George Osborne made his sixth budget on Wednesday 18 March 2015. There was none of the shock value of last year's announcements on matters like pensions.
We set out below our rundown of the changes from the Budget 2015 that will affect and be of interest to our small business owners.
The rates of income tax, National Insurance and VAT were all kept the same, with no changes to rates and minor increases in tax allowances. This means that most individuals and small businesses will still pay 20% income tax or Corporation Tax. The amount that individuals can earn as a salary, even through their own limited companies, before they pay any National Insurance will increase from £153 to £155 pm (£663 pm to £672 pm).
Savers
Cash Isas will become fully-flexible from the autumn, with tax-free withdrawals allowed. Previously, once you paid money into an ISA then this used up part of your annual ISA limit. This stopped you putting it back into the ISA, e.g. if you had to withdraw it in the take year. The new rule will allow savers to withdraw money and put it back later in the year without losing any of their tax-free allowance.
From April 2016, a new personal savings allowance will see the first £1,000 of interest earned on savings be completely tax-free for basic rate taxpayers from next year. The amount is reduced to £500 for higher-rate taxpayers). The new allowance, which will come into force from April 2016, is expected to take 95% of all taxpayers out of savings tax altogether. George Osborne said: "People have already paid tax once on their money when they earn it. They shouldn't have to pay tax a second time when they save it."
Pensioners
The five million pensioners already locked into an annuity (often at bitterly disappointing rates) might be pleased at Osborne's confirmation that the government is launching a consultation into allowing people to cash in their annuities in return for a lump sum, from April 2016. This would give retirees the same freedoms as prospective retirees will have over their pension income from this April.
The self-employed
Individuals and small businesses both face a lot less red tape after the government announced it would abolish the current annual tax return system in favour of an on-going digital tax return. Joy for people who have to file self-assessment tax returns.
Tax evaders
People who have been using 'deeds of variation' to avoid paying IHT will face a probe. The government will also close loopholes to make sure that Entrepreneurs Relief is only available to those selling genuine stakes in businesses and will issue more accelerated payments notices to those who owe tax.
Mortgages
People saving to buy their first home will be given £50 for every £200 they save, up to a maximum bonus of £3,000 using a newly announced 'Help to Buy Isa'. This means to save for the average UK house deposit of £15,000, Help To Buy Isa savers need only put aside £12,000.
The new accounts will be available through banks and building societies from the autumn for a period of four years but once an account has been opened there's no limit on how long people can save up for.
An initial deposit of up to £1,000 can be made upon opening the Isa and up to £200 can be saved monthly.
The Treasury has confirmed that the accounts will be limited to one per person rather than one per home "so those buying together can both receive a bonus".
Account openers must be at least 16 years old and buyers must be purchasing UK properties worth up to £450,000 in London, and up to £250,000 elsewhere.
The Help To Buy Isa top-up will only be paid upon purchase of a first-time buyer's home.
Income Tax
The income tax personal allowance of £10,600 for 2015-16 will increase to £10,800 for 2016-17 and then £11,000 for 2017-18. This will save a typical working taxpayer over £900 a year
The threshold at which people start to pay higher-rate tax will rise from £42,385 for 2015-16 to £43,300 in 2016-17.
Annual tax returns to be scrapped
The requirement to complete an annual self-assessment tax return is to be completely abolished in favour of an on-going digital tax accounts from next year. George Osborne says that a lot of the detail entered onto a Tax Return will be preloaded from banks and building societies, employers, pension companies etc. Taxpayers will then simply be able to log-in to check and confirm that their details are complete and correct.
However, whilst a single Tax Return document may not be required to be filed, somebody will still have to consolidate a lot of the other information to calculate the annual business profits, rental income, ascertain dividends from company share held etc. The information that would otherwise be included on a single Tax Return must however still be uploaded to each person’s online tax account. This can be completed throughout the tax year or thereafter until the final filing deadline. Further details on the scrapping of the annual return will be published later this year. I cannot see that our clients are suddenly going to save our annual Tax Return charge. Work will still be required to prepare, upload and check the data entered automatically by H M Revenue & Customs.
Individuals and small businesses will have the option to ‘pay as you go’ to help manage their cash flow, so they won’t be faced with a one-off bill many months down the line. Of course, this is available now; it is just that most taxpayers choose to pay their tax on the last day that they can.
Link their business accounting software to their digital tax account
By 2020, more than 50 million individuals and small businesses will be able to manage their taxes together as part of their day-to-day running, rather than something to be done separately. Their accounting software will be able to feed data straight into their digital tax account, so most businesses will simply log-in to check their details with no need to send an annual return. Mmmmmmmm, very interesting. Most small business owners are not bookkeepers or accountants, so I think that the profits that come out of the software will still need checking and sometimes some significant adjustments will be required.
Class 2 National Insurance to be scrapped
The £2.80 pw that the self-employed pay, known as Class 2 National Insurance contributions, will be scrapped. There were plans to collect this annually within the annual Tax Return process.
Increase in the VAT registration and deregistration thresholds
From 1 April 2015, the VAT registration threshold will be increased from £81,000 to £82,000 and the de-registration threshold from £79,000 to £80,000.