Wednesday, 4 October 2017

October 2017

Small Business Tax & Finance
  

DIVIDEND ALLOWANCE

The current regime for taxing dividends has been in place since 6 April 2016. Under the rules, all taxpayers, regardless of the rate at which they pay tax, are eligible for a ‘dividend allowance’. Although termed an ‘allowance’, in reality the dividend allowance is a nil rate band and dividends sheltered by the allowance are taxable at a zero rate. The allowance is set at £5,000 for 2016/17 and 2017/18, enabling all taxpayers to receive dividend income of £5,000 tax-free (on top of any dividends that are covered by the personal allowance). Once the dividend allowance (and the personal allowance) have been used up, dividends are taxed at 7.5% to the extent that they fall within the basic rate band, 32.5% to the extent that they fall within the higher rate band and 38.1% to the extent that they fall within the additional rate band.

The dividend allowance is to fall to £2,000 from 6 April 2018. This will impact on anyone who receives dividends, either from investments or as part of a profit extraction strategy from a personal or family company.

Dividends are a popular and tax-efficient method of extracting profits from a personal or family company. Where profits are extracted in this way, it is sensible to plan ahead to ensure that the higher dividend allowance available for 2017/18 is not wasted. Where shareholders in personal or family companies have taken dividends of less than £5,000 in 2017/18, and where retained profits are sufficient, consideration should be given to paying a dividend before 6 April 2018 in order to mop up any unused dividend allowance for 2017/18. For 2018/19 onwards, the allowance is only £2,000.

Paying a dividend after 6 April 2018 rather than before may mean (depending on the size of the dividend) that it is taxable where previously it was tax-free. Assuming that dividends of at least £5,000 continue to be paid in 2018/19 (and the personal allowance is utilised elsewhere), the reduction in the dividend allowance will increase the tax payable by a basic rate taxpayer by £225, a higher rate taxpayer by £975 and an additional rate taxpayer by £1,143.

Talk to us about tax-efficient profit extraction policies and the benefits of planning ahead.



TERMINATION PAYMENTS

The rules on the tax and National Insurance treatment of termination payments is changing from 6 April 2018.

Payments made on the termination of an employment are treated differently depending on whether the payment is a payment of earnings, such as normal wages and salary, or a compensation payment, such as damages for loss of office. Payments taxed as compensation payments benefit from a £30,000 tax-free exemption and are only taxable to the extent that they exceed £30,000. The £30,000 exemption does not apply to payments taxed as earnings.

It is not always easy to determine whether a payment is one of earnings or a compensation payment benefitting from the £30,000 exemption. In particular, payments referred to as ‘payments in lieu of notice’ cause difficulty in practice, not least because the term is used to describe payments that differ in nature. Under the current rules, payments in lieu which the employee is contractually entitled to receive, or which the employee has an expectation of receiving (for example, where there is a long standing company practice of making payments in lieu of notice), are taxed as earnings and do not benefit from the £30,000 exemption. By contrast, payments for which there is no contractual entitlement or expectation and which take the form of damages for the failure to give proper notice, benefit from the £30,000 exemption.

The treatment of payments in lieu of notice is to change from 6 April 2018 onwards. From that date, the payment is compared to the pay that the employee would have received had the employment continued throughout the notice period. Where the termination payment is not more than the pay that the employee would have received in the notice period had the employment not been terminated, it is taxable in full. Any excess over what would have been payable had the employment continued is treated as a compensation payment and will benefit from the £30,000 exemption. Essentially, any earnings payable until the end of the notice period are taxed in full as earnings from the employment.

The way in which compensation payments are treated for National Insurance purposes is also changing from 6 April 2018. Prior to that date, no National Insurance is payable on termination payments treated as compensation payments rather than as earnings. However, from 6 April 2018, employer National Insurance contributions will be payable on compensation payments made on the termination of employment to the extent that they exceed the £30,000 tax-free threshold – although the payments will remain free of employee’s National Insurance. The employee will pay tax on compensation payments in excess of £30,000 (as now) and the employer will pay employer’s National Insurance.

