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An Action-Packed Budget

16th Mar 2016
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It took some time to get warmed up but for those with an interest in tax and its minutiae, George Osborne’s first Budget of 2016 might well be his most intriguing to date.

Pleasingly, while a number of the changes were leaked in advance, this time around there were also several surprises or, one might almost suggest, shocks not all of which were negative.

Indeed there is so much going on that without doubling the length of the column, some flashy new releases such as the allowances for money earned from the sharing economy, which sound better than they look, have not been deemed worthy of consideration.

Following the rumpus over various multinational conglomerates’ efforts to keep tax rates implausibly low, the Chancellor has introduced a raft of measures that will help to redress the balance but seem unlikely to bring them up to the rates paid by the rest of us.

All of these are pretty technical but, if the projections can be believed, will bring in an extra £8 billion to the Revenue over the next five years. Bearing in mind the turnovers generated by those most regularly cited, this will be little more than drop in the (very sugary) coffee ocean.

Ironically, the mooted sugar tax which will hit all of the headlines is going to be applied to soft drinks but one wonders whether that will include the teas and coffees that contain little else.

Employees who have benefited from clever anti-avoidance arrangements involving disguised remuneration filtered through Employee Benefit Trusts are also under attack. A new Targeted Anti-Avoidance Rule taking effect on Budget Day will tighten up a number of loopholes, particularly around interminable loans. It will take time to pore over the legislation but first impressions suggest that this will be retrospective, at least to a degree.

In what could be a sign of things to come, the Intermediaries IR35 legislation is to be adapted so that where Personal Service Companies provide services to public sector bodies or agencies, the principal will be obliged to apply PAYE and NIC in future. Where there was a chain, an agency or third-party will have to do so. This seems an obvious first step towards a change in the basis of taxation for all Personal Service Companies and those that make use of their skills.

On a more mundane level, corporation tax rates are to be gradually cut to 17% but not until 2020 which, if the writer’s memory serves correctly, is General Election year.

The ISA limit is to rise to £20,000 but only from April 2017 and, in addition, from the same date under 40s will benefit from a new Lifetime ISA, with a 25% government-generated uplift on up to £4,000 of investment each year.

Increases in the personal tax allowance to £11,000 next year and £11,500 the year after are little more exciting than a belated increase in the starting point for the higher rate band to £43,000 (under 1.5%) and £45,000 over the same time scale.

In an effort to counter tax simplification, the rates of capital gains tax are to be reduced from next month to 20% for higher rate taxpayers and 10% for basic rate taxpayers. This sounds like good news and almost certainly is, though only for anyone lucky enough to make chargeable capital gains.

Before readers get excited, the only assets on which most are ever likely to pay CGT are their homes or investment properties. Guess what - the rates for disposals of residential properties (and carried interest) are to remain at 28%/18%, though the Principal Private Residence exemption stands.

At the same time, Entrepreneur’s Relief is to be extended to long-term investors, giving them a 10% rate of CGT. This will apply to gains on the sale of ordinary shares held by individuals in unlisted trading companies, but only those issued or acquired from 17 March 2016 and held for at least three years starting from 6 April 2016.

The long-anticipated assault on Employee Shareholder Status has commenced. In connection with any agreements entered into after Budget Day, there will be a lifetime limit on gains exempt from CGT of £100,000. This compares with a non-existent limit on current arrangements

We do get closer to tax simplification with the application from April 2018 of National Insurance Contributions to termination payments worth in excess of £30,000. The downside is that this is a pure stealth tax, since previously there was no upper limit.

It only gets worse for those losing their jobs, as further plan changes include

  • clarifying that all payments in lieu of notice (regardless of whether they are contractual or not) will be subject to income tax and National Insurance Contributions (NICs) in the same way as other payments of earnings;
  • tightening the rules to ensure that certain contractual payments cannot be paid as damages instead such payments will be treated as earnings and subject to tax and NICs; and
  • removing the exemption for foreign service.

The abolition of Class 2 National Insurance Contributions from the same date appears to have no downside.

A simplification of stamp duty rates on commercial properties looks very much like another stealth tax, although it will help those buying properties worth up to just over £1 million.

George Osborne believes that this is a Budget for the whole community. The young will be impacted by those attacks on soft drinks compensated for by additional spending on schools (all of which will be academies or free schools by 2022, if the government has its way) and the provision of sporting facilities.

The good news for those in the regions is that counties are to be given their own mayors. In the fullness of time, this means that every region will have its own Boris Johnson, almost certainly a cause for great rejoicing, which can be celebrated fully thanks to a freeze to duties on beer, spirits and most ciders.

Londoners will be petrified at the prospect of Crossrail 2, threatening ever more decades of travel delays, building sites and their concomitant mud and dust. Whether any of us will actually see trains going on these lines in our lifetimes is more questionable.

VAT experts will better be able to explain the new rules relating to online businesses that try to worm their way around the tax, although the new measures probably represent inevitable anti-avoidance that will make many of us pay more for goods and possibly services ordered online.

Finally, there are new tax reliefs for museums and galleries but only those that are temporary or touring, while a contribution to the Shakespeare North Theatre Project, will be something to look forward to for those within reach of Liverpool.

Inevitably, these reactions have been written at top pace and may contain inadvertent simplifications or misunderstandings, while there is a great deal more to be seen on the government website. Therefore before taking action, you are strongly recommended to get some serious, properly commissioned advice.

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