020 8876 1097 office@blythetax.com
Budget Comment March 2014

Last year I had a go at Ed Milliband’s Budget Response for lambasting the Chancellor about the cut in the top rate of tax from 50% to 45% (when it was actually carried out the previous year). The lambasting didn’t work – he was at it again! Come on Ed it was two years ago! But it is an indication of another relatively uncontroversial Budget.

As is the modern way with Budgets there are various announcement categories to report on:

  • This year’s Announcements applicable from 6 April 2014
  • Last year’s Announcements applicable from 6 April 2014
  • This year’s Announcements applicable from 6 April 2015
  • Last year’s Announcements applicable from 6 April 2016

Here’s a few of them:

This year’s Budget applicable from 6 April 2014

ISA changes: OK it’s not 6 April 2014, it’s July 2014. The cash and shares ISA’s will become interchangeable for the first time and you’ll be able to do more of them (up to £15,000). This is a big deal if you have surplus funds to invest.

Capital Allowances (for businesses): There’s a big increase in the Annual Investment Allowance (to £500,000) offsetable in full against profit. It is only due to last until December 2015, but of no interest if you don’t run a business – and a big one at that!

Pension Benefit Reform: There is a relaxation of the rules on Income Drawdown and Cash Withdrawals – but the dramatic news comes in 2015 (see below!).

Last year’s Budget applicable from 6 April 2014

Employment Allowance: There’s a £2,000 credit offsettable against Employers National Insurance available to all business employers (Employers National Insurance is the ‘tax’ levied on employers at the rate of 13.8% of their employee salaries over £7,956). This is a real boost to small businesses employing people. If we do your payroll the relevant adjustments will be made automatically. If we don’t, please ensure the Allowance is claimed.

Pension contributions: The Annual Allowance for contributions into Personal Pensions falls from £50,000 to £40,000 per annum (and the Lifetime Allowance is down to £1,250,000).

This year’s Budget applicable from 6 April 2015

Pension Benefit Reform: This is the drama referred to above – the principal point being that you won’t need to take an Annuity from your Personal Pension! Of course you may need a good tax planner to help you finesse your income and Income Tax Bands! But this measure removes one of the main excuses for not investing in a Personal Pension! It is for people with Defined Contribution Schemes (actually they are usually more Ad Hoc than defined!). There is now a good argument to be less Ad Hoc, more full on – especially if you are a higher rate taxpayer today expecting to be basic rate payer in retirement (subject to proper investment advice of course!).

The 10% Starting Rate band: Did you know this even existed? Don’t be surprised if you didn’t – it doesn’t apply to anyone with non-savings income over £12,000 (that’s anyone with a full time job and the wealthier pensioners!). It sounds good because the band is being almost doubled to £5,000 and the rate is reduced to nil%. In reality this is one for the very few.

New tax free Childcare regime: Due to start in Autumn 2015: if you have a child under 12 at the time please look out for the details…

Last year’s Budget applicable from 6 April 2016

State Pension: Mentioned here in case you forget amid all the other pension chat! For those retiring after 5 April 2016 a new all encompassing ‘Flat Rate State Pension’ is being phased in. Eventually no more ‘Earnings Related’ or ‘Second Pension’ adjustments. A simple (inflation adjusted) £144 per week across the board – so long as you have 35 years of qualifying National Insurance (there is nothing for those with less than 10 years). There will be no differentiation between men and women and the age difference for men and women (remember until recently women took theirs at 60 and men 65) is well on its way to being phased out. By 2020 both sexes will reach State Pension age at 66 and by 2028 it is expected to be 67.

The winners here are the self-employed and the relatively low earners. The losers will be the high earning long term employees who were not ‘contracted out’.

Back to this year’s Budget

A penny off a pint of beer – Bingo!
The two flagship announcements but:

  • How come a penny off a pint of beer even gets announced!
  • And Bingo – how many people knew it was taxed in the first place? I didn’t!
And two non-Budget topics:
Student Loans

Not a Budget topic but mentioned here because it is still a silent scandal. As we said last year, there are two types of ‘Income Contingent’ Student Loans. Those taken out prior to September 2012 and those taken out on or after September 2012. Repayments are made via additional ‘tax’.

On the former the additional Income Tax rate is 9% on income above £16,365. On the latter the same 9% is paid but on income above £21,000.

The current rate of interest on the pre September 2012 loans is 1.5%, on post September 2012 loans (this is the scandal) it is 6.3%! Over 12 times the current Bank of England Base Rate! Worse – the change coincided with the trebling of Tuition Fees. Outrageous!

Watch these rates – they are prone to significant change. But if you have children taking the post September 2012 loans please also review this option in the light of your ‘family’ finances – does it make sense? And write to your MP!