Please contact us to discuss the structuring of tax-efficient termination packages.



PAYE SETTLEMENT AGREEMENTS

A PAYE Settlement Agreement (PSA) is an agreement that an employer makes with HMRC under which the employer agrees to pay the tax and National Insurance on certain benefits and expenses provided to employees. The tax and National Insurance due under the PSA is paid in a single payment by 22 October after the end of the tax year to which it relates where payment is made electronically. An earlier date of
19 October applies to payments that are made by cheque.

A PSA can be useful to save work and also to preserve employee goodwill. Benefits and expenses included in the PSA do not need to be notified to HMRC on form P11D.

However, not all benefits are suitable for inclusion within a PSA – a PSA can only be used for payments that are made irregularly, payments which are minor (although this category is largely irrelevant following the introduction of the exemption for trivial benefits costing £50 or less) or where it would be impracticable to operate PAYE. For 2017/18 and earlier years it is necessary to agree a PSA with an officer of HMRC before 6 July following the end of the tax year to which it relates. However, HMRC are simplifying the PSA process and as part of this, it will no longer be necessary to agree the terms of the PSA in this way. Further reforms are planned. The current PSA process largely relies on paper forms but HMRC are to develop an automated PSA process as part of their digital strategy.

Please contact us to discuss whether a PSA would be suitable for your employees and whether it would save work for you at the year end.


CASH BASIS FOR LANDLORDS

Under the cash basis, accounts are prepared simply by reference to money received and money paid out. By contrast, under Generally Accepted Accounting Practice (GAAP) profits must be worked out using the accruals basis (sometimes referred to as the ‘earnings basis’) which recognises income earned in a period and expenditure incurred in a period, regardless of when the income is received or the payment made.

From 6 April 2017 onwards, the cash basis will be the default basis for most unincorporated landlords where rental income is less than £150,000 a year. However, if the landlord wishes to continue to prepare accounts on the accruals basis, he or she will need to elect to do so. By contrast, property letting companies will need to continue to use the accruals basis to prepare accounts.

The rules for the treatment of capital expenditure under the cash basis have also been reformed from 6 April 2017 onwards. The new rules allow landlords using cash basis accounting to deduct most capital items from rental income when computing profits. However, a deduction is not available in this way for all capital expenditure – notable exceptions include land and cars.

Contact us to discuss what cash basis accounting means for your property rental business.



VAT FLAT RATE SCHEME

The VAT Flat Rate Scheme for small businesses is a simplified scheme which allows eligible traders to calculate the VAT that they pay over to HMRC by reference to a fixed percentage applied to gross
(i.e. VAT-inclusive) turnover. Businesses with VAT taxable turnover of £150,000 a year or less can join the scheme.

Prior to 1 April 2017 the flat-rate percentage was determined solely by reference to the trade sector in which the business operated. From 1 April onwards, it is also necessary to consider whether the business meets the definition of a ‘limited cost trader’. Where a company is a ‘limited cost trader’ the VAT that must be paid over to HMRC is at worked out using a higher rate percentage of 16.5% of gross (VAT-inclusive) turnover for the period, rather than the percentage for the relevant business sector.

A limited cost trader is one that spends less than 2% of its VAT-inclusive turnover on ‘relevant goods’ or one which spends more than 2% of its turnover but less than £1,000 a year on relevant goods. The 2% test must be applied for each VAT quarter. The test is a harsh one as it only takes account of expenditure on goods, not on services. Consequently, if a business spends a lot on VATable services but not much on goods, it may be classed as a limited cost business and may lose out in terms of recovering the VAT incurred on services.

If you use the flat rate scheme, contact us to arrange a review as to whether this is still beneficial.



COMPANY CARS

Despite rising tax bills, company cars remain a popular benefit. The rules for taxing company cars reward employees driving cheaper low emission models with a lower tax bill.

