Help for the aspirational or a lot of hot air?

Wednesday March 20th saw the performance of the year for George Osborne, Chancellor of the Exchequer, reading his 2013 Budget Speech to the House of Commons. So was it, as he claimed, a budget for the ‘aspirational nation’ or a lot of hot air with a 1p reduction in the cost of a pint of beer thrown in for good measure?!

Well from a tax perspective it could be seen as both depending on what your situation and life circumstances are.  It has been a continued theme of the Coalition that, if you are adding to the economy in a positive way, there are some great tax breaks to be had. Likewise, if you are trying to save tax in a way the Government never intended, you will be penalised heavily. This 2013 budget has continued this theme.

The main areas in which this is highlighted are as follows:

  • The introduction of a new Employment Allowance, reducing employers’ NIC burden and lessening administration duties
  • The extension of the CGT exemption for investments into Seed EIS companies, so that CGT arising in 2013/14 can be invested into a new business instead of being paid in tax
  • A new relief for employees who receive shares in the company that employs them, with no income tax or NIC liabilities and a reduced CGT payment upon sale, thereby helping to incentivise and retain key members of staff
  • The reduction of the top Corporation Tax rate to 20%
  • The improved relief on Research & Development expenditure
  • Confirmation of the ‘Patent Box Regime’, an area that has been under consultation for a while now, where profits from patents will only be subject to 10% Corporation Tax
  • Improved availability of Capital Allowances on energy efficient products
  • The simplification on how the accountancy system works for unincorporated businesses
  • The extension of the personal allowance to £10,000
    • This is great for anyone who is not a higher rate taxpayer, as income tax is saved; it should also encourage businesses to employ staff as it reduces administrative burdens for them on the employees earning less than this.

All this on top of highly beneficial reliefs already available owner managed businesses and small and medium sized enterprises, including:

  • The Enterprise Investment Scheme
  • Enterprise Management Incentives and other share schemes which are due to be simplified
  • Entrepreneurial relief (not as straight forward as people think)

In our experience as tax advisors, it would seem that there are more and more companies coming to the UK to take advantage of these breaks and reliefs. However, there are still many entrepreneurs and owner-managed businesses that are not aware of how many reliefs are available.

As for individuals, the main points revolve around the continued reduction of pension relief.  This now means that, as of April 2014 an individual can only relieve £40,000 of the amount put into a pension in the tax year against taxable income, whilst the lifetime allowance has been reduced to £1.25m.

This does not mean that there is nothing you can do to organise your financial affairs in a tax efficient way though: there are some excellent tax planning opportunities out there for school and university fees planning, ensuring you use your ISA limits each year and investing in certain activities and property.  As for businesses, the reliefs are there, you just need to know where to look.

For those businesses that are still trying to flog tax avoidance schemes, incentivised by the massive charges, with little hope of any success, the Coalition has continued to push them out of the industry, and rightly so: the client is always the ultimate loser in these cases whilst those selling such schemes tend to have disappeared by the time it gets really serious.

So, all in all, a mixed bag that continues to reflect the Coalition’s policy to improving the economy:  if you are a business owner or entrepreneur, this was a great and interesting budget! For those who are trying to get round the system, whether through tax avoidance schemes or shying away from work, it is becoming much more difficult to do so.  And for those who have got off the day to day grind of working life, whilst there was not much for you except for looking forward to petrol not going up, there are still lots of planning opportunities if you know where to look!