifice possibilities.
It was announced that the minimum wage rate for 21 years and older will increase to £6.70 per hour from October 2015. The minimum rate for apprentices rises by 57p per hour – rising from £2.73 to £3.30.
It was also announced that there would be an apprenticeship voucher that would give employers choice over how they receive their funding.
At CCF, we don’t like talking about pensions as they are a complex area and the advice is best left to professional independent financial advisers, of which we can recommend some great ones! However following on from last year’s budget Pensions Reform was a key area of the budget.
The maximum pension pot that individuals can have falls from £1.25m to £1m. This is important for middle managers who have been earning over £80,000 per annum (in current rates) and investing into a pension for 25+ years. They may not be aware of the size of the pension pot and may need to take professional advice. Please contact us if you would like an introduction to a great IFA.
As a reminder while we are on the subject of pensions. As the company pensions reforms are going to affect most remaining businesses who have not staged from April 2016, we will be holding some briefings at our offices on Victoria Avenue, Harrogate to explain how this affects businesses employing staff. If you would like to be invited to one of these sessions, please contact us and we will ensure you get an invitation. Email email@example.com
The Savings Rate
People who are on low incomes (up to the personal allowance) have had a further reduced rate of tax to pay on savings income. This was announced last year and is effective from April 2015.
The savings income limit will go up to £5,000 and the tax rate goes down to 0%.
This affects a very small number of people, who typically do not benefit from this, due to bank interest having 20% tax deducted automatically and people not knowing that they can complete form R85 to get interest paid gross.
We do not typically come into contact with these people, who do not often prepare tax returns and so cannot help them. This is therefore an appeal for you to check with elderly relatives to see if they are on low incomes and would benefit from a small tax reduction on their investment income.
Social Enterprise Investment
It was announced that there will be tax reliefs available for investment in Social Venture Capital Trusts. There will be 30% tax relief on investments. That is £30,000 off your tax bill if you invest £100,000 in a Social VCT.
Any dividends and capital gains will be tax free.
This is a summary of the key points that we identified in the budget. If you would like to discuss any element with us, please do not hesitate to get in touch.