Until 5 April 2015, it was possible to drive an electric company car tax-free. However, after that date, electric cars have been taxed according to the appropriate percentage for the 0 to 50g/km emissions band (9% for 2017/18, rising to 13% for 2018/19).

Technological advances mean that electric cars are becoming a more viable alternative to petrol and diesel options. In recognition of this, new appropriate percentage bands are to be introduced from 2020/21 onwards for electric and other ultra-low emission vehicles. Under the new structure, the percentage applying to cars with emissions of 1 to 50g/km will depend on both the level of the car’s CO2 emissions and also its electric range, which is the distance that the vehicle can travel in pure electric mode. For vehicles with CO2 emissions of 51g/km and above, the appropriate percentage depends solely on the level of CO2 emissions.

The bands for ultra-low emission cars for 2020/21 onwards are as follows:

CO2 emissions
Electric range
Appropriate percentage
0g/km
2%
1–50g/km
130 miles or more
2%
70 to 129 miles
5%
40 to 69 miles
8%
30 to 39 miles
12%
Less than 30 miles
14%
51–54g/km
15%
55–59g/km
16%
60–64g/km
17%
65–69g/km
18%
70–74g/km
19%

Thus, a lower tax charge will apply to electric cars with a greater electric range.

When planning ahead for company car changes, it is important to consider the tax implications of any policy and of the models chosen for the car fleet. Please contact us for more information.

This newsletter deals with a number of topics which, it is hoped, will be of general interest to clients. However, in the space available it is impossible to mention all the points which may be relevant in individual cases, so please contact us for personal advice on your own affairs.


Thursday, 15 December 2016

Money, money, money

Securing funding for your business

The government have recently launched a new scheme to allow those small businesses who are unable to access finance to be matched with alternative finance options. Here we outline the key points of the new service, and we also suggest other types of funding to consider when searching for finance for your business.

The new matchmaking service for small businesses

The government's new programme will require nine of the UK's largest banks to automatically pass on the details of small businesses they have rejected for finance to three finance platforms: Funding Xchange, Business Finance Compared and Funding Options.
These platforms will then share the details with alternative finance providers and help to 'facilitate a conversation' between the business and any provider who expresses an interest in them. RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Trust Bank are all required to offer access to these finance platforms - although small businesses must give permission before their details are shared.

Alternative sources of finance

Raising funds for a business remains a significant challenge for many. Whether you are looking to start a new business or require capital to expand, there are many factors to consider, in addition to whether you'd like to utilise the government's new funding initiative. You may want to consider some alternative ways of securing finance.

Make use of an overdraft

Overdrafts are credit facilities that have a set amount of money, agreed between you and your bank. Using an overdraft may provide a flexible means for covering short-term outgoings and any potential unforeseen or unexpected business expenses. Overdrafts, however, should not be used as a long-term source of finance, and continued use may prompt your bank to question whether you are in financial difficulty.

Apply for a grant or government support

A grant is typically supplied by the government, charities or local councils. For those that qualify, grants can be a useful source of inexpensive financing. Grants are typically non-repayable: however, strong competition for such a source of finance persists. Additionally, grants are usually only offered to specific sectors for specific projects that are in their proposal stages.
In some instances, you may be asked to cover part of the cost of your project or to match the funds awarded to you.  
The British Business Bank is a government owned company which aims to make finance markets work better for small businesses and works with over 80 partners such as banks, leasing companies and venture capital funds. Further information can be found here: http://british-business-bank.co.uk/

Sell business shares to an investor

Making use of this option involves selling part of your stake in the business to an investor. If you choose to sell to an investor, any profit (or loss) the business makes will be shared with them. However, by using this type of finance you will not need to make monthly repayments and you will not be charged interest.  
This source of finance only applies to limited companies, so sole traders and partnerships would have to make use of other funding options available to them.

