As expected with the General Election so close, this Budget contained few surprises and contained no spectacular giveaways, says Jane Parry, lead tax partner at PM+M.
Paper Tax Returns
The announcement of the abolition of paper tax returns is a move towards online real time reporting of tax information which could – in theory – eventually remove the need for tax returns altogether. In practice, that is a massive task and it's difficult to envisage quite how it will be achieved and how taxpayers will have the necessary checks and balances to be able to ensure that their tax affairs are being properly dealt with. It's much the same idea as is being introduced for Universal Credits and that seems to be having a number of teething problems and taking much longer to introduce than envisaged.
The government has done a great job in the past few years of freeing up how people use their money to purchase personal pensions. In short, you can take out as much cash as you like out whenever you want provided you are over 55. At the same time, pensions have become a hugely effective estate planning tool. So what's the catch? Firstly, a pension is there to fund retirement, so people need to think twice before spending it all now; secondly, if the fund is stripped it is likely that higher rates of tax will need to be paid and the door will be closed on making further contributions in the future; and thirdly, a great chance to reduce inheritance tax and leave a lasting legacy for family will be wasted. In our view, today's decision to allow existing annuities in payment to be cashed in for a lump sum is unlikely to be a good idea for most people, but will probably be more likely to benefit the companies which arrange this type of transaction.
The idea of the Flexible ISA is a good one in principle but time will tell as to how it's taken up and used. The First Time Buyer ISA also shows promise and could be a much needed step up for anyone struggling to get on the property ladder.
Personal Tax Threshold Changes
There was speculation that the personal allowance would go above £10,600 this year. That hasn't happened; it's set to rise to £10,800 next year and then to £11,000 the year after. However, the announcement around the Personal Savings Allowance was certainly welcome. This – combined with the rises in the higher rate tax threshold and personal allowance over the next few years – will reduce the income tax burden for hard working people which can only be seen as a good thing.
The North West is – of course – a manufacturing hub so more R&D tax credits for both SMEs and large companies would have been a boost. It was a shame but hopefully new initiatives will be announced in the Autumn Statement.
The Annual Investment Allowance which gives immediate tax relief for capital expenditure is currently £500,000 and it's due to fall to £25,000 on 1 January 2016. It was positive to hear that drop probably won't happen but clarity is needed sooner rather than later so companies can plan ahead.
From 1 April we will have the one unified corporation tax rate of 20% for any size of company which will much simplify group company tax affairs. It also means that we will have one of the lowest CT rates amongst developed nations and that should help promote the competitiveness and attractiveness of the UK to multi-national businesses.
It was also positive to learn that an enterprise zone will be set up at Blackpool Airport. The scheme is projected to create 3,000 jobs and bring new a new lease of life to the area. This is the kind of focus and investment that will help drive the North West region ahead and bring long-term and sustained prosperity.