‘How the Budget Affects You’ A Presentation for The Business Hubs by

Paul Adams of Branston AdamsWed 25th & Friday 27th March 2015

What is the budget?

The Chancellor of the Exchequer George Osborne makes his budget statement to the House of Commons where he talks about the state of the economy and the Government’s proposals for changes to taxation.

Labour leader Ed Miliband then gets a chance to reply.

How important is it?

Very important. It’s a real state of the nation summary, letting you know how the country is performing economically and where the spending priorities will be for the next financial year and what kind of deal you can expect personally from the Government

It’s also a chance to hear about UK growth and inflation, and a whole range of other matters like pensions, inheritance tax, money for housing and detail on utility bills.

Why does George Osborne announce the budget?

Because he is the Chancellor of the Exchequer, the most senior financial appointment in the land and the person who deals with all economic matters on behalf of the Government. In other countries his post would be known as the Minister of Finance.

Why does he carry a red case?

It’s been tradition since Chancellor William Gladstone had one made in 1860. His was lined in black satin and covered with scarlet leather. This box has been used by every Chancellor since, with the exceptions of James Callaghan and Gordon Brown who had new ones commissioned in 1965 and 1997 respectively.

Gladstone’s budget box was used by Alistair Darling between 2007 and 2010 and by George Osborne in June 2010 but it is now in retirement, too fragile to be used. A new one was made in 2011. All ministers have boxes in which to carry their papers but that is the most famous one.

What’s the longest ever budget speech?

It’s Gladstone again, who was renowned for being something of a talker. He made a 4 hour and 45 minute speech in 1853, but apologised at the end for ‘how long, how shamelessly I have trespassed on the time of the Committee’. Later that year the highly expensive Crimean War broke out, something Gladstone did not account for in his financial plan.

And the shortest?

Officially it’s Benjamin Disraeli in 1867 whose speech was 45 minutes. Although Gordon Brown in the year 2000 made one that was 51 minutes.

Time for a drink?

By tradition, the Chancellor, unlike Ministers at the despatch box at any other time of the year, may drink alcohol during the Budget speech if they wish.

George Osborne has chosen to drink mineral water, as did the previous Chancellor Alistair Darling. Conservative Chancellor Nigel Lawson apparently enjoyed a white wine spritzer.

Annual Tax Returns to be Abolished

Championed as a major step for freelancers and the self-employed, Osborne confirmed rumours that there would be an end to the annual tax return. Claiming “people shouldn’t be working for the taxman”, annual tax returns will be abolished by 2020 with information HMRC needs automatically uploaded into new digital tax accounts.

The information will still need to be communicated to HMRC and the risk is that mistakes made by taxpayers will not be picked up without any human review.

The chancellor said that this will enable businesses to feel they are paying a “simple single business tax” – “tax shouldn’t be taxing”.

Personally, I would like further clarification regarding the link to bank accounts; there needs to be assurance for individuals and companies that this will not end up being a big brother exercise.

There is very much a need for HMRC to continue to rationalise and this will save costs. It remains to be seen as to whether the software companies can deliver the programs and the security required. HMRC do not use emails without a “waiver” because they consider it to be an unsafe means of communication.

National Insurance cuts for the self-employed

Class 2 National Insurance contributions for the self-employed will be abolished in the next government. Further consultations on this are to be announced.

NI will be added to the payments on account regime; probably a rise in Class 4 contributions – part of the reform?

Changes to Entrepreneurs’ Relief

This will need to be clarified, Osborne stated that “Entrepreneurs’ Relief will only be available to those selling genuine shares in businesses” in order to negate tax avoidance.

In the chancellors “Autumn Statement” we learnt that sole traders could no longer roll their trades into a limited company and claim entrepreneurs relief.

The intention would appear to be to only allow Entrepreneurs relief on a “complete sale”.

Deeds of Family Arrangement

Taking a swipe at the personal tax affairs of Ed Miliband, George Osborne pledged to crack down on people who use a legal loophole to avoid inheritance tax.

