Introduction

Chancellor Osborne announced his Budget on Wednesday 19 March last delivering a typically positive message about the economic recovery with measures aimed at backing businesses which invest and export. As the fifth Budget of the current government, this is likely to result in the last Finance Bill to be implemented in full before that election. So it was clear from the Budget announcements that the Chancellor is very focused on that end game with arguably something for everyone in the audience in the famous red case.

Whilst many are lauding the headline item as the proposed revision to pension rules which will no longer oblige individuals to purchase an annuity on retirement, there were a number of other significant changes to the tax code notably in the areas of capital allowances for businesses and that old favourite anti-avoidance.

And Northern Ireland is to get its first pilot enterprise zone in Coleraine, though one hopes this is not a consolation prize for the lack of decision taken on devolving corporation tax varying powers to the NI Assembly. To be located at a site close to Coleraine’s University of Ulster campus, the Enterprise Zone will follow the model first announced in Budget 2011 and is likely to offer hi-tech businesses tax incentives and simplified planning procedures. It is hoped that this will also tap into Project Kelvin at the university.

Let’s take a more detailed look at the key announcements.

Income Tax

The personal allowance for 2015–16 is planned to rise from £10,000 in 2014–15 to £10,500 with the basic rate limit set at £31,785. So the Coalition promise of reaching a £10,000 personal allowance has been fulfilled and will be exceeded by the time of the next election. Overall this means the 40% tax threshold has again increased and as this is less than the current inflation rate will have the impact of bringing more workers into the 40% tax band.

However the Chancellor also proposes to consult on how best to limit the availability of the personal allowance to those whose centre of vital interests is in the UK.

As announced in December, Finance Bill 2014 contains legislation allowing a spouse/civil partner to transfer £1,050 of their personal allowance to their spouse or civil partner. The spouse/civil partner will receive the transferable allowance as a reduction to their income tax liability at the basic rate of tax. To be eligible to make/receive the transfer, neither party must be a higher or additional rate taxpayer. From 2016–17, the transferable amount will be 10% of the personal allowance for those born after 5 April 1938.

Draft guidance has also now been published on the new Social Investment Tax Relief which is available from 6 April 2014. This introduces a range of income and capital gains tax reliefs as incentives for investment by individuals in qualifying social enterprises, with income tax relief available at 30% of the amount invested.

Savings

Savers will see the starting rate for savings income fall in 2015–16 from 10% per cent to nil, coupled with an increase in the maximum amount of an individual’s savings income that can qualify for this starting rate from £2,880 in 2014–15 to £5,000 for 2015–16. Secondary legislation will also ensure that savers who are not liable to pay income tax on their savings income can register to receive interest payments from their bank or building society without tax being deducted.

Changes will also be made to the ISA regime to make it more flexible and attractive. The scheme is being rebranded as “New ISAs” and will merge both cash and shares ISAs from July - with the limit increased to £15,000. This can be a combined £15,000 into either cash or investments, or a mixture of both. And savers will be able to transfer previous years’ funds from stocks and shares ISAs into cash, and vice versa.

Capital Gains Tax (CGT)

As expected, Finance Bill 2014 brings payment entitlements under the new agricultural subsidy Basic Payment Scheme within the class of assets qualifying for business asset roll-over relief. These changes apply retrospectively from 20 December 2013.

And, in order to correct a defect in the split year basis rules inserted by Schedule 45 Finance Act 2013, the Bill contains provisions that ensure capital gains made by a remittance basis user in the overseas part of a split year of residence are not charged to UK CGT.

The Chancellor also announced the removal of the sunset clause for the Seed Enterprise Investment Scheme (SEIS) - the scheme was due to end on 5 April 2017 but will be made permanent. SEIS CGT relief for reinvesting gains in SEIS shares which was previously only available in 2012–13 (100% of gains up to a maximum of £100,000) and 2013–14 (50% of gains up to a maximum of £50,000) is also to be made permanent.

