Yesterday, the chancellor presented the 2014 budget to the House of Commons. In this special feature, the Small Firms Division looks behind the chancellor’s announcement and identifies the key changes affecting your small practice

Key political announcements

  • The point at which people start paying income tax will be raised to £10,500 from next year.
  • The threshold for 40p income tax is to rise from £41,450 to £41,865 next month and by a further 1% to £42,285 next year.
  • Tax on homes owned through a company will be extended from residential properties worth more than £2m to those worth more than £500,000.
  • Cash and shares ISAs are to be merged into a single ISA with an annual tax-free savings limit of £15,000 from 1 July.
  • The fuel duty rise planned for September will not happen.
  • A new 12-sided £1 coin is to be introduced in 2017.
  • The cap on Premium Bonds is to be lifted from £30,000 to £40,000 in June and £50,000 next year.
  • All tax restrictions on pensioners’ access to their pension pots are to be removed, ending the requirement to buy an annuity. The taxable part of a pension pot taken as cash on retirement is to be charged at normal income tax rate, down from 55%.
  • The welfare budget is to be capped at £119bn for 2015-16, rising in line with inflation to £127bn in 2018-19. The cap includes child benefit, incapacity benefit, winter fuel payment and income support - but does not include state pension and jobseeker’s allowance.

Business investment

  • The rate of the research and development tax credit payable to loss-making small and medium-sized companies is to increase from 11% to 14.5% from April 2014.
  • The annual investment allowance is to double to £500,000 from April 2014 until the end of 2015. With this measure, 99.8% of businesses will get a 100% investment allowance.

Access to finance and banking 

  • The British Business Bank is to issue a request for proposals to implement an innovative wholesale guarantees programme alongside the budget (in support of encouraging more bank lending to SMEs and a more diverse banking sector).
  • The Seed Enterprise Investment Scheme and the capital gains tax 50% reinvestment relief is to be made permanent.
  • The government will explore options for the tax reliefs to apply where individuals make investments in the form of convertible loans.
  • ISA eligibility will be extended to peer-to-peer loans.
  • The government will explore extending the ISA regime to include debt securities offered by crowdfunding platforms.
  • A new consultation will be opened on legislating to help match SMEs with alternative lenders if they are turned down for a loan in order to broaden the sources of finance available to small businesses.
  • Availability of business rate discounts and Enhanced Capital Allowances will each be extended by three years as an incentive for new and expanding businesses to locate in enterprise zones.

Other tax changes

  • From April 2014, the main rate of corporation tax will be down to 21%. Next year, it will reach 20%, down from 28% when the coalition came to power in 2010.
  • Every business in the country will get the employment allowance - £2,000 cashback on national insurance. The government will also take under-21s out of national insurance on their basic rate earnings altogether.

Annual tax on enveloped dwellings

  • Two new bands for annual tax on enveloped dwellings (ATED), bringing properties worth £500,000 to £1m and £1m to £2m into the charge.The ATED-related capital gains tax charge will apply to properties in the new ATED bands.
  • The 15% rate of stamp duty land tax that applies to acquisitions of properties by corporate envelopes will also be applied to properties valued above £500,000 with effect from 20 March 2014.

Limited liability partnerships

  • Although not mentioned in the chancellor’s statement, the budget document explains that “The government will introduce legislation that will take effect from April 2014 to counter the disguising of employment relationships in limited liability partnerships and prevent the tax motivated allocation of business profits to corporate partners which are generally taxed at lower rates than individuals. (Finance Bill 2014)”. The Law Society has published a press release explaining that it is disappointed that the government appears insistent on enforcing the changes to LLP salaried member tax rules from 6 April 2014, despite the House of Lords report last week which mirrored our own concerns with the proposal and called for any changes to be delayed until next year.

Capital gains tax

  • A new consultation will be carried out on how best to introduce a capital gains tax on future gains made by non-residents disposing of UK residential property, which the government intends to introduce in April 2015.
  • The government will introduce a 1% increase in the annual exempt amount this year and next, bringing it to £11,000 in 2014-15 and £11,100 in 2015-16.

Housing

  • The Help to Buy equity loan scheme is extended to March 2020.
  • The government will support a new garden city at Ebbsfleet.

Education

  • An extra £85m in both 2014-15 and 2015-16 for over 100,000 grants to employers for the Apprenticeship Grants for Employers scheme will be made available.