Asset finance

Leasing equipment means you can avoid spending a large amount of money in one lump sum. This is often beneficial from a cash flow perspective, although it should be noted that in some cases the monthly leasing instalments can be more expensive than buying the asset outright. Leasing will also give you access to a high standard of equipment, and assets can be upgraded easily when contracts end.
Hire purchase agreements are another option for those who want to acquire business assets without having to pay for the whole item up-front, and contracts usually include an option to purchase at the end of an initial period.
And don't forget, the cost of qualifying business equipment is usually tax deductible - talk to us for further details.
It is worth considering a range of options when sourcing finance for your business. We can advise on the most suitable type of finance to suit your needs - please contact us for further information.

Friday, 1 July 2016

July 2016 Newsletter

Welcome to the July 2016 Newsletter from Easterbrook Eaton Limited

Business groups have called on the Government to help stabilise the UK economy in the wake of Britain's historic decision to leave the European Union. Following the referendum result, the business community has said it now wants to see decisive action to calm the markets and provide clarity and reassurance to the millions of businesses throughout the UK.

Also this month, Citizens Advice has warned of possible high exit fees for individuals making use of pension freedoms. A survey conducted by the organisation revealed that those withdrawing money from their pension pot may be subject to a 10% loss of their retirement funds.

Business community calls for decisive action following referendum result

Business groups have responded to the UK's historic decision to leave the European Union.

The business community had been divided in the run up to the referendum, with many prominent figures expressing starkly contrasting views on Britain's future membership of the EU. But with the outcome now clear, business leaders are seeking reassurance as Britain enters a period of potential economic and political uncertainty.

Carolyn Fairbairn, Director General of the Confederation of British Industry (CBI), commented on the consequences of the vote to leave, saying: 'Many businesses will be concerned and need time to assess the implications. But they are used to dealing with challenge and change and we should be confident they will adapt.

'The urgent priority now is to reassure the markets. We need strong and calm leadership from the Government, working with the Bank of England (BoE), to shore up confidence and stability in the economy.'

This view was echoed by the British Chambers of Commerce (BCC), which called for 'swift, decisive and coordinated action from the Government and the BoE to stabilise markets if trading conditions or the availability of capital change dramatically'.

The pound dropped to a 30-year low in the immediate aftermath of the result, while the London stock market fell by 8% before later regaining some momentum.

Meanwhile, the Federation of Small Businesses (FSB) has also stressed the need for clarity on issues such as exporting and the single market.

'The FSB calls on the Government for clarity on what these decisions now mean for business, including how businesses will have access to the single market and the free movement of people and trade,' commented the FSB's National Chairman, Mike Cherry, adding that these are 'crucial questions that need to be answered swiftly’ in order to protect the falling confidence of the UK's 5.4 million small businesses.

Following the referendum outcome, Prime Minister David Cameron announced that he will resign from his post, while the Chancellor has suggested that there will be no immediate emergency Budget before a new leader is in place.

The decision to leave the EU is likely to have significant implications for businesses and individuals alike. We will be on hand to guide you through any changes, and to advise you on any key tax and financial measures that could affect you and your business. Please contact us for assistance.

Citizens Advice warns of high exit fees for pension freedoms users

Those withdrawing money from pension savings may lose up to 10% of their funds, according to a new Citizens Advice survey.

The data revealed that individuals using pension freedoms may have had their savings significantly reduced as a result of providers' charges.

Savers with smaller funds have been paying proportionately larger fees, the survey suggested: those with pension pots of £20,000 or less have paid, on average, £1,966 in charges.

The Financial Conduct Authority (FCA) recently proposed a 1% cap on exit fees for current pension schemes. However, Citizens Advice believes that this cap is too high, and is instead proposing the introduction of a standard £50 charge to cover providers' administration costs.

Gillian Guy, chief executive of Citizens Advice, commented: 'The Government and industry needs to work together to make it easier for consumers to compare drawdown products and choose the one which best meets their needs.

