The UK budget announcements on 19 March 2014 include a significant change to the pension regime. Currently, most people must invest their pension fund in annuity after receiving a certain percentage of the fund as a lump sum tax free payment. However the annuities market has recently been difficult due to its uncompetitive nature and a perceived lack of innovation in response to changing needs and lifestyles of consumers. To give consumers more freedom of choice on using their pension fund some changes to the pension regime are introduced with effect from 27 March 2014. From that date a person will no longer have to purchase an annuity with the pension fund but will have the option of drawing down funds from the pension fund without the previous punitive tax rate. The amount drawn down in a particular tax year would be taxed at the marginal rates of the pensioner. All people retiring with a defined contribution pension are guaranteed access to free and impartial guidance on their pension choices.
Individual savings accounts (ISAs) are to be simplified from 1 July 2014. These are tax free savings accounts for individuals. From 1 July 2014 under the New ISA (NISA) the saver will be able to invest in any combination of cash and shares up to a total of GBP 15,000 in a tax year. Also, from 1 August 2014 the maximum holding of premium bonds will be increased from GBP 30,000 to GBP 40,000. The maximum will increase again to GBP 50,000 in 2015. Premium bonds do not pay interest but holders may receive prizes determined by a regular draw.
The limit on the amount of shares that can be acquired by employees as part of an all-employee share incentive plan (SIP) is to increase from 6 April 2014. The limits will be GBP 3,600 for the free shares that companies can award to their employees and GBP 1,800 for the partnership share that employees can purchase.
Tax relief under the Seed Enterprise Investment Scheme is to be made permanent. The investor in a qualifying seed enterprise can receive income tax relief amounting to 50% of the amount of the investment, up to a total of GBP 100,000. The capital gains tax reinvestment relief available for the investment is also being made permanent.
The income tax personal allowance is GBP 10,000 for 2014/15 and will rise to GBP 10,500 for 2015/16. Also, from April 2015 it will be possible for an individual to transfer up to GBP 1,000 of the personal allowance to a spouse or partner, provided that neither the transferor nor transferee pays income tax above the basic rate in that tax year. A Tax Free Childcare scheme is also to be introduced in April 2015. This will provide 20% support in the form of vouchers that an individual can use to pay for childcare.
There will be anti avoidance measures to combat the use of dual employment contracts, whereby separate contracts are signed in respect of UK and overseas employment even though there is a single employment. In this situation the overseas employment income will be taxed on an arising basis unless the overseas tax rate is broadly equivalent to the UK rate.
Tax for businesses
The main corporation tax rate for the year to 31 March 2015 is 21% and rate applying to small profits (less than GBP 300,000) is 20%.
The annual investment allowance (AIA) in relation to asset purchases by businesses is to increase to GBP 500,000 from 6 April 2014 (1 April 2014 for companies) until 31 December 2015. From 1 January 2016 the AIA will be reduced to GBP 25,000. The AIA is effectively a 100% tax allowance in respect of qualifying expenditure on business assets.
Class 2 national insurance contributions (NICs) are to be collected under self assessment together with income tax and Class 4 NICs. This change which follows consultation with interested parties will take effect from April 2016. Also, the UK government is to consult on changes to the Construction Industry scheme that will improve its operation for small businesses and introduce compulsory online filing for contractors. The consultation will involve revisions to reporting obligations and improvements in the registration of joint ventures.
From 1 April 2014 the rules on the business premises renovation allowance. The rules on the expenditure that qualifies for the allowance will change and the relief will be restricted to the actual costs of construction and building work and specified activities such as architectural and surveying services. Certain other associated services such as project management services will qualify for the relief but will be restricted to 5% of the actual costs qualifying for relief. A claim for BPRA will not be possible if another form of state aid has or will be received.
Changes are being made to research and development credits. From 1 April 2014 the payable credit for loss-making small and medium enterprises in respect of research and development expenditure will rise to 14.5%. Anti avoidance legislation will be amended to ensure that companies incurring pre trading expenditure on research and development do not forfeit that expenditure under the loss-buying anti avoidance rules.
Some changes have been made to legislation on capital allowances. The definition of qualifying expenditure for mineral exploration and access will be extended to include the cost of obtaining planning permission or permits where these are successfully obtained. The availability of 100% capital allowances for asset purchases by companies in enterprise zones is to be extended to 31 March 2020.
In a further move to combat artificial tax avoidance schemes legislation will be introduced to require tax in dispute to be paid up front, rather than being paid after the issue has been resolved in the Courts.