On The Spot Blogs
#Budget2015 - Sugar and Spice and All Things Simplification?
It seems to be good news all round from the Chancellor, but the economy isn't yet strong enough for a lot of sugary giveaways, apart from the continued increase to the income tax free personal allowance.
Pensions, ISAs and Savings again featuring as good things deserving of encouragement and flexibility.
If, despite the increased cash ISA thresholds, you still have some interest in a normal bank account, from April 2016 you can earn up to £16,800 and not pay any tax on the interest you earn. If you earn more than this and less than £42,700, interest over £1,000 is taxed. Therefore if you earn £1,500 of interest you have a mixed picture of £1,000 not taxed and £500 taxed which could result in too little or too much tax paid. This may be more easy to deal with in the proposed new digital tax accounts announced today - see Simplification below.
The AIA 100% tax relief for capital investment will continue to be generous covering most small business capital expenditure requirements.
The large pension pots threshold subject to tax is falling to £1m. This equates to 25 years of paying the new maximum £40,000 current tax free contribution threshold, ignoring investment returns. Therefore, if you pay the maximum for most of your working life you're likely to exceed the new threshold.
With Entrepreneurs Relief potentially worth £1.8m of tax during a taxpayer's lifetime, it's perhaps inevitable the Government needs to tie up perceived loopholes. Today, these were identified as property used in a business but owned personally benefiting from the 10% tax that now require a 5% share disposal at the same time. And those having an indirect holding in a trading group through a joint venture or partnership must also own 5% of the trading entity.
With higher tax free income tax personal allowances, more Gift Aided donations are likely to be taxed on the donor. Donors who don't pay income tax need to know not to Gift Aid their donations as they make them.
We all thought RTI was a way of making sure benefits paid are as accurate as possible. It now seems it was the groundwork for major reporting and tax online simplifications.
Digital tax statements are proposed for many taxpayers by pre-populating an online record with PAYE income, bank interest, pensions for the taxpayer to disagree or agree with. HMRC's record in similar areas isn't 100% accuracy so taxpayer checking is highly recommended.
Partnerships can't currently file online using HMRC software, so presumably they won't be included in this simplification.
Accounting information from software could be directly fed into HMRC's digital portal so HMRC can populate your tax record during the tax year. This might fit in with VAT cash accounting and small businesses who choose to cash account. They will have most value if the end result can be fed in, after the agent has reviewed the records and included any other claims. For businesses with losses, claims would still need to be considered and made by the taxpayer. Perhaps another area for simplification later on?
Class 2 NICs are the mechanism for the self employed to get a credit towards the build up of their state pension. By abolishing Class 2 NICs there will need to be another route, presumably through the online digital form.
Abolishing the need for PAYE Dispensations, taxing employment benefits through RTI, and allowing non-cash benefits of up to £50 per person to be made without any tax effect [EDIT: This hasn't yet been legislated], are all very welcome administration savings for small businesses.
HMRC will look very different in a few years time where most staff will need to be focussed on being helpline/online friendly, rather than exchanging polite hard copy letters.