'The threat of excessive charges can also put people off making the right pension choices for them. A standard £50 exit fee across all types of pensions will mean consumers can make the most of the pension freedoms.'

In a separate study, financial technology firm eValue found that demand for products that provide a guaranteed income in retirement has risen from 33% in April 2015 to 41% in April 2016.

During this period, the demand for flexible income options, such as drawdown, fell from 54% to 46%.

We can help you plan for a prosperous retirement - please contact us for more information.

ESSENTIAL TAX DATES FOR JULY
6 July
Deadline for submission of employment-related securities and annual returns.
File Taxed Award Scheme Returns, file P11Ds and P11D(b)s. Issue copies of P11Ds to employees.
Deadline for entering into a PAYE Settlement Agreement for 2015/16.

14 July
Due date for income tax for the CT61 period to 30 June 2016.

19/22 July
Quarter 1 2016/17 PAYE remittance due.
Final date for payment of 2015/16 Class 1A NICs.

31 July
Second self assessment payment on account for 2015/16.
Annual adjustment for VAT partial exemption calculations (April VAT year end).
Liability to 5% penalty on any tax unpaid for 2014/15.
Deadline for tax credit Annual Declaration (if estimated, final figures required by 31/01/17).

QUOTE OF THE MONTH
'We have taken all the necessary steps to prepare for today's events. In the future we will not hesitate to take any additional measures required to meet our responsibilities as the United Kingdom moves forward.'

The Governor of the Bank of England, Mark Carney, attempts to calm the financial markets in the wake of the referendum result.

WEBSITE OF THE MONTH
http://is4profit.com

Provides informative blogs and guides on a range of topical business issues.

ON OUR WEBSITE
Up-to-date resources for businesses
With topics ranging from company car tax to the VAT annual accounting scheme, the Your Business section of our site is a hub of useful information for businesses.

A wealth of information for individuals
For a comprehensive bank of guides covering personal taxation and much more, please visit the Your Money area of our website.

MPs warn of consequences of 'digital skills crisis'
MPs have warned that the UK may potentially be left behind if the Government fails to take action to combat a 'digital skills crisis'.
Click here for the full story

UK house prices up 8.2% in the last year, according to new official measure
House prices across the UK rose by 8.2% in the year to April, taking the average property value to £209,054, according to the new official measure, the UK House Price Index.
Click here for the full story

RTI penalty concession to continue, HMRC reveals
The recent concession for returns submitted late under the new Real Time Information (RTI) regime is to be extended until April 2017, HM Revenue & Customs has revealed.
Click here for the full story

HMRC claws back £540m in unpaid tax
HMRC has reportedly recouped more than £540 million through its so-called tax taskforces, new figures have revealed.
Click here for the full story

Sugar tax may bring 'arbitrary burden', says TPA
The Government’s new 'sugar tax' could impose an 'arbitrary burden' on many families, the Taxpayers’ Alliance (TPA) has warned.
Click here for the full story

Tuesday, 3 May 2016

May 2016 Newsletter

Welcome to the May 2016 Newsletter from Easterbrook Eaton Limited

The beginning of the new financial year has seen the introduction of a raft of changes to tax and business legislation, including the advent of the new National Living Wage, the much-anticipated single tier State Pension, and the abolition of employer national insurance contributions for apprentices aged under 25.

Meanwhile, the EU has presented its plans to introduce new regulations requiring large multinational companies to reveal their European tax affairs. The rules come in the wake of the Panama Papers revelations, and will affect more than 6,000 of the world's largest companies.

Despite recent high profile cases in the media, the fact remains that sensible tax planning within the law remains an important part of your financial planning strategy. By making use of the allowances and reliefs that have been made available, you can remain on course to achieve your business and personal goals. We can help you with this process - please contact us for further assistance.

New tax measures come into effect

A number of key changes to tax legislation have come into effect, following the start of the new tax year. Here we outline some of the measures affecting businesses and individuals.

