Budget 2014 Review
R&D Tax Credits
The Chancellor has made further improvements to the tax relief available on R&D expenditure for SMEs.
Where a company has a tax allowable loss, the loss may be converted into a cash repayment at 14.5% of the loss. Previously, relief was given at 11%. The change comes into effect from 1 April 2014.
The super-deduction for R&D expenditure remains at 225% for SMEs.
Boost for Business
George Osborne surprised everyone in his Budget Announcement with a welcome increase in the Annual Investment Allowance (AIA). From April 2014 to 31 December 2015, the AIA is increased from £250,000 to £500,000.
The AIA provides 100% tax relief on most capital expenditure on plant, machinery and equipment, with the exception of cars. The £250,000 limit was scheduled to be cut to £25,000 at the end of the year, and although there were calls to extend it, the increase to £500,000 was unexpected.
From April 2015, it will become possible to draw as much or as little from your pension ‘pot’ as you wish, on retirement. The changes will affect those with defined contribution schemes, such as personal pensions, SIPPs and SSASs.
Under current rules, if you exceed the prescribed income limits, tax is charged at 55% on the excess. Under the new rules, you will simply pay income tax at normal income tax rates on whatever income is drawn.
As a first step towards the reform, the rules for draw down pensions will be relaxed from 27 March 2014. It will then be possible to draw down pension more flexibly subject to you having guaranteed pension income of £12,000 pa, rather than the current limit of £20,000.
The 25% tax free lump sum will remain.
The above changes do not affect final salary schemes. The government is to consult on changes to improve flexibility in defined benefit schemes
Personal Tax Changes
The personal allowance will be £10,000 in 2014/15 and £10,500 in 2015/16. The higher rate tax threshold will be £41,865 and £42,285 in 2015/16. The £150,000 threshold for 45% tax remains the same.
From 2015/16, a zero rate of tax will apply for the first £5,000 of interest. However, the zero rate does not apply to those who have other taxable income of £5,000 or more. The zero rate replaces the current 10% rate that applies to interest of £2,880.
Tax Avoidance and Evasion
The Chancellor has attacked packaged tax avoidance schemes yet again. Anyone using a tax avoidance scheme must notify HMRC that they are using such a scheme, as before. The new twist is that they must now pay up front any tax saving disputed by HMRC. Only if the scheme is ultimately agreed to work will the tax be repaid. In many cases, this will involve a delay of many years, while cases go through the Tribunal and Court system.
More controversially, HMRC wish to extend the accelerated payment approach to tax planning which they consider to contravene the General Anti Abuse Rule (GAAR). This seems draconian, since it will not always be obvious whether the GAAR applies to a particular case.