Budget 2014: Key measures
24 Mar 2014
A snapshot of the latest Treasury announcements with a full list of the new measures and their implementation dates, quick analysis and insight on reliefs for business
24 Mar 2014
Business: £250m in reliefs for business
This is a Budget for business and exports,’ said the chancellor George Osborne, opening his Budget 2014 speech on 19 March, adding that this would be a budget for savers as well as the ‘doers and makers’.
A number of measures and extensions to existing business tax reliefs were announced, including an increase in the annual investment allowance (AIA) to 2015, permanent status for the seed enterprise investment scheme (SEIS) and revisions to the R&D tax credit scheme for small businesses.
‘We are going to double the annual investment allowance to £500,000 from next month and extend it to the end of 2015,’ said Osborne.
This change marks yet more tinkering with this relief, which was due to be removed at the end of 2014. As it has a seven-year timing benefit, the extension was welcomed by business, although it will cost £1.5bn in the first five years.
Bill Dodwell, head of tax policy at Deloitte said: ‘The main business tax measure is the boosting of the annual investment allowance – this allows businesses to get immediate tax relief on investments in plant and equipment. While the relief is welcome, constantly changing this relief is complicated to understand and may not have quite the beneficial effect intended.’
A limited time extension was a disappointment for BDO tax partner Richard Rose. ‘What came out didn’t match the rhetoric. There was a lot of disappointment from our perspective. The only real tax bonus was the doubling of the AIA but it is only temporary, then it goes back down to £25,000. It is only a cashflow benefit, it is not a giveway but it is a timing benefit.’
The research and development (R&D) tax credit for loss-making businesses was increased from 11% to 14.5% for those without corporation tax liabilities.
Genevieve Moore, a tax partner at Blick Rothenberg LLP, said: ‘The way the R&D tax relief works the arrangements means the government will now be subsidising one third of the cost of the R&D, compared to one-quarter before this Budget.’
The Seed Enterprise Investment Scheme (SEIS) will also be placed on a permanent basis and time limits removed.
Exporters received a boost with funding for UK Export Finance’s (UKEF) direct lending programme doubled to £3bn and interest rates on loans will be cut to the lowest permitted levels based on EU state aid rules.
Employment: Dual contract change to raise £245m
The government is cracking down on the contrived use of dual contracts by high earning non-domiciled individuals (non-doms), confirming legislative changes in Finance Bill 2014 which permit legitimate arrangements but clamps down on artificial practices. The move is expected to raise around £245m over the next four years.
The changes will affect general earnings and employment-related securities income from an overseas employment, as well as overseas employment income provided through third parties, which arise on or after 6 April 2014. Income which arises on or after this date but which is related to employment performed in a year prior to 2014-15 will not be affected by the changes.
The latest approach follows a consultation in January and takes into consideration concerns that initial draft legislation caught arrangements that had not been set up to avoid tax.
Current legislation will be amended to prevent changes arising on nominal directorships if they (or their associates) own/control less than 5% of the company’s ordinary share capital.
The government has clarified that an income tax charge cannot arise on income related to employment duties performed in tax years prior to 2014-15.
Sean Drury, PwC’s head of employment solutions, said HMRC had made it clear that multiple employment arrangements or ‘dual contracts’ were not inherently artificial in nature. ‘Dual contracts are common for international workers with different roles inside and outside the UK. HMRC is looking to raise £55m-£75m a year from blocking artificial arrangements, but has listened to the various responses to the consultations and made some changes to the detail which will reduce the impact on commercial arrangements.’
Pensions: Overhaul of defined contribution pensions
The government is embarking on a radical overhaul of the tax treatment of defined contribution (DC) pension schemes, including removing the requirement to purchase an annuity and changes to the rules on drawn down arrangements.
According to the chancellor, the changes are expected to put pensioners ‘in charge of their own pension pot’.
But investment advisers should urge their clients to wait, if at all possible, until the new system is up and running in 2015, experts said.
Patrick Stevens, tax policy director at the CIOT, said: ‘Advisers need to talk to their clients very quickly, and put on hold anyone about to do something with their pension, and until they see what changes come in, they should delay until next year.’
Stevens added that the ‘huge shake-up’ in the pensions industry, together with other changes such as the Retail Distribution Review, could be seen as a response to concerns about the pensions regime in recent years. But he warned that ongoing radical changes could risk damaging confidence in the regime.