Business

National insurance for apprentices

6 April 2016 saw reforms to the rules on national insurance, with employers no longer required to pay Class 1 secondary (employer) national insurance contributions (NICs) on earnings paid to qualifying apprentices under the age of 25. This is effected through the new 'zero rate' for 'relevant' apprentices on weekly earnings up to the Upper Secondary Threshold (UST), which is set at £827 for 2016/17.

The exemption has been largely welcomed by the business community. Dr Adam Marshall, British Chambers of Commerce (BCC) Acting Director General, stated: 'Abolishing employer contributions will encourage more businesses to hire young apprentices, at a time when the UK is faced with a growing skills shortage'.

Employment Allowance

Additionally, the Employment Allowance for employer NICs has increased from £2,000 to £3,000. However, companies where the director is the sole employee will no longer be able to claim this allowance. The Government hopes the higher allowance will help businesses with the increased costs associated with the National Living Wage (NLW), which came into force on 1 April for workers aged 25 or over and has been set at a rate of £7.20 an hour.

Individuals

The new tax year also heralds a number of additional changes affecting individuals, with significant reforms to savings, pensions and dividends now in effect.

Personal Savings Allowance

From the 2016/17 tax year onwards an estimated 95% of savers will no longer pay tax on their savings income, following the introduction of the new Personal Savings Allowance (PSA). The PSA allows basic rate taxpayers to earn up to £1,000 each year in tax-free savings income (such as interest), while higher rate taxpayers can receive up to £500 before paying tax on their savings income. The PSA does not apply to additional rate taxpayers.

ISAs

Those saving into an Individual Savings Account (ISA) can now benefit from increased flexibility. Under new rules, from 6 April 2016 savers can replace cash they have withdrawn from their ISA account earlier in a tax year without this replacement counting towards the annual ISA subscription limit.

New State Pension

The much-anticipated new 'flat rate', or 'single tier' State Pension has also now come into effect. The rate of payment has initially been set at £155.65 per week - however, this may vary in accordance with an individual's national insurance record.

Annual allowance

Meanwhile, from 6 April those with adjusted annual incomes over £150,000 will have their pensions annual allowance reduced by £1 for every £2, down to a minimum of £10,000. In addition, the lifetime allowance has fallen from £1.25 million to £1 million.

Changes to dividends

Other significant changes include the introduction of new rules on the taxation of dividends. The 10% dividend tax credit has been abolished from the 2016/17 tax year onwards, and a new Dividend Tax Allowance of £5,000 a year has been introduced. Dividend tax headline rates have also been reformed: the new rates of tax on dividend income exceeding the allowance will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

To discuss how the latest changes may affect you or your business, please contact us. We would be delighted to assist you.

Multinationals to be required to disclose tax affairs

The EU has unveiled new plans that will require large companies to reveal their tax affairs, as part of an effort to reduce large scale corporate tax avoidance.

The reforms, presented by the European Commission, will affect multinationals with revenues of £600 million or more, and come after the criticism of the use of tax havens following the Panama Papers revelations.

Companies will have to reveal the amounts of tax that they pay on a country-by-country basis, along with any activities undertaken in tax havens. Additionally, large businesses will be made to reveal:


  • the nature of any tax activities, and the amount of staff that they employ
  • their total net turnover
  • any profits made before tax
  • the amount of income tax due, and any tax that has been paid.
These rules will not apply to businesses' trade activities occurring outside of the EU.

Mining and forestry companies, as well as banks, are already required to abide by country-by-country tax reporting rules.

The introduction of such rules for multinational companies will mean that around 90% of the world's largest firms will be covered by the proposals.

However, business groups have expressed concerns that the rules will require them to reveal their profits to both the tax authorities and the general public. 

ESSENTIAL TAX DATES FOR MAY
1 May
Start of daily penalties for 2015 online Tax Return not yet filed. Additional penalties may apply for further delay.

