Budget 2014: For small businesses, contractors and individuals

The Chancellor hailed his budget as being for ‘savers, makers and doers’ which could equally have been translated as for savers and for businesses, notably manufacturers and those wishing to export. Much of the content was political in nature, in the year before an election, and he seized on the obvious opportunity he had to report on the strengthening economy and deficit reduction targets. That said, many measures relating to business were welcome and sensible, given the much-publicised need to strengthen the sustainability of the recovery and of economic growth, by re-balancing the UK away from consumer-led demand and towards business investment, manufacturing and exports.

Other big announcements for individuals included a huge increase in the flexibility as to what can be done with pension savings on retirement and an extension of the Help to Buy scheme until 2020.

A round up of the key points is set out below:

For small businesses and SMEs

  • A reduction of £2,000 in the employer’s national insurance bill for all businesses (as previously reported)
  • A doubling of the Annual Investment Allowance – a tax deduction for investment in business assets – to £500,000 per year, until 31/12/15, to encourage business investment
  • A doubling of the support available to exporters to £3bn and a reduction in the interest on loans to such companies
  • A reduction in energy bills for manufacturing businesses
  • The permanent inclusion of the Seed Enterprise Investment Scheme in the tax regime – giving investors in SMEs relief from income and capital gains tax, which has helped to boost investment in small businesses and start-ups
  • Support for another 100,000 apprentices
  • An increase in R&D tax relief for loss-making businesses
  • An extension to business rates relief, but only within enterprise zones
  • For sole traders: an extension of tax-free child care vouchers to sole traders and the inclusion of class 2 national insurance payments in the self-assessment tax process
  • Announcement of a consultation on measures to force lenders that refuse credit to small business, to refer them to alternative lenders or sources of finance

There were a couple of areas in relation to small businesses which were not specifically or immediately addressed in the budget that we would have liked to have heard more about – namely, the business bank and measures to stimulate lending to small businesses and also further revision to the business rates regime in general.

For freelance workers and contractors

Whilst there were plenty of items which may be of interest to freelancers and contractors, as members of the working, tax-paying and saving population in general, there was nothing specifically targeted at them, which can probably be seen as a relief given the legislation they are already being asked to consider.

There was no mention of the Lords Committee on Personal Service Companies (due to report by 31 March) and no reference to IR35. The onshore intermediaries legislation for false self-employment will apply from April 2014, as planned, but in general it is hoped that legitimate contractors, working through limited companies or umbrella arrangements, should have nothing new to fear.

For any contractors that have used more exotic tax-avoidance schemes and have not yet reached agreement with HMRC however, there was a major and worrying change announced – anyone using a tax avoidance scheme and who has had an enquiry notice or notice of assessment, will now be required to pay the tax assessed up front and claim it back if they win a court appeal, as opposed to HMRC having to prove that they have broken the law before they have to hand the tax over – the equivalent of being judged guilty until proven innocent. HMRC’s own analysis estimates that around 16,000 contractors could be affected by this change.

As already communicated to our clients, a £2,000 allowance for all businesses in relation to employer’s national insurance comes into force, meaning the first £2,000 of employer’s NI is not payable. In one sense, this provides an option to pay a slightly higher level of director’s salary, up to the £10k tax-free personal allowance, without incurring employer’s NI. However, doing so would mean that contractors would have to pay additional employee’s national insurance that they do not currently incur on the level of salary we recommend and they would only get this back through a corporation tax deduction at the end of the year. The saving ultimately amounts to around £160 per year but there is an immediate additional cash flow cost, with the benefit not being felt until more than a year later, so we recommend no change to current arrangements.

Reviews into the simplification of tax rules around travel and subsistence expenses and into the CIS scheme for construction workers were also announced, as well as tax breaks for certain oil and gas projects.

For individuals, savers, investors and those planning for their future

  • An increase in the personal tax-free allowance to £10,000 from April 2014 and £10,500 from April 2015
  • This also flows through to an increase in the 40% threshold, meaning a little less of tax-payers’ income will attract higher-rate tax
  • Much more flexibility around what can be done with pension pots on retirement – no compulsion to purchase an annuity, with lump sums allowed to be drawn down as cash for the individual to decide how this should be spent
  • Increases in the amount that will be allowed to be saved tax-free in an ISA (up to £15,000) and a more flexible approach allowing this all to be held in a lower-risk cash ISA, as well as stocks and shares ISAs. Also, the ability to transfer a share-based ISA into a cash ISA (for example, if you are wishing to reduce the risk level in your investments, say when saving for a house deposit)
  • Continuation of the Help to Buy housing scheme until 2020 and more funds for house building schemes
  • For second/holiday home owners looking to sell up, downsize or emigrate eventually – a reduction in the period of time after a residential property ceases to be your principal home, during which it can be sold free of capital gains tax (from 36 months to 18 months)
  • A deferral on the fuel duty increase and 1p off a pint of beer

Posted by John Hoskin