Capital Allowances

The current Annual Investment Allowance (AIA) limit of £250,000 which was due to end later this year on 31 December 2014 has now been doubled to £500,000 from 1 April 2014 for corporation tax and 6 April 2014 for income tax. The new limit will be available until 31 December 2015 at which point it is intended to reduce to £25,000.

In advising businesses of what AIAs may be available, readers are reminded to take account of the transitional rules that apply where a business has a chargeable period spanning the date of the increase to £500,000. Special rules will also apply for chargeable periods spanning the date that the £500,000 limit ends on 31 December 2015.

The enhanced capital allowances scheme for energy saving/water efficient technologies will undergo their normal annual update to include two new technologies. In addition, the qualifying criteria for a number of technologies in both schemes will be revised. These changes will come into effect in the summer, subject to State aid approval.

From 1 April 2012, 100% tax relief has been available for expenditure incurred on qualifying plant and machinery by companies located in designated Enterprise Zones, with exclusions for certain types of equipment. This specific relief was initially planned to run for a five year period to 31 March 2017 but Budget 2014 has extended the measure for a further three years to 2020.

So SMEs re/locating to the new Coleraine enterprise zone should find little restriction on the amount of their expenditure qualifying for this relief - the upper limit of €125 million per investment project is purely to satisfy EU state aid rules.

Corporation Tax

The main rate of corporation tax for FY 2014 and 2015 as previously announced remain unchanged from 21% and 20% respectively.

It is also intended that the rate of R&D payable tax credit for loss-making SMEs will increase from 11% to 14.5% for qualifying expenditure incurred on or after 1 April 2014. No other changes were made to the UK R&D relief schemes.

A new corporation tax relief for theatrical productions and touring theatrical productions forms part of Finance Bill 2014, increasing the range of creative sector reliefs available in the UK. And at the end of March it was announced that the EU has finally provided state aid approval for the video games relief announced in Budget 2012. This will be available from 1 April 2014.

Finance Bill 2014 also amends rewritten legislation to prevent claims for capital gains roll-over relief on reinvestment in an intangible fixed asset. This will bring the corporation tax treatment of companies seeking to claim capital gains roll-over relief into line with the legislation previously enacted in Finance Act 2002. For any such claims made before 19 March 2014 the tax cost of the replacement intangible fixed asset is to be adjusted when calculating future debits and credits.

Further changes will be introduced to the anti-loss buying rules in Part 14A of Corporation Tax Act 2010. These will exclude Research and Development Allowances from the rules and will have effect for “qualifying changes” of ownership occurring on or after 1 April 2014.

The scope of the Substantial Shareholding Exemption will be extended to treat a company as having held a substantial shareholding in a subsidiary being disposed of for the 12 month period before the disposal, where that subsidiary is using assets for oil and gas exploration and appraisal activity that have been transferred from other group companies, and where the other conditions for the exemption are met. These changes will have effect for disposals that occur on or after 1 April 2014.

Finance Bill 2014 also creates an exemption from corporation tax on chargeable gains on assets disposed of in the course of oil and gas exploration and appraisal activities where the proceeds are then reinvested in the UK/UK Continental Shelf. This legislation will have effect for disposals that occur on or after 1 April 2014.

The scope of qualifying expenditure on mineral exploration/access will also be expanded to include expenditure on seeking planning permission where it is granted. These changes will apply to qualifying expenditure incurred on or after Royal Assent in 2014.

Property Taxes

The threshold for the 15% higher rate of Stamp Duty Land Tax on the acquisition by non-natural persons of dwellings is being reduced from £2 million to £500,000 and will apply to land transactions where the effective date is on or after 20 March 2014. However the existing £2 million threshold will continue to apply, subject to exceptions, where contracts were entered into before that date.

Finance Act 2013 introduced the Annual Tax on Enveloped Dwellings (ATED) payable by non-natural persons owning UK residential property valued at more than £2 million. Following on from the reduced SDLT threshold noted above, the threshold for the ATED will also be reduced to £500,000.