3 May
Submission date for P46 (Car) for quarter to 5 April.

31 May
Last day to issue 2015/16 P60s to employees.

QUOTE OF THE MONTH
'The good times for motorists enjoying lower fuel prices had to come to an end at some point, but unfortunately it's happened with a bit more of a bump than motorists were probably expecting.'

RAC spokesman Simon Williams, commenting on the first rise in the price of petrol since July 2015.    

WEBSITE OF THE MONTH
www.realbusiness.co.uk

News and opinions on a wide range of topical business issues.

ON OUR WEBSITE
Updated 2016/17 tax rates
For the latest tax rates and allowances, view the Tax Information section of our website.

Useful information for individuals
Our informative guides include useful tips and strategies to help minimise your tax bill and maximise your wealth. Visit the Your Money section of our website today.

Government to review rules that 'stifle' entrepreneurship
The Government has announced plans to investigate red tape that it claims may be 'stifling' small businesses and entrepreneurship.
Click here for the full story

Chancellor warns businesses not to cut perks to compensate for National Living Wage
Chancellor George Osborne has issued a warning to businesses that choose to cut perks for their employees in order to compensate for the additional costs generated by the implementation of the National Living Wage.
Click here for the full story

Chancellor defends Treasury's gloomy Brexit forecasts
Chancellor George Osborne has defended an analysis of how the British economy would fare in the event of a referendum decision to leave the EU, after Leave campaigners branded it as 'spurious'.
Click here for the full story

Significant rise in buy-to-let lending
Official data from the Council of Mortgage Lenders has revealed that landlords borrowed a total of £3.7 billion during February.
Click here for the full story

Initial rush to cash in pension pots 'has ended', says regulator
There has been a gradual decline in the number of people releasing cash from their pension pots early, a year after rule changes allowed them to do so, according to a report published by the Financial Conduct Authority.
Click here for the full story

Thursday, 31 March 2016

April 2016 Newsletter

Welcome to the April 2016 Newsletter from Easterbrook Eaton Limited

Despite his Budget warning of 'storm clouds on the horizon', Chancellor George Osborne could not have predicted the furore that would follow his 2016 Budget Speech.

In the wake of the Budget on 16 March, the Institute for Fiscal Studies (IFS) issued a warning regarding the Chancellor's ability to balance the books by 2019/20. This news was soon followed by the sudden resignation of Iain Duncan Smith over planned cuts to disability benefits, and the subsequent U-turn by the Chancellor, potentially leaving a £4.4 billion hole in the public finances.

Meanwhile, the Chancellor's plans to introduce a new Lifetime ISA have sparked debate amongst industry experts, with some arguing that the measure could have a dramatic effect on the attractiveness of the pension system to savers.

Chancellor's Budget approved after heated debate

Following a U-turn on his planned cuts to disability benefits, Chancellor George Osborne's Budget was finally approved by MPs during a heated Parliamentary debate on the matter.

Concerns had been raised regarding many of the planned changes to legislation, which resulted in the Chancellor having to defend his Budget amidst calls from Labour for it to be withdrawn. 

In the event, the Budget was accepted after the Government secured a majority of 35, with 310 MPs voting in favour and 275 opting to oppose the plans.

The Chancellor's plans to cut Personal Independence Payments (PIPs) in particular, sparked fierce opposition, with the Secretary of State for Work and Pensions, Iain Duncan Smith, resigning in protest over the issue.

Osborne has now backtracked on these cuts which, if implemented, would have potentially saved the Government some £4.4 billion.

Meanwhile, after the Office for Budget Responsibility's (OBR) downgrading of the UK's economic growth forecasts, the Institute for Fiscal Studies (IFS) warned that the Chancellor only has a 50% chance of meeting his budget surplus target.

In his Budget Speech, George Osborne said that the Government was on course to achieve a £10.4 billion surplus by 2019/20.

However, following the Speech, the IFS claimed that Osborne is 'running out of wriggle room' if he is to reach this target by the end of the decade, adding that, if the Budget forecasts are right, 'we should all be worried'.