The government is to legislate to allow those with a defined contribution pension to draw down from it after age 55 from April 2015, subject to their marginal rate of income tax in what Osborne described as ‘the most far reaching reform of the taxation of pensions since the regime was introduced in 1921’.
The changes would present short-term challenges but longer-term opportunities for the pensions industry, according to Malcolm Kerr, executive director at EY. He said: ‘Recognition of the challenges was reflected in the immediate share price movement of the major pension providers, but their huge amount of experience will give them a great opportunity for delivering advice.’
But he warned the demand for objective advice already outstripped supply, and he predicted an increased role for organisations such as the Pensions Advisory Service, which would be well placed to offer the £20m of taxpayer funded free ‘guidance’ announced in the Chancellor’s speech.
Avoidance: Upfront payments and aggressive promoters
Chancellor George Osborne predicts an additional £4bn in tax receipts, through implementation of the GAAR, announcing new measures which he expects will reduce the incentive to engage in tax avoidance in future.
‘We will now require those who have signed up to disclosed tax avoidance schemes to pay their taxes, like everyone else, upfront,’ Osborne said.
Legislation will be introduced in Finance Bill 2014 to enable HMRC to issue a ‘Notice to Pay’ to any taxpayer for whom there is an open enquiry, or the matter is under appeal, and who has claimed a tax advantage by the use of arrangements disclosed under DOTAS.
Individuals that use a scheme that HMRC counteracts under the GAAR following an opinion of the GAAR Advisory Panel that, in the Panel’s opinion, the arrangements are not a reasonable course of action, would also be issued with an early payment notice.
According to details from the Treasury, the notice will require the taxpayer to settle payment for the tax in dispute within 90 days, or a further 30 days where the taxpayer requests that HMRC should reconsider the amount of the payment notice.
In cases in which a matter is under appeal, the measure will operate so as to remove any postponement of the disputed tax. Penalties will apply for late payment.
John Cassidy, partner, tax investigations at Crowe Clark Whitehill, cautioned that the new rules will be retrospective.
‘These rules will apply to all relevant schemes, not just those entered into after Budget Day, a move which may be criticised as being retrospective taxation but which certainly demonstrates the robust stance being taken by the authorities to discourage those who may be enticed to use avoidance schemes.
‘Anyone who is unwilling to pay the tax due under these new rules should bear in mind that he Budget also included an announcement that legislation will be introduced next year to allow HMRC to recover tax directly from the taxpayer’s bank accounts,’ said Cassidy.
Simon Wilks, tax partner, at PwC, warned further that money might ultimately have to be repaid - with interest.
‘Many will worry that this measure sets a concerning precedent that taxpayers can’t pursue their legitimate cases through the courts. Combined with operational reorganisation within HMRC to increase resources, the measure underlines the determination of the government and HMRC to deal with avoidance and reduce the number of open “avoidance cases” – the current figure is quoted as 65,000,’ said Wilks.
Separately, the government will provide HMRC with new powers to tackle non-cooperative promoters of tax avoidance schemes. The details of the powers, which will be published within the Finance Bill 2014 in July, will include the ability to issue conduct notices, breaches of which will trigger enhanced information powers with large financial penalties for non-compliance. The moves come on the back of an earlier consultation, Raising the stakes on tax avoidance, which closed in February.
- Personal allowance for 2015/16 increased to £10,500. Higher rate threshold increases to £41,865 from 6 April 2014, £42,285 for 2015/16.
- Starting rate for savings income cut from 10% to 0% for savings of up to £5,000
- New Individual Savings Accounts (NISAs) will equalise limits for cash and shares at £15,000 from 1 July 2014
- NICs Class 2 simplified for self-employed, moves to self-assessment from April 2016
- Annual Investment Allowance (AIA) temporary measure up from £250,000 to £500,000 until end 2015
- SME R&D tax credit increased to 14.5% for loss making firms
- Seed Enterprise Investment Scheme to be made permanent
- Theatre tax relief introduced for theatrical and touring theatrical productions
- SDLT threshold for 15% higher rate reduced to £500,000 for non-natural persons (companies) from 20 March 2014
- Annual tax on enveloped dwellings (ATED) extended to include properties valued between £1m and £2m from 1 April 2015 and above £500,000 from 1 April 2016
- Corporate profits transfer between companies purely for a tax advantage not allowed from 19 March 2014
- VAT threshold increased from £79,000 to £81,000
- Venture Capital Trusts cannot return subscribed capital within three years from 6 April 2014
For a detailed list of key measures and their implementation dates, click here Budget 2014_key dates.pdf