Auto-Enrolment

This is the fifth ‘pension’ topic referred to here – apologies! Auto-Enrolment is the shorthand expression for the obligatory ‘Workplace Pensions’ that all employers will have to have in place by their ‘Staging Date’. It is being phased in (the phasing has already started for big business). The earliest Blythe client Staging Date is February 2016 (our own date is 1 April 2017). If you run a payroll you have no choice – the matter will have to be addressed (Blythe payroll clients will be contacted well before deadlines strike).

The comments above are brief highlights and each item is subject to change, please note the full chart of Rates and Allowances below and remember – there is always more to it than meets the eye so please contact us before taking or refraining from action.

Rates and Allowances for 2014 and 2015

The chart of new Rates and Allowances is, as always, set out below. Probably the biggest change is the increase in Tax Free income (the Personal Allowance) from £9,440 to £10,000 in 2014-15. Did you think it was £10,500? Understandable if you did but that is next year’s Allowance (2015-16). The good thing for higher rate taxpayers is that the 40% threshold hasn’t been reduced (as it has been recently) in fact it has increased from £41,450 to £41,865. So a real benefit here for higher rate taxpayers. There’s a summary of Tax Rates below reflecting these changes.

 
2013-14
(£)
2014-15
(£)
Increase
(£)
Income tax allowances      
Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people 75 and over
9,440
10,500
10,660
10,000
10,500
10,660
560
0
0
Income limit for under 65 personal allowance
 
Income limit for age-related allowances
100,000

26,100
100,000

27,000

0

900

Married couple’s allowance for people born before 6 April 1935

Minimum amount of married couple’s allowance

Blind person's allowance
7,915


3,040

2,100
8,165


3,140

2,160
250


100

60
Capital gains tax annual exempt amount:
Individuals etc
Trustees

10,900
5,450

11,000
5,550

100
100
Inheritance tax threshold
325,000
325,000
0
Taxable bands 2013-14 (£)
Taxable bands 2014-15 (£)
Starting rate 10%
Starting rate 10%
Basic rate 20%
0 – 32,010
Basic rate 20%
0 – 31,865
Higher rate 40%
32,010 - 150,000
Higher rate 40%
31,866 - 150,000
Additional rate 50%
Over 150,000
Additional rate 45%
Over 150,000
Corporation tax profits 2012 (£)  
Small companies’ rate 20%
0 – 300,000
Marginal relief
300,001 – 1,500,000
Main rate 23%
1,500,001 or more
The main rate of Corporation Tax for 2014/15 will be 20%
National Insurance
 
2013/2014
2014/2015
Class 1 Employees
On first £149 pw Nil £153 pw Nil
Between £149 - £797 pw 12% £153 - £805 pw 12%
Over £797 pw 2% £805 pw 2%
Employee's contracted-out rate 1.4%   1.4%
Class 1 Employers
On first £148 pw Nil £153 pw Nil
Over £148 pw 13.8% £153 pw 13.8%
Employers' contracted-out rebate, salary related schemes 3.4%   3.4%
Employers' contracted-out rebate, money purchase schemes Abolished   Abolished
Class 2 Self employed
Flat rate £2.70 pw   £2.75 pw
Small earnings exception £5,725 pa   £5,885 pa
Special Class 2 rate for share fishermen £3.35 pw   £3.40 pw
Special Class 2 rate for volunteer development workers £5.45 pw   £5.55 pw
Class 3 Voluntary
 Flat rate £13.55 pw £13.90 pw
 Class 4 Self employed
On profits between £7,755 - £41,450 pa 9% £7,956 - £41,865 pa 9%
  above £41,450 2% above £41,865 2%
Stamp Taxes

Transfers of property (consideration paid)

Rate
All land in the UK
  Residential Non-residential
Zero £0 – £125,000 £0 – £150,000
1% Over £125,001 – £250,000 Over £150,001 – £250,000
3% Over £250,001 – £500,000 Over £250,000 – £500,000
4% Over £500,001 – £1,000,000 Over £500,001
5% Over £1,000,001 – £2,000,000 N/A
7% Over £2,000,000 N/A
15%* Over £500,000** N/A

* The 15 per cent rate applies if the property is acquired by certain non-natural persons (e.g. companies)

** The threshold for the15% rate is reduced to £500,000 from 20 March 2014.

The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% for 2014/15.

Value Added Tax (VAT)
  April 2013-14 April 2014-15
Standard rate 20% 20%
Reduced rate 5% 5%
Zero rate 0% 0%
Exempt n/a n/a
Value Added Tax (VAT) – Registration and Deregistration thresholds
  From April 2013 From April 2014
VAT - registration threshold 79,000 81,000
VAT - deregistration threshold 77,000 79,000