The OBR has significantly revised down its economic forecasts for the next five years, with UK economic growth predicted to be just 2% in 2016. At the time of the 2015 Autumn Statement, growth had been forecast to reach 2.4% this year.

The IFS warned that if economic growth deteriorates further, Osborne may be required to raise taxes or cut spending levels in order to reach his target of balancing the books by 2020.

The think-tank also said that the revisions to productivity forecasts would lead to a fall in wages and living standards.

IFS Director, Paul Johnson, commented: 'If there was another downgrade in fiscal forecasts of a similar magnitude and the Chancellor did wish to remain on course to deliver a budget surplus in 2019/20 then this would surely require more real policy change.

'His chances of reaching the surplus are only just the right side of 50/50.'

However, following the Budget, George Osborne insisted that his target will be achievable. He also stated that, in order for the books to balance, the economy must keep growing.

The decision to shelve planned cuts to PIPs means that the Government must now find additional savings to the tune of £4.4 billion. However, further plans are not expected to be announced until around the time of the Autumn Statement.    

Please contact us for advice on how the Budget measures may affect you, or view our summary of the 2016 Budget here.

New Lifetime ISA generates pension industry worry

Chancellor George Osborne's plans to introduce a new Lifetime ISA for the under-40s have created waves amongst pension industry experts.

The measure will enable individuals to save up to £4,000 a year and receive a 25% bonus from the Government for every pound they put in, up to the age of 50.

Both the savings and Government bonus can then be used towards a deposit on a first home, worth up to £450,000.

The new ISA accounts, which are set to be introduced from 6 April 2017, are limited to one per person rather than one per home - so two first-time buyers can both receive a bonus when buying together.

Alternatively, Lifetime ISAs can be used to save for retirement. After their 60th birthday savers can withdraw the savings, tax-free, for use in retirement.

Individuals can withdraw money at any time before their 60th birthday for any purpose, but the Government bonus, together with any interest or growth thereon will be lost. A 5% charge will also be payable.

The Treasury has described the scheme as a 'radical new way for the next generation to save'.

However, pension and insurance industry experts have stated that the new Lifetime ISA could have a dramatic effect on the attractiveness of the pension system to savers and could lead to other retirement options being seen in a less favourable light.

Yvonne Braun, director of long-term savings policy at the Association of British Insurers (ABI), declared: 'This must not be a back door to turning the pensions system on its head.

'A test for the success of the Lifetime ISA is whether it means fewer people will save for retirement, which would not be a good outcome.'

However, those in the investment industry have described the change as an 'exciting development' that could help to cultivate a more widespread savings culture.

The announcement comes after the Chancellor abandoned his plans to implement a radical reform of the tax relief system for pension contributions.

ESSENTIAL TAX DATES FOR APRIL
5 April
Last day of 2015/16 tax year.
Deadline for 2015/16 ISA investments.  
Last day to make disposals using the 2015/16 CGT exemption.        

14 April
Due date for income tax for the CT61 period to 31 March 2016.

19/22 April
Quarter 4 2015/16 PAYE remittance due.

30 April
Normal annual adjustment for VAT partial exemption calculations (monthly returns).

QUOTE OF THE MONTH
'A great many savers will have no idea that, from April, they may for the first time have to check whether they need to report or pay tax on interest they have received, rather than have their bank deduct the tax they owe.'

Chairman of the House of Lords' Economic Affairs Committee, Lord Hollick, commenting on HMRC's 'inadequate' communication strategy that has rendered taxpayers 'unaware' of key changes to the taxation of savings and dividends.

WEBSITE OF THE MONTH
uk.reuters.com/business

All the latest business news and announcements.

ON OUR WEBSITE
Updated 2016/17 tax rates
For the latest tax rates and allowances, view the Tax Information section of our website.

Useful information for individuals
Our informative guides include useful tips and strategies to help minimise your tax bill and maximise your wealth. Visit the Your Money section of our website today.

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