George Osborne’s “Budget for a Resilient UK” outlined a number of new measures, while also welcoming significantly improved growth forecasts, with the UK economy expected to grow by 2.7% in 2014.
Although the surprise announcement that the Annual Investment Allowance (AIA) for capital expenditure has been doubled from £250,000 to £500,000 will not affect most small and medium-sized businesses, those with heavy capital investment plans will be cheered and the vast majority of businesses will now get 100% up-front relief on qualifying investment in plant and machinery.
Osborne also pledged to cut energy costs for manufacturers by capping the Carbon Price Floor, while R&D tax credits to loss making companies will be raised from 11% to 14.5% from April 2014.
As widely expected, measures were announced to raise the amount of income people receive tax-free to £10,500 from 2015.
For individuals radical changes were announced to pensions and savings. As well as a move to merge cash and stocks and shares ISAs with an upper limit of £15,000, Osborne announced the reduction from 10% to 0% of the starting rate of tax for savings and an extension of the band to a maximum of £5,000.
Changes to pensions include the introduction of new pensioner bonds and the removal of all tax restrictions on pensioners’ access to their pension.
Small businesses should be aware that they could save valuable time and money by switching to a scheme that allows them to be taxed on money flowing into and out of their business, rather than using full accounting rules.
HM Revenue and Customs (HMRC) first launched the cash basis scheme last year, but is urging more small firms to consider using the scheme ahead of the new tax year, which starts on 6 April.
The scheme can be used by sole traders and partnerships with an annual income of less than £79,000, and involves a business simply working out the cash received in a tax year, less any money spent on allowable business expenses.
It would be particularly suitable for small businesses such as hairdressers, window cleaners, taxi drivers, gardeners, painters and decorators, plumbers and electricians.
This means small businesses do not need to spend time at the end of the tax year making complex accounting adjustments and other calculations more suited to larger businesses, or pay tax on money before they receive it.
Employers are being advised that the introduction of penalties for late filing and late payment in relation to Real Time Information (RTI) will be staggered, rather than coming into force in April as originally planned.
Automatic in-year Pay As You Earn (PAYE) penalties for late filing and late payment and in-year interest – charged on tax and national insurance contributions paid late during the year – were due to start from 6 April 2014.
However, HM Revenue and Customs (HMRC) says that having listened to customer feedback, it has now decided to stagger the start of the new in-year late filing and payment penalties to give employers more time to adapt to reporting payroll information in real time and for HMRC to correct errors within the system.. The new timetable for the introduction of penalties will be:
- April 2014: in-year interest on any in-year payments not made by the due date
- October 2014: automatic in-year late filing penalties
- April 2015: automatic in-year late payment penalties.
HMRC says the introduction of RTI is going “extremely well for the majority of employers” but notes that there are still some employers who need more time to adapt to the changes.