On The Spot Blogs
#Budget2014 (Small) Makers. Doers. Savers. + Investors?
The Chancellor chose this headline, but I think Investors also get a look in.
I take this to be businesses. In fact, it's largely small to medium companies that benefit from today's announcements being the changes to AIA, SEIS and R&D.
What are AIA, SEIS and R&D?
AIA - Enables all businesses to spend up to £500k on plant & machinery and to receive a 100% tax allowance on all that expenditure. The effective date is this April 2014, but take care with the unnecessarily complex transitional rules.
Companies should also take care about the effect on deferred tax which will restrict the ability of your company to pay tax efficient dividends.
SEIS - This has now become a permanent feature. Your start up company can continue to attract tax efficient investment in your company shares.
R&D - The Research & Development repayable tax credits for small companies have been increased from 11% to 14.5%. This is very welcome for small companies desperate for cash at the beginning of the investment cycle. It's now time to bring this into the main stream tax consideration, and ensure you aren't eligible, rather than think this is for other companies. And make sure you are a company as this doesn't apply to sole traders/partnerships.
Please note this applies from 1 April 2014, so you might want to delay some expenditure if this is possible at this late stage.
I presume these are employees. Acknowledging that there are too many 40% taxpayers by getting the tax thresholds closer to April 2012 levels wef from April 2015, helps the hard hit middle income earners.
The childcare costs announced several times helps employees but doesn't help owner-managed businesses, where the current voucher scheme is more valuable. Make sure you set up a voucher scheme now, so you can continue to use it after the new scheme comes in.
A big nod to savers that the government is On Your Side.
From 1 July 2014, the ISA threshold is £15,000 whether it's cash, shares or a mixture. This will save higher rate taxpayers a lot of tax over several years. As interest rates increase, this becomes more valuable.
From April 2015, allowing £5,000 of interest income to be taxed at 0% is worth up to £2,250 per year if it applies to a 45% taxpayer. This might encourage small business owners to charge their companies interest on a director loan in credit. The company saves 20% corporation tax, but the owners may not be taxed on the interest income.
With the higher personal allowance and basic rate band effective from April 2015, small business owners might benefit from delaying a few dividends this year to benefit from a 0% net tax rate, which might otherwise have been taxed at a net rate of 25%.
Perhaps this includes pensions, as these are more like investment vehicles than any other. A massive improvement to the flexibility of defined contribution schemes fits in with a modern working pattern where many people no longer retire fully at a certain age.
SEIS - This is very valuable for high net worth individuals looking for a better return than bank deposits and quoted shares. It's good to see it's a permanent part of the investor's options.
As many of today's favourable announcements apply from April 2015, we can only speculate what will be announced in the March 2015 Budget, a few months before a general election.