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The Chancellor’s Budget, March 2014

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The Chancellor, George Osborne, has now presented his March 2014 Budget to Parliament. There was lots of talk about the economy, growth forecasts, supporting UK businesses and employment – as well as some obvious political spin bearing in mind the European and General Elections are just around the corner – however we thought we’d concentrate on the most important changes, mainly in relation to tax itself as that’s what is going to affect Taxfile customers and readers the most. So here is our snapshot:

For individuals:

  • The threshold before earnings are subject to income tax (the ‘tax-free personal allowance’) is set to rise to £10,500;
  • The higher rate of tax will kick in for earnings above £41,865 from April 2014, rising again to £42,285 in 2015;
  • The first part of the ‘Help to Buy’ equity loan scheme for those aspiring to buy a new home is to be extended until 2020 (previously 2016);
  • The Stamp Duty on homes worth over £500k is to increase to 15% for those which are bought by companies;
  • Inheritance tax will be scrapped for members of the emergency services who “give their lives protecting us”;
  • Cash and Shares ISAs will be merged into a single New ISA (“NISA”). The annual tax-free limit for the NISA will be £15k (£4k for junior equivalent) from 1 July 2014.
  • From April 2015, pensioners will no longer be forced to buy an annuity with their pension fund. They will now be able to cash in as much or as little as they want to from their pension pot.
  • From June 2014, the amount people will be able to invest into Premium Bonds will increase to £40k (from £30k). From 2015 this will rise again to Read more

Annual Investment Allowance

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Capital allowances are set by the government at fixed rates at which a business can claim the expenditure on fixed assets against the taxable profit.

From April 2008 the 50 per cent and 40 per cent first year allowances was replaced with a 100 per cent Annual Investment Allowance for capital purchases in any one year of up to £50,000.

On 6 April 2008 the annual writing down allowance (WDA) for plant and equipment was reduced from the previous 25 per cent to 20 per cent per annum. This writing down allowance is applied to the written down value of equipment brought forward from earlier tax years.

The annual investment allowance applies to all assets categorised as plant and machinery which includes most fixed assets including plant, equipment, fixtures and fittings, computer equipment and commercial vehicles.

Important to note is that qualifying plant and equipment expenditure does not include Motor Cars.

Motor vehicles are now subject to a reduced writing down allowance in the first year of 20 per cent.

The annual investment allowance does not replace the 100 per cent first year allowance schemes currently applicable to various green and environmental schemes and approved research and development projects ( for example Research & Development Allowances or Business Premises Renovation Allowances). So these schemes will be unaffected by the introduction of the AIA. The annual investment allowance is complimentary to these schemes.

Another important thing worth remembering is that for the financial year starting April 2008 small businesses which have a written down balance for tax purposes of under 1,000 pounds will be entitled to write off the total written down value as a capital allowance.

If by any chance you decide selling the asset after claiming the AIA, the proceeds of the sale would go into your capital allowances calculation and you would have a balancing charge to the value of the sale proceeds which would be treated as a taxable income.

If you have any queries regarding AIA or any tax-related matter, Taxfile’s accountants in South London and tax advisers in Exeter are here to guide you through.

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