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Summer Budget 2015

Four months after his last Budget, Chancellor George Osborne made his first full ‘Tory’ Budget on 8 July. The last time there was an emergency Budget was after the last election in 2010 and this was the first fully Conservative Budget since November 1996.

Reaction from the CEO

Today the Chancellor set out a budget for working people, but with a much more mixed picture for business. He grasped some of the trickiest issues of recent times, from non-doms, to tax evasion, to living wages and pensions; while planning to reduce welfare spending in the long term. And in his speech he rightly mentioned that business confidence is key. So how much will this budget drive business confidence?

Initial reactions

Economy

Much of the focus in the Summer Budget was on the economic outlook and management of the public finances. Key announcements included:-

  • The UK economy is set to be one of the fastest growing advanced economies.
  • The Office of Budget Responsibility has cut its forecasts for economic growth to 2.4% this year and 2.5% next year.
  • The deficit will be higher every year than forecast in the March budget, pushing out by a year the timescale for returning to a surplus from 2018-19 to 2019-20.
  • During the lifetime of this Parliament, there will be a consolidation of £37 billion of public spending. This includes cutting welfare payments by £12 billion and raising £5 billion from further measures to tackle tax avoidance. Departmental spending cuts will be set out in the Comprehensive Spending Review in the Autumn.

Simon Thompson, Head of Corporate Communications & Media Relations, ICAEW

Business

Many businesses will need to look at the detail in today’s budget. There were a number of complex measures which will affect business and getting an understanding will be key.

  • The introduction of the new £7.20 national living wage coming in April 2016 will affect most businesses and will not be welcomed by smaller businesses, who have to administer it. It is a significant increase on £6.70 previously announced to start in October 2015. 
  • The reduction in corporation tax from 20 % in 2015 to 19% in 2017 is not of immediate benefit, but something businesses can look forward to.
  • Businesses will welcome the reduction in the Annual Investment Allowance (AIA), giving businesses tax relief on capital expenditure. Currently set at £500,000, it was scheduled to reduce to £25,000 from the beginning of 2016 and today has been set at £200,000 for the foreseeable future.

Clive Lewis, Head of Enterprise, ICAEW

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Personal finance 

  • The income tax personal allowance rises from £10,600 in 2015/16 to £11,000 in 2016/17. The higher rate tax threshold will increase from £42,385 in 2015/16 to £43,000 in 2016/17. 
  • The dividend tax credit will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016.  Tax rates on dividend income will be increased for income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. It seems that those with significant dividend income will pay more tax. 
  • It’s good news for those who rent out a room in their own home, as rent a room relief goes up to £7,500 from £4,250.
  • The earlier proposals for a new inheritance tax allowance for the family home will be effective from April 2017. Married couples and civil partners can currently pass any unused amount of their £325,000 allowance on to one another. Under new rules, each individual will be offered a family home allowance to be phased in from 2017/18. This family home allowance will be added to the existing £325,000 Inheritance Tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020/21. The allowance will be gradually withdrawn for estates worth more than £2 million

Anita Monteith, Technical Manager, SME & Personal Tax, ICAEW

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Tax 

  • The Employment Allowance which gives relief from employers NIC for the first £2,000 each year is to increase to £3,000 from April 2016. However, single person companies will no longer qualify for this allowance.
  • Large companies which have taxable profits over £20m, will feel the benefit of this cut more quickly as they will also be paying their corporation tax earlier under an extension of the quarterly instalment rules, which will require the first payment to be made 3 months earlier than currently for accounting periods starting on or after 1 April 2017.

Anita Monteith, Technical Manager, SME & Personal Tax, ICAEW

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Watch the Google Hangout

View a recording of today's Google Hangout, where our expert panelists Simon Thompson (Head of Corporate Communications & Media Relations), Anita Monteith (Technical Manager, SME and Tax), Stephen Ibbotson (Director, Business) and Graham Dale (Head of Public Affairs) gave their reaction to the Summer Budget.

Attend the post-Budget breakfast

ICAEW will be holding a post-budget breakfast event on July 9th starting at 08:00 am.  Our panelists will include FST David Gauke, Enterprise Nation’s Emma Jones, our CEO Michael Izza and others to be confirmed. If you would like to attend this event held at Chartered Accountants’ Hall please send your RSVP here.