SBT gives the run down of the good and the bad of November’s Autumn budget announcements; some more surprising than others…
We were all expecting the worst: £4 trillion of taxpayers’ money spent in ways we disagree with. Massive cuts were expected from George Osborne’s mouth on 25th November as the government tries to close the gap between what it spends and what income it gets through taxes: the UK’s deficit. The deficit has been on everyone’s lips in the past couple of months, and it was suggested that Osborne would cut £20 billion from services such as police, businesses, science, local government and justice in the next 5 years.
However, we all ate our words as Osborne announced there would be no cuts, borrowing £8 billion less than forecast – making faster progress towards eliminating the deficit (aimed to be eliminated over the next 4 years) and paying down debt whilst sending a wave of relief for some low-income families who were expecting cuts in tax credit payments of up to £1,200 a year. From April 2016, the basic state pension will rise to £119.30 per week: an increase of £3.35. This will be the highest real terms increase to the state pension for 15 years. Commuters will even benefit from flexible season tickets, and the ability to claim compensation if delayed by more than 15 minutes. Is it all good news though? And how do the changes affect businesses in Sussex?
David Sheppard the Chairman of the Sussex Chamber of Commerce comments: “Although in general most businesses in the country will applaud the spending review it has little new for businesses in the region. As expected there was a heavy emphasis on investment in other geographic areas, particularly the North, Wales and the South West.”
In the Summer Budget, it was announced that three million new apprenticeships would be created by 2020, funded by a levy on large employers. The apprenticeship levy will come into effect in April 2017, at a rate of 0.5% of an employer’s pay bill. A £15,000 allowance for employers will mean that the levy will only be paid on employers’ pay bills over £3 million. Less than 2% of UK employers will pay the levy.
David commented: “The impact on large businesses of the levy on apprenticeships, could act as a tax on jobs dis-incentivising investment on skills and job development even if partly offset by allowances. At least education funding to 16-19 year olds is to be maintained which businesses hope will help develop work ready skills of our young people.”
One of the biggest topics under debate from the Sussex community is the affect that the Autumn Budget decisions will have on landlords and property owners. From 1 April 2016 people purchasing additional properties such as buy to let properties and second homes will pay an extra 3% in stamp duty. Money raised from tax on people buying their second home will be used to help those struggling to buy their first home. This may sound like a positive change, but Mike Chapman, Senior Manager of Corporate Tax at Knill James Chartered Accountants points out: “Firstly, higher rates of Stamp Duty Land Tax (SDLT) will be charged on purchases of additional rental property (above £40,000) from 1 April 2016 aimed specifically at buy-to-let properties and second homes.
“So, there will be pain on the way into the buy-to-let market through SDLT and a second announcement in the Statement revealed an unwelcome Capital Gains Tax (CGT) surprise on exit. From April 2019, a payment on account of any CGT on the disposal of residential property will be due just 30 days after completion. This compares to the current rules where the settlement of the tax due can be anything up to 21 months after disposal depending when in the fiscal year the sale occurs.
What will the affect be on the south eastern property market? Mike explains: “Clearly landlords who have maximised their borrowings with a view to enjoying capital growth may now seek to restrict their financial exposure by disposing of parts of their property portfolios. Where such properties are standing at a gain, disposal before the CGT acceleration is due will clearly be advisable.”
Andrew Watters, Director at Thomas Eggar LLP also commented: “There is to be a reduced time-frame for filing and payment of SDLT from 30 to 14 days which will be challenging. While the policy has no direct consequence for the amount of tax money collected, in practice more people are likely to miss deadlines and so financial penalties will swell the monies collected.
“Similarly, ‘additional’ property owners will face a harsher time frame when they sell as payment of CGT is due within 30 days of disposal rather than linked to the tax year end. As such, sellers and their advisers will need to be working closely on the CGT comp in the process of the sale or risk missing deadlines and facing financial penalties”.
He concludes: “This statement is unlikely to cause too many hearts to go aflutter. It will pull in a bit more tax. It will impose procedural deadlines. And it targets ‘avoidance’ behaviour that few people wish to indulge in. There are some far more meaty proposals already out for consultation.”
David similarly concluded: “In general the statement was not the doom and gloom statement that many commentators expected. Much of what was said was well known in advance and much of the business issues will be swamped by the complete U-turn on tax credits and the maintenance of police budgets.”