As you might be aware, the 2014 budget was announced last week. Don’t worry if you didn’t get chance to digest the content because we have prepared a brief summary to give you the key points:
Personal Allowance and National Insurance Limits
The personal allowance will increase to £10,000 from April 2014 and is expected to be £10,500 from April 2015.
The national insurance limit is actually more relevant for our clients though as this is the level that you start paying both employees (12%) and employers (13.8%) contributions. At a combined 25.8%, as a director of your own limited company, you might want to avoid paying yourself a salary above the new limit of £663 per month. If we are running a payroll for you, we will automatically adjust your salary to this level so all you have to do is amend your standing order so you now may yourself a monthly salary of £663.
Employers National Insurance
Being labelled “Employers Allowance”, the government has introduced this very generous gift to all UK employers, regardless of size. And it’s simple. Your first £2,000 of employers national insurance in 2014/15 will be waived! Again, if we are running your payroll you have nothing at all to do. If you are running your own payroll you will have to claim as it is NOT automatic.
Increased ISA Allowance
Another generous announcement was the increase in the ISA allowance which from 1st July 2014 will be right up at £15,000. You can invest £15,000 throughout the year into an ISA account made up of cash and/or shares with no restrictions on the amount made up in cash.
Pensions tax improved
On retirement you are entitled to draw 25% of your pension pot as a tax free lump sum. Historically, any lump sum in excess of this was taxed at an eye watering 55%! This has been relaxed and you will now pay the rate of tax you would otherwise pay i.e. 20% for a basic rate taxpayer.
As part of the governments attempt to stimulate the economy, they have increased the amount of capital expenditure that you can get immediate tax relief on to £500,000 per annum. That means that you can purchase upto £500,000 of capital equipment, machinery, software etc and write off 100% of the cost immediately for tax purposes even if you have bought the assets on credit. This limit will be reduced back to £25,000 p.a. from 1st January 2016.
R&D tax credits rate increased
Research into anything that seeks to resolve “a technical or scientific uncertainty” attracts an uplift in allowable cost by 125%. That means if you spend money on anything that might qualify as research and development, your tax return will increase the amount spent by 125% to increase the amount of tax relief you will get on that expenditure. Furthermore, if that leads to your business making a taxable loss, you can receive 14.5% (previously 11%) of that inflated cost back from the government immediately.
Improved childcare support
The amount of childcare costs that you can reclaim tax relief on is increasing. From Autumn 2015, the you will be able to recoup 20% of the cost on upto £10,000 per child so potentially £2,000 in tax relief per child.
The SEIS scheme offers huge tax incentives for investors to invest in SME’s. Upto £100,000 of investment attracts 50% income tax relief and any gain on sale of the shares are free from capital gains tax. The scheme was initially intended to run from 6th April 2012 to 5th April 2017. It has now been made permanent.
Reduction in the main rate of corporation tax
The rate of corporation tax for those companies defined as large (broadly one with taxable profits of over £300,000), is to be reduced to 21% from April 2014 and 20% from April 2015. It was 26% in 2011 and is gradually coming down to be level with the small companies rate which remains at 20%.
And the bad news is
It’s not all good news of course. Tax relief on selling your main home is becoming slightly less flexible and there is increased scrutiny on Limited Liability Partnerships (LLP’s) who use a corporate partner to avoid tax.
Overall I thought it was an incredibly positive budget, reflecting the positive outlook that I have for the economy. It is common for growth to take off quickly once out of a recession and there are definite signs of a recovery. Many of our clients are beginning to find bigger and better work and many of these announcements by the chancellor should be capitalised on so that your business makes the most of the opportunities available.
The complete 2014 budget address can be found here