As part of a £3.1bn drive to claw back money lost through tax avoidance and evasion the Chancellor used his budget to announce a review of deeds of variation – that allow changes to be made to wills after someone’s death.

George Osborne has drawn up plans that would allow parents to pass a main property worth up to £1m to their children without paying any inheritance tax, according to Treasury papers leaked ahead of Wednesday’s budget.

The proposed measure would also reduce the inheritance tax bill on properties worth up to £2m by £140,000 and the Treasury analysis concludes that the scheme would “most likely benefit high income and wealthier households”.

In papers marked as sensitive, and seen by the Guardian, it is identified that “those already living in the wealthiest fifth of households are most likely to receive an inheritance”. The tax break would cost the Treasury nearly £1bn and is aimed primarily at southern propertied middle-class households.

The scheme was advanced by the chancellor ahead of the autumn statement, but blocked by the Lib Dems. It is now thought likely to be revived by the Tories within the next fortnight as one of its central election crowd pleasers – although it is not expected to feature as a measure in the budget statement, the last fiscal event of the coalition government.

There was little news regarding Inheritance Tax. It was announced in the 2013 Budget the threshold for inheritance tax is to be frozen at £325,000 until the tax year 2017-2018 and this budget confirmed this.

Tax Evasion

New legislation will be announced today outlining new criminal offences and penalties for aiding tax evasion.

The government expects to raise £560m by 2020 from its drive against offshore tax evasion, spearheaded by the introduction of the “Common Reporting Standard”, a global anti-evasion initiative that will provide details of offshore accounts held in over 90 countries.

Restriction on “loss refreshing” for corporation tax relief

Companies that carry forward reliefs on previous years’ profits will need to jump through a new set of hoops from 18 March 2015 designed to prevent loss refreshing arrangements designed to give access to more flexible in-year tax relief. Arrangements will no longer be allowed where they appear to be specifically designed to accelerate brought forward losses and create new in-year losses or deductions and where the tax advantage is likely to be worth more than any other aspect of the arrangement.

Employers - National Minimum Wage increase

Announced earlier this week, Osborne discussed the planned increase in the National Minimum Wage to £6.70 from October with Britain “able to afford real increases”.

Tax Bands

The single person's tax-free allowance - the amount of income that one can earn before paying any tax at all - will rise to £10,800 from April 2016, more than the £10,600 previously announced. It will then rise to £11,000 the year after.

Currently the personal allowance stands at £10,000 and it will rise to £10,600 from next month. The government has raised the allowance steadily since it came to power in 2010.

The rise in personal allowance will mean tax cuts for 27million people, making the basic-rate taxpayer £80 a year better off and saving £172 a year to those paying the higher tax rate, according to Treasury calculations.

Because the increase in the personal allowance is not offset by a reduction in the 40p threshold, higher-rate taxpayers benefit in full from today's announcements.

The rise in personal allowance also means that in two years’ time 3.7million people are expected to be taken out of income tax altogether.

Meanwhile, the Treasury said 100,000 fewer taxpayers will end up in the higher rate tax band as a result of the above-inflation increase in the 40p income tax threshold. The 1.4 per cent hike in the higher-rate threshold was the first above-inflation rise for seven years.

The Chancellor also announced that the transferable tax allowance for married couples is to rise by £50 to £1,100 from the current £1,050

HOW WILL THE BUDGET AFFECT YOUR TAX BILL?

