The 2014 Budget Speech took place just a few hours ago, and with it came a string of forecasts for the year ahead. Our Accounting team have unpacked the contents of Chancellor Osborne’s red briefcase to see how today’s speech affects you.
Today, the Chancellor of the Exchequer announced the Budget for the 2014/15 financial year and beyond. Before he even began speaking, there were over 35,000 budget-related tweets. The key themes that emerged during today’s speech were repeated calls for a “resilient economy” with “savers at the centre.” In the words of Osborne himself: “This is a Budget for building a resilient economy. If you’re a maker, a doer or a saver, this Budget is for you.”
Last year, the Office for Budget Responsibility (OBR) forecast 2014’s growth to reach 1.8% before adjusting the figure to 2.4% after December’s Autumn Statement. Today, the chancellor increased 2014’s growth projection to 2.7%, which is the largest upward revision in more than 30 years.
The UK will recover faster than any other Western economy, according to the OBR, while total economic output should surpass the nation’s pre-recession peak as early as the second quarter of 2014.
- The personal allowance will increase to £10,000 from April 2014, and to £10,500 from 2015, resulting in £800 less tax for the lowest paid workers.
- The higher rate tax threshold increased from £41,450 to £41,865 from 2014, and will increase to £42,285 from 2015.
- Enhanced Capital Allowances have been extended for a further three years in enterprise investment zones.
- Business rates discounts have also been extended in these zones.
- The Annual Investment Allowance for new capital expenditure doubled from £250,000 to £500,000, and has been extended to the end of 2015.
- The corporation tax top rate will be reduced to 21% from April 2014, while a further reduction to 20% will take place from 2015.
- Research and Development tax credits have been increased from 11% to 14.5% for small- to medium-sized companies.
- The Seed Enterprise Investment Scheme (SEIS) has now become permanent.
- There will be no more Employer’s National Insurance Contributions (NICs) for under 21s from April 2015.
- The introduction of the £2,000 Employment Allowance in April 2014 will also support businesses to grow and create jobs, lifting 450,000 employers out of Employer NICs altogether.
- From next year, parents will receive 20% off per £10,000 spent on childcare costs (where both parents are working).
- New HMRC powers will be able to collect tax directly from bank accounts from people who repeatedly don’t pay but can afford to pay.
- Users of disclosed tax avoidance schemes and schemes covered by the General Anti-Abuse Rule will also have to pay tax on a dispute upfront.
- EIS and VCT schemes will be reviewed for any use in tax avoidance.
Pensions and savings
- The ISA allowance for cash, stocks and shares will be merged into a single New ISA.
- The Annual ISA limit will be increased to £15,000. The junior limit will be increased to £4,000 from 1 July 2014.
- From April 2015, the 10% savings rate will be reduced to 0%. The government will also increase the band of savings income that is subject to the 0% rate to £5,000.
- The Premium Bond cap will increase from £30,000 to £40,000 from June, and to £50,000 from next year. The number of £1 million prizes will also be doubled.
- Pension lump sum drawings will change from 27 March 2014 – the drill-down limits will become flexible over time, with no need to acquire an annuity. Individuals will be offered free financial advice with regards to new choices. A quarter of lump sums taken from the pension pot are tax-free on retirement, and anything above this will be taxed at the normal marginal rate (20% for most pensioners), instead of 55%.
- Defined contribution pensions will see big changes to the tax rules governing them. The income requirement for flexible drawdown will fall from £20,000 to £12,000; the capped drawdown limit will rise from 120% to 150%; the size of the lump sum small pot will rise five-fold to £10,000; and the total pension savings you can take as a lump sum will almost double to £30,000.
Economy and other
- £108 billion will be borrowed this year; in subsequent years a £5 billion surplus is predicted for 2018 to 2019. Britain will be borrowing £24 billion less than forecast.
- There has been a growth in the economy – predicted growth of the UK economy in 2014 of 2.7%, and 2.3% next year. The economy is back to the size it boasted prior to the 2008 collapse.
- Measures to increase exports by investing £3 billion plus a reform of Air Passenger Duty: “From next year, all long-haul flights will carry the same lower Band B tax rate that you now pay to fly to the United States,” says Osborne.
- The “Help to Buy” scheme has been extended to 2020 for new homes. 200,000 new homes will be built for families.
- A secure, resilient design for the £1 coin will be introduced in 2017 based on the old three penny bit to counteract counterfeit coins (thought to make up 1/30th of existing coins in circulation).
Chancellor Osborne wrapped up his speech with a clarion call to the UK’s money savers, workers and managers. “We’re building a resilient economy. This is a budget for the makers, the doers and the savers, and I commend it to the House.” And with that, an hour after he began, Osborne concluded his speech, paving the way for what he hopes will be a Conservative re-election in 2015.
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