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What the Summer 2015 Budget means for you

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On Wednesday 8th July 2015, George Osborne delivered the first conservative budget in 19 years. In his Summer Budget speech the chancellor declared it as a “Big Budget for a country with Big Ambitions”.

As business owners and entrepreneurs, today’s announcements will impact on you and your business - let’s take a look at the detail...

The Rajani & Co opinion The second budget in 2015 once again reflects a very positive outlook on the UK economy, with potential for the UK budget to move towards an overall surplus in the not too distant future. We believe this is truly a budget benefiting the hard working people of Britain looking to save!

The economy grew by 3% in 2014 and it has been forecasted that one million extra jobs will be created by 2020 – we believe this is fantastic growth period in Britain and we’re proud to be part of it.

The new government’s budget delegates more money to be spent on innovation and science, which is crucial for the UK economy and will encourage boosted investment and recruitment in multiple industries.

We’re delighted that there will be more help for first time buyers with the ISA ‘Help to Buy’.

Compassion is shown for inheritance tax payers, with potential increase in the IHT banding to £1 million.

Two major reforms to follow:

The Personal Tax return is to be replaced by a new digital tax account with much of the information required by the HMRC uploaded automatically. Tax payers will be able to pay into the account at any time; it will be interesting to see this unfold in the coming year.

Dividend tax credit is being replaced with a £5,000 tax-free allowance for all taxpayers from April 2016. The new system will ensure only those with significant dividend income will pay more tax – as what level of income is

considered ‘significant’ was not revealed in the speech. Again something to note for small, family-owned limited companies that pay their director/shareholders a combination of salary and dividends to optimise tax efficiencies.

But what does this mean for you?

We have created a budget breakdown so you can understand how the summer 2015 budget will affect you, your family & your business. We’re here to help you navigate through the financial jargon and provide you with an insight to the key announcements from the budget.

Personal tax & pay

New National Living Wage

From April 2016, a new National Living Wage will be introduced, rising to £7.20 an hour for employees aged over 25. This wage will increase to £9 an hour by 2020.

Personal Allowance

In 2016-17, tax free Personal Allowance – the amount people earn before having to pay Income Tax on any earnings – will increase to £11,000. This will rise to £12,500 in 2020.

The predicted impact of the increase is the typical taxpayer will be £905 a year better off in 2016-17.

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A new law will be introduced to ensure people working a minimum of 30 hours a week on National Minimum Wage aren’t required to pay income tax.

Income Tax

For people earning within the higher rate threshold, the amount they will have to earn before paying tax at 40% will increase from £42,385 in 2015-16 to £43,000 in 2016-17.

Inheritance Tax

The family home will no longer be included in Inheritance Tax from April 2017. Currently only married couples and civil partners can exchange unused allowance to one another, but following the change individuals will be offered family home allowances so they can pass on homes to children or grandchildren tax-free after their death.

The family home allowance will be added to the threshold, meaning the total tax-free allowance will be up to £1 million in 2020-21.

Pension

From April, the amount people with an income of more than £150,000 can pay tax free into a pension will be reduced.

Non-dom status

Non-domiciled individuals are people who live in the UK but consider their permanent home elsewhere, and they currently only pay tax on income they bring into the UK.

From April 2017, non-dom status will be abolished and anyone who has been a resident of the UK for 15 of the past 20 years will be taxed.

Business

Dividend tax credit will be replaced with a new tax free allowance of £5,000 on dividend income. Rates of dividend tax will be set at 7.5%, 32.5% and 38.1%.

Investors with an income from shares will experience either a tax cut or no change in the amount that they owe.

Corporation tax

The main rate of Corporation Tax will continue to fall over the next 5 years from 20% to 19% in 2017, and then again to 18% in 2020. This will benefit millions of businesses nationwide.

Employment Allowance

The National Insurance bill for businesses will be cut by another £1,000 from April 2016, as the Employment Allowance increases to £3,000; this will gives businesses and charities a cut in the employer National Insurance they pay.

The government calculates this change will enable businesses to employ up to 4 full time members of staff on the National Living Wage and pay no National Insurance.

Annual investment allowance

The annual investment allowance will be set at its ever permanent level in 2016 at £200,000.

This means businesses will be able to deduct the value of certain items, including equipment and machinery, from their profits from tax. The full tax relief will be given to businesses in the year of purchase which will help cash flow.

Apprenticeships

By 2020, 3 million new apprenticeships will be created and companies who commit to training will receive more than they put in.

Welfare

Changes to the welfare system include:

• Working-age benefits, including tax credits and Local Housing Allowance, will be frozen for 4 years from 2016-17.

• The annual household

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benefit cap will be reduced to £20,000 (£23,000 in London).

• Child Tax Credit will be restricted to two children, affecting those born after April 2017.

• Working families with 3 and 4 year olds will receive 30 hours of free childcare – an increase from the current 15 hours.

Education

Student grants are set to be replaced by new maintenance loans from the 2016-17 academic year. Financial support for new students will increase to £8,200 a year, the highest level for students low-income households.

Repayment of loans will only begin when graduates earn above £21,000.

State of UK economy

The budget highlighted how the national deficit will be reduced by around 1% of GDP on average each year. This is the same pace as the previous 5 years, which means a surplus – where more tax is raised than is spent – will be achieved in 2019-20.

Tax avoidance

Following the toughened sanctions in the previous budget, the government will continue to clamp down on tax avoidance. The budget signals £7.2 billion will be raised from sanctions on evasion.

HMRC crackdowns include:

• Tripling the number of criminal investigations HMRC can undertake into complex tax crime, concentrating on wealthy individuals and companies.

• Allowing HMRC to access more data to identify businesses that aren’t declaring or paying tax

• Preventing investment fund managers from using tax loopholes to avoid paying the correct amount of Capital Gains Tax on their profits from the fund.

• Making sure international companies pay tax on profits diverted from the UK.

• Publishing the names of people who repeatedly use failed tax avoidance schemes

Defence

The Ministry of Defence’s budget will rise above inflation by 0.5% each year up until 2021, and an additional £1.5 billion a year will be made available to the military and intelligence agencies.

2% of national income will be spent on defence every year.

Further investment in science and innovation

Future economic success depends on future science success. The government is investing £140 million in world class research on the infrastructure and cities of the future, and £40 million in research into what is known as the Internet of Things. This is the next stage of the information revolution, connecting up everything from urban transport to medical devices to household appliances.

The government is also launching a new UK research initiative into the future potential of digital currency technology, supported by a £10 million increase in funding in this area.

Need advice?

If you have any questions about the Summer Budget Summary or are interested in our services, please call 01933 276 327 today or alternatively fill in our contact form on our website: www.rajaniandco.com.