Scenario Change in net income 2014/15 - 2015/16 (£)

ANNUAL INCOME £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000 £80,000 £90,000 £100,000 £160,000 £200,000

1. Couple, 1 working, 2 Children

140 472 472 362 203 185 185 185 185 185 (55) (55)

2. Couple, 2 working, 2 Children

128 472 392 282 282 282 334 328 317 316 368 128

3. Single, 1 Child 102 222 142 142 195 185 185 185 185 185 (55) (55)

4. Husband & Wife Partnership, 2 Children

128 141 381 271 271 271 271 271 409 409 391 391

5. Single, No Children 42 132 132 132 185 185 185 185 185 185 (55) (55)

HOW WILL YOUR INCOME TAX AND NATIONAL INSURANCE ALLOWANCES CHANGE? Tax Allowances

2014/15 2015/16 Personal allowance (born after 6 April 1948)1 £10,000 £10,600 Personal allowance (born between 6 April 1938 and 5 April 1948)1,2 £10,500 £10,600 Personal allowance (born before 5 April 1938)1,2 £10,660 £10,660 Married couple's allowance (spouse born before 6 April 1935)3 £8,165 £8,355 20% basic rate band from £10,000 £10,600 40% higher rate band from £41,865 £42,385 45% additional rate band from £150,000 £150,000 Age related allowance restricted from £27,000 £27,700 Class 1 National Insurance lower rate 12% 12% On amounts (per week): £153-£805 £155-£815 Class 1 National Insurance higher rate 2% 2% On amounts (per week): Over £805 Over £815 Class 4 National Insurance lower rate 9% 9% On amounts from: £7,956 pa £8,060 pa Class 4 National Insurance higher rate 2% 2% On amounts over: £41,865 pa £42,385 pa 1. Reduced by £1 for each £2 of income (less deductions) in excess of £100,000. 2. Reduced by £1 for each £2 of income (less deductions) which exceeds £27,000 for 2014/15 (27,700 in 2015/16). However, this reduction cannot take the allowance below that for an individual born after 5th of April 1948 (subject to the reduction for income in excess of £100,000 above). The personal allowance is reduced first, then the married couple's allowance. 3. Married couple's allowance is restricted by £1 for every £2 of income in excess of the married couple's allowance restrict ion threshold to a minimum of £3,140 in 2014/15 (£3,220 in 2015/16). Tax relief is given at 10 per cent.

Fuel duty frozen

Fuel duty will be frozen again for 2015 which, by the end of 2015-2016, would make it the longest duty freeze in over 20 years. Osborne said that the move was helping motorists save “£10 off a tank with the Tories”.

Further help for drivers came in the form of a reduction in toll rates charged on the Severn bridges linking England and Wales. The higher band for small vans and buses will be abolished from 2018.

Help to Buy ISA

If you want to buy a house you need to save for a deposit. Like other savers, you might have done this using a tax-free ISA. But with savings rates as low as they are, it can be difficult to make your money grow.

You'll be able to open an account from autumn 2015, and the accounts will be available for four years. But once you've opened an account you can save for as long as you want.

You can make an initial deposit of £1,000 when you open the account as well as making regular monthly savings. If you're saving as a couple, you can both open a Help to Buy ISA - meaning you BOTH get a bonus.

If you're thinking this means free money, don't celebrate just yet - you ONLY get the bonus when you buy your first home. So yes, you do need to actually want to buy a house. The bonus is available on houses worth up to £450,000 in London and up to £250,000 outside of London.

Net Cuts in Government spending

The Budget was missing details on where a further £30bn of cuts would come from!

Going up in smoke

Duty on tobacco will remain subject to its existing 2% above inflation increase.

"I have no changes to make to the duties on tobacco and gaming already announced," said Mr Osborne.

This means the price of a packet of 20 cigarettes will go up by 16p from 6pm, while the price of 25 grams of hand rolling tobacco will also go up by 16p

The bank levy (an annual tax on the value of all the debts in UK banks) raised from 0.156% to 0.21%.

"This will raise an additional £900m a year," said Chancellor George Osborne in his Budget statement.

The levy was introduced in 2011 to raise money and to discourage banks from risky borrowing.

The rate was set at 0.05% and has now increased nine times since. The new rise will be in the 2015 Finance Bill and takes effect on 1 April.

The first £20bn of banks' borrowing is exempt from the levy, as are ordinary retail deposits, which are guaranteed by government debt.

What to know more?

Happy to answer questions where I can – the budget document published by HMRC can be found here:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413949/47881_Budget_2015_Web_Accessible.pdf