Budget 2015 – how will small business owners fare?

With just days to go before George Osborne delivers his pre-election Budget, we look at the changes two of the UK’s leading tax experts expect the Chancellor to announce.

Annual Investment Allowance (AIA)

At successive Budgets, the Chancellor has extended the AIA limit, from a mere £25,000 to £500,000 from April 2014.  This allows businesses to claim 100% tax relief against their profits for tax purposes, on qualifying expenditure.

Chris Sanger, Head of Tax Policy at EY, expects the Chancellor to maintain the higher limit, or even to raise it, “to allow the policy to further support the economy’s expansion.”

Business Rates

The Government has already outlined its plans to overhaul the way business rates are calculated and administered, in what has been described as “the most wide-ranging review of national business rates in a generation.”

Will the Chancellor use the Budget to make any further announcements on the subject?

Chris Sanger said: “How fundamental this reform will be remains to be seen and many will be hoping that the Chancellor will remove constraint that any review should be revenue neutral.”

Business Taxes

No changes are expected to be made to the Corporation Tax rates – the headline rate and small profits’ rates are set to meet at the 20% rate for the first time from April 2015.

However, measures may be put in place to make small business taxation simpler (in theory).

George Bull, Senior Tax Partner at Baker Tilly, said: “If the Chancellor decides to bite the bullet, he may also take steps to harmonise Income Tax and Class 1 National Insurance Contributions (NICs) to simplify payroll for employers and remove the scope for errors.”

Tax Avoidance

The Chancellor is almost certain to announce further tax avoidance measures – not only do they raise funds for a cash-strapped Treasury, but cannot fail to garner support from the public as a whole. A so-called “Google tax” crackdown against multinational companies that ‘offshore’ their profits to avoid paying UK Corporation Tax has been widely predicted.

George Bull said that “an announcement is expected on proposals to introduce ‘special measures’ aimed at deterring serial avoiders and scheme promoters.”

Personal Taxation

We already know that the personal allowance is due to rise to £10,600 from April 2015, but the Chancellor may be tempted to increase this further (as he did during the previous Budget). This has always been a Liberal Democrat target, and may be a headline-grabbing way to ‘make millions better off’, without costing a penny. By not raising the higher-rate threshold by a similar amount, more people will be forced into the 40% band – and will effectively pay for the personal allowance giveaway.

Of course, there could be a sting in the tail, as Chris Sanger points out: “It would be more helpful to the lower paid to increase the threshold at which national insurance is paid.”

Pensions

Last year, the Chancellor announced the most radical overhaul of pensions in a generation (these changes take effect from April 2015). Most experts hope (and expect) that any further changes will be only minor in comparison.

Chris Sanger said: “It will be interesting to see if the Chancellor gives some much needed clarity on detailed taxation implications in the Budget. Worse, of course, would be further tinkering, adding more complexity to the situation.”

However, George Bull suggested that “the withdrawal, or restriction, of relief for pension contributions at the contributor’s marginal rate of income tax is possible.”

Inheritance Tax

The IHT threshold has been stuck at £325,000 for many years now, but many believe that this figure should rise to take account of the massive increase in house prices over the past decade. EY believe there is a 60% chance that the Chancellor will use this Budget to announce an increase in the threshold – which may even rise to £1m by 2020.

Budget 2015

Join us on Wednesday 18th March to find out which (if any) of these predictions were correct, and for a detailed summary of all the most important announcements from George Osborne’s speech.