Budget 2015 Chris Morgan's View

Budget 2015 Chris Morgan's View

This is the last Budget of the current parliament and the Chancellor’s Budget Speech focused on the economic themes of the Coalition Government.

Chris Morgan

Tax Partner - Head of EU Tax Group

KPMG in the UK

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Parliament and Big Ben

Whilst the Chancellor had a lot to say about the state of the economy and announced several investment decisions across the country, there were only a few major tax changes announced at the Budget. As expected the Budget changes were, on the whole, fiscally neutral - so who were the winners and losers? Clue: there is a general election in May 2015.

Winners:

  • Basic and higher rate taxpayers (with income less than £100,000) with increased personal allowances announced for 2016/17 and 2017/18;
  • Basic and higher rate taxpayers who will benefit from the £1,000 tax exemption (£500 for high rate tax payers) for savings income from April 2016. In the main this will benefit pensioners with savings.
  • Oil and gas companies will benefit from reduced taxes and a general investment allowance, back dated to 1 January 2015.
  • Companies in the creative and cultural sector benefiting from the film, high end television production. In addition new reliefs will apply from 1 April 2015 for Children’s television and orchestras from 1 April 2016.
  • Farmers, who will have the ability to average their earnings over 5 years, with effect from April 2016.

Losers:

  • Banks (again) are hit with an increase in the bank levy, the cessation of corporation tax relief on certain compensation payments and changes to VAT recovery on foreign branches. This is in addition to the measures announced at the Autumn Statement to restrict the use of their brought forward trading losses derived from the financial crisis.
  • The previously accepted planning for corporate groups refreshing their brought forward losses has now been deemed to be unfair and blocked.
  • Entrepreneurs’ relief has been taken away for employees who have used structures to get within the rules.

As well as these new measures, the Chancellor confirmed the proposals set out previously that capital gains tax will be extended to non UK tax residents on the disposal of UK residential property. He also announced the introduction of a new 25% diverted profits tax for large multinational companies on arrangements either avoiding a UK taxable presence on business activities or where the transactions or entities lack any economic substance creating a UK tax advantage.

One big announcement was the end to the tax return, over the next parliament, with the introduction of tax accounts with prepopulated data from HMRC. This use of “big data” will be challenging to get right, as even minor errors will directly impact on individual taxpayers. As one of the key information sources will be the employers’ returns under RTI (Real Time Information), it is disappointing that there has been no post implementation review of the detailed workings of RTI. As RTI is also used to calculate Universal Credit payments, the efficiency and accuracy of RTI is becoming ever more important. Whilst banks and building societies will not need to deduct 20% income tax on interest payments from April 2016, information will still need to be provided to HMRC for inclusion in the individual tax accounts.

A simplification measure is the abolition of the flat rate class 2 NICs, in the next parliament, and the reform of class 4 NICs to introduce a new benefit test. There will be a consultation later in 2015.

The changes to pensions continue, with the lifetime limit to be reduced to £1 million and the ability to sell annuities with effect from April 2016. It is hoped that after this rush of changes to pensions and their taxation over the past couple of years, there is a period of reflection to ensure that these changes bed in, and any mis-selling risks minimised.

Further moves to inhibit serial tax avoiders are due to be announced on 19 March 2015. Together with the early closure of the Lichtenstein and other offshore disclosure facilities, changes to make it easier to prosecute tax evaders and the introduction in the future of tax geared penalties for schemes falling foul of the General Anti-Abuse Rule, the Government is continuing to change the landscape for individuals and companies trying to artificially reduce their tax bills.

In summary, this was a quiet Budget from a tax perspective; the focus was on the general election in May 2015. Most of the tax cuts announced apply from 2016, but the freeze in fuel duties and the cuts in alcohol duties will have a more immediate impact.

Chancellor's Budget 2015

Chancellor's Budget 2015

Wednesday 18 March 2015

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