In addition, from 1 April 2015 a new band will come into effect for properties valued between £1 – £2 million (£7,000 charge). From 1 April 2016 a further new band will apply for properties valued £500,000 – £1 million (£3,500 charge). There will also be a transitional rule for the £1– £2 million band requiring returns to be filed on 1 October 2015 and payment by 31 October 2015. The charges and thresholds for 2014–15 are also now set out.

All corporate and other ‘envelopes’ affected by the new ATED band will also be subject to CGT on disposal of the properties held, at a rate of 28%. The extension to the ATED-related CGT charge will take effect from 6 April 2015 for properties £1 – £2 million with the extension for properties £500,000 – £1 million only having affect from 6 April 2016.

The charge will apply only to that part of the gain that is accrued on or after the relevant date with the balance of any gain continuing to be treated as at present.

Indirect Taxes

The usual plethora of changes occurred to tobacco and alcohol duties but with a surprising reduction in the rate of beer duty announced, all these changes took effect from 24 March 2014. Vehicle Excise Duty rates for cars, vans, motorcycles and motorcycle trade licences also increased from 1 April 2014 in line with the retail price index.

Air Passenger Duty (APD) will undergo banding reform to reduce the number of APD destination bands to two and to set the higher rates that apply (to aircraft with an authorised take-off weight of 20 tonnes or more, and fewer than 19 seats) to six times the reduced rate. These changes will have effect from 1 April 2015.

The VAT registration/deregistration thresholds also underwent their normal inflationary increases. VAT legislation in relation to prompt payment discounts will also be amended so that it is clearly aligned with EU legislation with effect from 1 April 2015.

Pensions

In this Parliament, the government has already removed the requirement to annuitise by age 75, and introduced flexible drawdown of pension savings for those who meet a minimum income requirement in retirement.

The Budget announced further radical changes that will offer people more options in how/when they access their defined contribution pension. Drawdown of pension income under the new, more flexible arrangements will be taxed at marginal income tax rates rather than the current rate of 55% for full withdrawals. The tax-free pension lump sum will continue to be available.

There were also a number of other notable changes in this area including:

• reducing the minimum income requirement for accessing flexible drawdown to £12,000;
• increasing the capped drawdown limit to 150% of an equivalent annuity;
• increasing the total pension wealth that people can have before they are no longer entitled to receive lump sums under trivial commutation rules to £30,000;
• increasing the small pots limit, raising the size of a pension pot that can be taken as a lump sum regardless of total pension wealth, to £10,000;
• increasing the number of small personal pension pots that can be taken as a lump sum to three.

These particular changes will all have effect from 27 March 2014.

Miscellaneous

New anti-avoidance rules are being introduced under 14 separate headings, many to do with the use of structures which avoid PAYE and NIC. The DOTAS rules are being extended, as are the tax payment conditions in circumstances where the GAAR is being invoked. Some structures involving intra group profit shifting will no longer be effective for tax planning purposes. There is also a crackdown on charities established for the purpose of tax avoidance.

Finance Bill 2014 also gives effect to the Office of Tax Simplification’s proposals to simplify the tax rules and administrative processes for employee share schemes. Many of these changes will have effect from 6 April 2014 or from Royal Assent to Finance Bill 2014.

Conclusion

Although the Northern Ireland economy is recovering at a slower pace than other parts of the UK, many of the Budget measures, coupled with existing reliefs should have a positive impact and allow local businesses to confidently invest in capital expenditure and consider expanding their workforce.

But there is no doubt that the final decision on devolving corporation tax varying powers to the NI Assembly which is expected later this year is still eagerly awaited by many in the NI business community.

Leontia Doran is UK Taxation Specialist for Chartered Accountants Ireland.

Tel: +44 353 1 6377200

Email leontia.doran@charteredaccountants.ie

www.charteredaccountants.ie