The Summer Budget was delivered by the Chancellor of the Exchequer on 8 July 2015. The tax proposals announced in the Budget together with the announcements in the Autumn 2014 statement will be made into law in the Finance Bill 2015 or in secondary legislation. The Finance Bill is currently being debated in Parliament and will become law on receiving Royal Assent in due course.
The notes below provide a summary of the main changes and key points.
Employment Taxes and NIC
National Living Wage (NLW)
The government will introduce a new national living wage (NLW) for workers aged 25 and above by introducing a new premium on top of the national minimum wage (NMW). From April 2016, the new NLW will be set at £7.20 and 50p above the NMW increase coming into effect in October 2015.
The government will consult in autumn 2015 on abolishing Class 2 NICs and reforming Class 4 NICs.
National Insurance Contributions (NICs) Employment Allowance
From 6 April 2016, the annual NIC employment allowance will increase from £2,000 to £3,000. Where the director of a company is the sole employee, the company will not be able to claim the allowance from April 2016.
Taxation of Employee Benefits and Expenses
From April 2016, a statutory exemption will be introduced for trivial benefits-in-kind costing less than £50.
HMRC has published draft secondary legislation for pay rolling benefits-in-kind which has been extended to include all benefits-in-kind other than accommodation, beneficial loans and credit tokens and vouchers. Additional reporting requirements for employers pay rolling cars will be introduced from April 2017.
Tax Relief on Travel and Subsistence Expenses
A discussion paper has been published outlining a potential framework for new rules for the tax treatment of travel and subsistence expenses, following a report by the Office of Tax Simplification (OTS).
Tax Relief for Travel and Subsistence for Workers Engaged via Intermediaries
HMRC has published a consultation document seeking comments by 30 September on detailed proposals to restrict tax relief for travel and subsistence for workers engaged through an employment intermediary, such as an umbrella company or personal service company. The changes will be legislated in Finance Bill 2016 and take effect from 6 April 2016.
Tax Credits and State Benefits
The Budget announcements included significant changes and cuts to the welfare system. Some of the more significant changes focus on tax credits.
Tax Credits and Income Thresholds
From April 2016, the income threshold above which the maximum tax credits entitlement is tapered away will be reduced from £6,420 to £3,850.
Tax Credits Taper Rates
From April 2016, the taper rate for tax credits will be increased from 41% to 48% of gross income. Once claimants earn above the income threshold, their award will be withdrawn at the rate of 48p per extra £1 earned.
Income Rise Disregard in Tax Credits
From April 2016 the amount by which a claimant’s income can increase in year compared to their previous year’s income before their award is adjusted (the income rise disregard) will be reduced from £5,000 to £2,500.
Universal Credit Work Allowances (UC)
From April 2016 work allowances in UC will be abolished for non-disabled childless claimants. They will be reduced to £192 per month for those with housing costs and £397 per month for those without housing costs. Claimants earning below these amounts will retain their maximum award.
Child Element in Tax Credits and Universal Credit
The child element of tax credits and UC will no longer be awarded for third and subsequent children born after 6 April 2017. This will also apply to families claiming UC for the first time after April 2017.
From April 2017, the family element in tax credits and the equivalent in UC will no longer be awarded when a first child is born. This will also apply to families with children making their first claim to UC.
Freeze on Benefits Uprating
Most working-age benefits will be frozen for four years from April 2016. This will apply to jobseekers’ allowance, employment and support allowance, income support, child benefit, housing benefit and local housing allowance. All disability elements will continue to be uprated by prices each year.
Welfare Benefit Cap
The welfare benefit cap applies per household to cap to cap the amount of benefits out-of-work working-age families can receive. This is currently £26,000 but will be reduced to £20,000 (£23,000 in Greater London).
Student Maintenance and Students Loans
Maintenance loan support will rise for students from low and middle income backgrounds up to £8,200 a year studying away from home outside London. From the 2016/17 academic year, maintenance grants will be replaced with maintenance loans for new students from England, pad back when their earnings exceed £21,000 a year.
The government will consult on freezing the loan repayment threshold for the next five years and review the discount rate applied to student loans and other transactions to bring it more in line with the long-term cost of borrowing.
Tax Free Childcare
The new scheme for tax-free childcare (TFC) will now be launched early in 2017. The precise details for TFC will be confirmed in due course.
This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.
Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or firstname.lastname@example.org