2015 Budget – Business receives boost against backdrop of cuts

Chancellor George Osborne looks to create “high wage, low tax, lower welfare” society with budget that outlines cuts but also tax breaks for business.

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In what is the first Conservative-only budget for 19 years chancellor George Osborne spoke of having to make “difficult decisions” as he juggled £12bn of cuts with tax breaks for business.

Savings of £17bn have been identified with £12bn of that coming from welfare cuts and £5bn coming from a clampdown on tax evasion and avoidance.

Osborne signaled an end to the “rollercoaster ride in public spending” but details of impending departmental budget cuts won’t be revealed until the he gives his autumn statement. However he promised that the cuts would not be as severe as between 2011-12 and 2012-13.

GDP growth was said to be 2.5% in March but Osborne has now dropped this prediction to 2.4%.

In an attempt to woo businesses Osborne said: “We are giving businesses the lower taxes they need to grow with confidence.”

Corporation tax reduced

Corporation tax will be cut from 20% to 19% in 2017 followed by a further cut to 18% in 2020.

Appealing to small and medium sized businesses Osborne says that annual investment allowance will go up to £200,000 per year.

The rates of income tax remain unchanged but there is movement in the thresholds. The first £11,000 of personal earnings will now be tax free and meanwhile the higher rate tax bracket moves up to £43,000, a move which the chancellor says means 29 million people will pay less tax.

A new national living wage has been introduced starting at £7.20 an hour from next April, rising to £9 per hour by 2020 for those aged 25 and over.

Apprenticeship levy introduced

There will be an apprenticeship levy imposed on all businesses and companies that offer them will be incentivised and “get back more than they put in” says Osborne.

University maintenance grants, which help lower income students in England and Wales get to university, have been scrapped as the chancellor says they are “unaffordable”. Instead these same students will be offered loans from 2016-2017, which don’t have to be repaid until they are earning £21,000.

Also in the budget:

  • More power has been devolved to 10 councils in Manchester, which Osborne calls a “Northern Powerhouse.” Similar deals will be struck between national and local government in Sheffield and Liverpool.
  • From September 2017, working parents of children aged three and four will receive free child care.
  • There will be no more automatic entitlement to housing benefit for 18-21 year-olds who must earn or learn according to Osborne who called the plans a “youth obligation.”
  • As stated in March fuel duty will remain frozen this year.

Mike Hayes, partner at accountant KingstonSmithW1 has identified several key changes in the budget which will affect design businesses

Venture capital reliefs:

“The announcements made in March, but which didn’t make it into the pre-election Finance Bill are being pursued.  Generally these changes are to bring the UK rules for SEIS, EIS and VCTs in line with the EU state aid rules.

“SEIS and EIS are frequently used by businesses in the sector to raise vital equity capital.  These rule changes will make the reliefs more complex and greater care will need to be taken to ensure that the qualifying conditions are met.”

Denying reliefs for purchased goodwill

“Where a business is acquired, rather than shares in the company, it has been possible to write off the cost of the goodwill for tax purposes over its useful life.  This ability to amortise the goodwill for corporation tax is being denied.

“Businesses in this sector are generally very acquisitive. Often it is preferable to buy a business rather than the shares in the company that conducts it. This change will make it less attractive to do so from a tax point of view as one of the major tax benefits has been stopped. However, there may still be commercial reasons to buy assets rather than buying the company.”

Changes to domicile rules

“Non-dom tax status has hit the headlines over the last few years and especially during the election. Going forward it will not be possible to claim the domicile of your parents for example if they were immigrants but you were born in this county. Further if you have been tax resident here for more than 15 out of the last 20 tax years you will be deemed to be domiciled here for UK tax purposes. The effect of this is that UK domicile and resident individuals are taxable on their worldwide income and gains whether or not they bring them into this country.

“A change in this area is not unexpected and perhaps may be overdue.  However, design and similar businesses have a large proportion of staff that move across national boundaries.  Those that stay in the UK for a long time may wish to consider whether they remain here if they become UK domiciled for income tax and capital gains tax purpose.  Valuable long standing members of staff from overseas may suddenly find that there are tax reasons for leaving the UK.

“It is worth remembering that there has been a deemed domiciled concept for inheritance tax purposes for many years.”

Design Council reaction

“Today, George Osborne gave his first budget since the general election, setting out his plan to grow the UK economy, build the Northern Powerhouse and bring about further public service reform. Design Council welcomes the government’s focus on boosting UK productivity, and argues that design must form an active part of the government’s initiative.

“For the second year in a row, Britain is expected to have the strongest economic growth of any major advanced economy in the world. However, the challenge is staying ahead of our global competitors.

“The UK has the largest design sector in Europe and the second largest in the world. As a key component of the creative industries, design had the largest compound annual growth rate between 2008-2013, growing at an average of 10.8% per year. However, this is only part of the picture, as designers and design skills also contribute to the wider economy by adding value to sectors such as automotive and aerospace, creating strong brands and differentiating products.”

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  • Stephanie Brown July 9, 2015 at 12:47 pm

    Don’t see any mention of the impact that changes to NIC and dividends vis a vis freelancers/limited companies with just one director as the employee. With so many of these types of people in the design industry this is a pretty bad blow.

  • Glen Cheyne July 9, 2015 at 5:48 pm

    As Stephanie says, the vast majority of small business owners will now be worse off. The 1 – 2% reduction in corporation tax is easily outweighed by the introduction of a 7.5 – 32.5% tax on dividends.

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