Budget Comment: Susannah Simpson, PwC
No rabbits, but a few carrots for the man on the Clapham omnibus
We were promised no gimmicks and no ‘rabbits out of the hat’ as the Chancellor of the Exchequer delivered his final Budget of this Coalition Government’s five year term, with plenty of jokes aimed at the Opposition and perhaps more than one eye on the looming general election.
There were no (unexpected) rabbits and some good news for the man on the Clapham omnibus. The income tax personal allowance is to increase by £200 a year reaching £11,000 in 2017/18, with the 40% higher rate tax threshold increasing above inflation to £43,300 in 2017/18. Class 2 National Insurance Contributions, currently £2.75 a week, will be abolished completely, which will be welcome news to the country’s 5 million self-employed currently subject to this tax and administrative burden.
The nation’s savers also have plenty to celebrate with a new personal savings allowance, meaning that the first £1,000 of savings income each year will be tax free, with a reduced £500 allowance for higher rate taxpayers. There will be further changes to ISAs to make cash withdrawals more flexible. Finally, Help to Buy ISAs are to be introduced with every £250 saved for a deposit helped by a further £50 contributed by the Government.
As expected, the lifetime limit for pensions is to be reduced from £1.25m to £1m, although no changes are being made to the annual £40,000 limit. The wide-ranging changes to pension rules in the Autumn Statement were extended further by a change in the law to allow pensioners to access their annuities, with the current 55% tax charge abolished and income tax now applied at the pensioners’ marginal rate.
But what about private businesses and the entrepreneurs behind them – the lifeblood of the Scottish economy and key employers in the Chancellor’s voting public? The rules for Entrepreneurs’ Relief (which incentivises growth by lowering the tax rate on business sales) are being tightened to counter perceived avoidance and the Enterprise Investment Scheme (EIS) rules will be amended to make them compliant with EU state aid provisions and increase support for high growth companies. Otherwise, no big giveaways except for those private businesses who feed off the oil and gas industry, and whom should benefit indirectly by the easing of some of the pressure through significant reductions in both Petroleum Revenue Tax (50% to 35%) and the supplementary charge (30% to 20%).
Finally, a headline-grabbing announcement was the “death of the tax return” as new real-time digital tax accounts were announced to replace end of year tax returns by 2020. Given that most taxpayers file returns online already, it’s unclear exactly how these new digital tax accounts will operate. Accountants and tax professionals will be very keen to establish whether this signals the end of the January rush, or whether the new system will retain some form of January deadline to keep us on our toes!
Susannah Simpson is a tax partner, PwC in Scotland